Compugen Ltd. (NASDAQ:CGEN)
Q1 2013 Earnings Call
April 25, 2013 10:00 am ET
Martin Gerstel – Chairman
Dikla Czaczkes Axselbrad – Chief Financial Officer
Anat Cohen-Dayag – President and Chief Executive Officer
Mara Goldstein – Cantor Fitzgerald & Co.
On behalf of my associates and all the employees of Compugen, welcome to our Q1 2013 conference call. Thanks for joining us. This is a very exciting rewarding time for Compugen after more than a decade of world-class multidisciplinary focused research leading to multiple scientific breakthroughs in the predictive understanding of key biological phenomena documented in part by more than 70 peer reviewed scientific papers. We have accomplished something that many thought was impossible. Compugen now has a broadly applicable and validated computer-based discovery infrastructure that can predict the sequences of novel molecules and their expected biological activity.
During the past three years, we have utilized this capability to address our first focused discovery effort, the discovery of B7/CD28 have been checkpoint proteins. This area of research is one of the, if not the area of highest pharmaceutical interest. The results of this first focused program have far exceeded even our most optimistic expectations and we now have a wide and attractive early stage pipeline in this important field.
More recently as we have begun disclosing product candidate performance, both the potential of these product candidates and the uniqueness of our capabilities are rapidly becoming recognized within the industry and the scientific community. Furthermore, only when one recognizes that all of these product candidates that are now attracting so much interest are the result of using our unique predictive infrastructure in only the first focused discovery program in our selective fields of focus; immunology and oncology. Again the full potential of what has been created at Compugen began to be appreciated.
In view of reaching this critical space for our company, earlier this year, we for the first time disclosed our key corporate objectives for the year. These objectives clearly reflect the power and potential that can now be harvested based on the infrastructure that has been established. I doubt whether any other company in our industry could reasonably set for itself a similar set of annual objectives.
As mentioned in today’s release, a major focus of today’s call will be a review by our progress with respect to each of these objectives. Prior to not doing so, Dikla will address two purely financial subjects for which we often get questions. Dikla will first address the two research funding agreements with base.
Earlier this week, we filed a Form 6-K with the SEC covering the receipt from base of the final $5 million under the second agreement and a modification and combination of the two agreements into one agreement. In her remarks, Dikla will summarize the revised combined agreement and further explain the logic behind our base arrangements.
The second subject that Dikla will cover is our At-the-Market or ATM program Cantor Fitzgerald. The status of this program as of March 15, 2013 was included in our recently filed 20-F for calendar 2012. Today, Dikla will provide more background and the reasoning behind our use of this program.
Before turning the call over the Dikla, I would like to briefly comment on two additional subjects. First, we have recently begun to focus more on outreach to the financial community via meetings with an increasing number of potential institutional investors on a one-on-one basis on all with investment bankers and participating in various relevant healthcare conferences such as the American Association for Cancer Research on Tumor Immunology and the Molecular Medicine Tri-Conference for 2013 and more specifically in the financial world and our presentation at Jefferies, 2012 Global Healthcare Conference and her presentation at Needham Healthcare Conference next week.
Why now? In past years in these types of meeting, we have to spend most of the time trying to convince our listeners and this is true for both the financial world and the industry that we could in fact succeed where some any others have failed with respective predicting potential therapeutic product candidates through understanding key biological phenomenon at the molecular level.
However, without clear evidence of success in areas of high interest of the industry we unfortunately were not very convincing. Now, however with a growing body of such results we are saying that meetings take a completely different, and form and therefore we intend to continue with these outreached efforts in the coming months. I know that for today's call we once again have more participants than in any previous call which may in part reflect these outreached efforts.
The second topic is Neviah Genomics, our joint venture with Merck Serono for the discovery of drug induced toxicity biomarker. In view of the high rate of product failures, due to toxicity this area received some press coverage recently in which Neviah was prominently mentioned leading to some questions to us since we had not discussed Neviah since its formation last year was announced.
Neviah is one of a number of agreements that we entered into during the past years based primarily on past discoveries that we made or systems that we developed, while pursuing our infrastructure building and validation efforts that however are not within our areas of focus. These arrangements provide for the further development and commercialization of certain of these discoveries by others without any financial requirements from us, but in all cases with Compugen sharing in any future success.
And with that I am turning the call over to Dikla. Dikla?
Dikla Czaczkes Axselbrad
Thank you, Martin. As mentioned by Martin rather than review the full financial results for the quarter which are described in today's press release, I would like to take this opportunity to discuss in more details the amended funding agreement with Baize and our ATM equity program Cantor Fitzgerald.
First, I would like to briefly comment on our financial status. The $5 million received from Baize a few days ago are of course not included in our recorded cash and cash related account, which was approximately $25 million as of the end of the first quarter of 2013. In addition this $25 million do not include the market value of our remaining Evogene shares, which has a current market value of approximately $5 million.
With respect to our funding agreements with Baize, we entered into the first of the two Baize agreements in 2010 to allow the continuity of accelerated pipeline program candidate development which was just being initiated at the time. The second agreement in 2011 was intended to help finance the establishment of our California monoclonal antibody operation which is not yet began.
Please note that in both instances the company has sufficient funds on hand to undertake these activities without entering into this agreement. However, doing so would have resulted in higher expenditures and lower cash reserves in the short-term. Since we had concluded that the acceleration of these efforts in support of our new check points and other program was justified in terms of the potential of increased shareholder value. We evaluated various alternatives to allow us to aggressively move forward, but in a manner consistent with our conservative financial management. The Baize agreement met these objectives, providing us with the required additional cash in a manner resulting in minimal dilution to our shareholders.
Earlier this week we announced that the final $5 million investment under the second Baize agreement had been received and thus we had modified and consolidated the two Baize agreements into one agreement. We believe these modifications are in the best interest of both Baize and Compugen.
For those interested in more specific detail as noted by Martin, a 6-K was filed with the SEC on April 26. However the most important changes can be summarized as follows, one, until June 30, 2015, Baize will be entitled to 10% of the net proceed received by Compugen from third parties relating to any of the product candidates from the first and second Baize agreement.
Two, on or before June 30, 2015 Baize must select five product candidates from the total pool of candidates in the first and second Baize agreement. Three after June 30, 2015 base will be entitled to 10% of the net profit received by Compugen from third-parties relating only to the five selected product candidate. Product candidates not selected will no longer be subject to the Baize agreement. So a new warrant for 500,000 profit and shares was issued today in exchange for the existing warrant for the same number of shows. Thus extending the expiration dates to June 30, 2015 and increasing the efficient price to $7.50 per share.
The right of stay to exchange all of its financial participation right for Compugen ordinary shares has been extended until June 30, 2015 and any static exchange will be based on a conversion drive to be determined by the then existing market size of Compugen share subject to both minimum and maximum conversion rates. Finalizing this financial consequences dilution and otherwise of the modified base agreements there are two possible outcome.
First, this Baize does not allow to convert it’s investment of shares, Baize will have the right to receive a percentage of the revenue we obtained from the five products based Baize prior to June 30, 2015. This is important to note that our Pipeline program significantly benefited from the Baize financing in terms of the number of products, timing and cost to shareholders. Therefore we are confident that the net results of these five potential outcome will be very positive for our shareholders.
The other profitable outcome is that Baize will be sized on or prior to June 30, 2016 to convert it into shares, since any such conversion will be based on the trading price of our ordinary shares as the time of such future conversion we expect that these second possible outcome will be most favorable to our shareholders that if we had sold shares to finance these activities.
Before moving to our ATM program I would like to make one further comments regarding the Baize agreement. Due to the very complicated accounting required for these agreements and the existence of options to convert the investment into shares, our financial statements until June 30, 2015 will continue to show in the amount, which however is a purely accounting entry. And will very from quarter-to-quarter based on the market price of our shares.
Now with respect to our ATM program. First I would like to review this. One, on January 11, 2011 we filed a self registration with the SEC covering the offering and sales up to $40 million of our securities. And subsequently we filed a respective supplement covering agreement that cancels (inaudible) for the possible sale from time to time of up to 6 million shares.
Two, no sales were made under the ATM program due in calendar 2011 and then as reported in our recently filed 20-F, from January 2012, throughout March 15, 2013, a total of approximately 2.4 million shares were sold at an average price of $5.58 per share for total net proxies of approximately $13 million. We strongly believe that our ATM program has been very positive for our company and thus we have managed it in an appropriate and beneficial manner in the back interest of our shareholders.
In addition, whether the additional cash from the ATM program eventually proves to have been needed or not, it will still have provided us with much more flexibility and we move our products forward and negotiate potential collaboration arrangements with other companies. As stated earlier, as of March 15 of this year, due to this program our balance sheet has been strengthened by more than $30 million in cash with the resulting share dilution of approximately 6% based on total outstanding shares.
And with that, I would like to turn the call over to Anat.
Thank you, Dikla. As Martin mentioned in today’s call, I would like to briefly update you regarding our progress in meeting each of our key corporate objectives for 2013 that were disclosed in our year-end 2012 press release.
Our first objective for this year is to enter into collaboration arrangements covering the development and commercialization of two or more of the Company’s pipeline candidates. Here, I am pleased to report that significant progress is being made in our ongoing commercialization negotiation and we continue to see increased interest by additional companies in our pipeline candidates. Therefore, we remain confident that we are on track to accomplish this objective.
Our second objective is to choose one or more pipeline candidates for further development through initial human clinical trials for the company. We will discuss progress related to these objective later in the year based on the results of additional scientific studies analyzing the product profile of our leading candidates and after further assessment of the competitive end market outlook for each.
The next objective is to undertake process development towards GMP manufacture of one of our lead Fc fusion protein candidate. We are making good progress towards the selection of a lead monitor for one of our Fc fusion candidate for autoimmune diseases that we then expect to advance into process development. Ongoing studies involve further testing of its efficacy and mode of action in selected autoimmune experimental models.
The fact that our molecules are derived from novel proteins is seen as a significant advantage in terms of their potential value. The opportunity to have a first in class drug is very attractive in the industry. However such novel proteins make the drug research and development process more challenging. To make the right decision throughout the process, we have to uncover through our own research effort much about the biology of the protein; how does it operate, what cells and pathways does it affect et cetera. Although our recollection process is taking us longer than we anticipated, we hope to meet this objective by year-end.
The next objective is to advancing our Pipeline Program the next wave of immune checkpoint based product candidates from our initial focused discovery program and initiate our second focused discovery program. With respect to the first part of this objective, we are aggressively advancing multiple immune checkpoint proteins from our initial focused discovery program. As you know, these highly valued immune checkpoint discoveries are fitting both our Fc fusion immunology and mAb activities for oncology of our pipeline. I will first relate to the immunology arm.
In the area of immunology, we are further testing our overly disclosed Fc fusion such as CGEN-15001, CGEN-15021 and CGEN-15091 in additional mode of action studies and in selected autoimmune experimental model. The goal is to further validate the immune directory activity and to identify differentiating factors from other non-immune modulation that will direct their progress in our pipeline.
In addition, to broaden the opportunity to identify additional effective and unique immunomodulatory products candidate, we have started the manufacturing campaign for multiple Fc fusion molecules selected and prioritized using our proprietary discovery engine. Once available these proteins will be tested using both in-vitro and in-vivo experimental systems already established while advancing the first wave of our Fc fusion candidate with additional systems focusing on key pathogenic pathways in selected autoimmune diseases.
With respect to the oncology arm of our pipeline program in view of the high industry interact in defense of tumor immunology in general due to impressive clinical results of antibodies targeting non-immune checkpoints and more specifically in our current immune checkpoint oncology program, we have decided to focus our oncology pipelines more aggressively than previously planned in the area of tumor immunology. Therefore in addition to the disclosed candidate we have incorporated additional immune checkpoint programs into our antibody discovery pipelines.
As reported in recent press release, the second part of this objective to initiate our second focused discovery program was accomplished in the first quarter.
To diversify our oncology pipeline with an additional class of high industry intellect product candidate we have selected the field of novel targets for antibody drug conjugate cancer therapy and initiated this as our second focused discovery program. Also the excellent progress being achieved in our California subsidiary was an additional factor in making this decision. Cancer therapy through antibody drug conjugate whereby the antibody delivered a cytotoxic drug directly and specifically to the cancer cells to ingest directly killing of the cell is of great interest to the pharma industry.
This is mainly because ADC against a number of target both in solid and hematologic tumors have already demonstrated clinical success. However, we believe that a lack of visible ADC targets provides an opportunity for contingent to serve as a key source of such additional potential target and the antibodies directed against them.
Our ADC target discoveries program research for new high-value targets expressed on the surface of various types of cancer cell that are associated with poor clinical outcome, such as low overall survival and short relapse free survival. A planned additional use of the discovery platform is the identification of (inaudible) targets associated with tumor and responsive to surgeon treatment, thereby potentially providing a more personalized therapeutic approach that is based on the target expression level on individual patients.
We expect new ADC target discoveries to enter experimental validation by year-end that further expanding the scope and diversity of the cancer therapy arm for our pipeline. Our next objective is to conduct initial validation studies of monoclonal antibodies generated by our South San Francisco's subsidiary, against at least three contingent oncology target and has active programs for at least five monoclonal antibody programs by year-end.
A number of immune checkpoint antibody programs are already advancing towards in-vitro proof of concept, testing at our California subsidiary and additional programs are entering the pipeline queue schedule. It is very rewarding to see that less than a year from start-up we have an experienced staff of scientists were executing various therapeutic antibody programs in parallel.
Also the South San Francisco and Tel Aviv’s team have overcome long distances and multiple time zones to develop a similar and highly co-operative working relationship. This has resulted in successful integration of our therapeutic mob research and development capability with our targeted discovery capabilities and allows us to move forward in advancing our programs towards therapeutic product development.
Based on these accomplishments we are confident that we are on track to accomplish these objectives with respect to our monoclonal antibody therapeutics program for oncology. Our final objective that we disclosed for this year is to develop at new platform to enhance predictive discovery of product candidates within the area of protein-protein interactions, a complex area of high industry interest. As stated, this is a very challenging area in the drug discovery field. However, we remain confident that this is an area where our unique predictive discovery capabilities can make an impact. Nevertheless, we are not yet in a position to comment on our expectation for meeting this objective during this calendar year.
Before we start the Q&A session, I would like to discuss one additional subject that we see as very positive for our company. In his remark, Martin mentioned our increased outreach to the financial world. Of equal importance and very rewarding has been our outreach of the scientific and pharmaceutical community to Compugen. Our new discoveries and their quality are now serving as proof of our unique capabilities in addition to generating a lot of enthusiasm on their own. The uniqueness and quality of our efforts can now be clearly evaluated in terms of output by the scientific community and the industry instead of having to rely on our description of our capability.
As a result, we are frequently presenting at some of the most prestigious medical and industry conferences. In such events, we are continuously approached by key opinion leaders for face-to-face meetings to learn about our novel molecules and to explore possible ways of collaboration. These exposure leads not only to the position for our company as an important player in the field, but also attract the further attention of pharma and biotech who are associated with these key opinion leaders, and clearly generate a validation to the importance of our effort and discovery. I hope you found this update useful and will now open the call to questions and answer.
Thank you. Ladies and gentlemen, at this time, we’ll begin the question-and-answer session. (Operator Instructions) In order to provide as many participants as possible with opportunity to ask their questions, we kindly request that you will ask only one question at a time with a maximum of one short follow-up question. (Operator Instructions) The first question is from Mara Goldstein of Cantor Fitzgerald. Please go ahead.
Mara Goldstein – Cantor Fitzgerald & Co.
Thanks, very much. I apologize because I had to hop on the call late, but it seems obviously that you’ve undergone some type of strategic review and implemented a plan behind that and I was wondering if you might just discuss what was the impetus for that? And if at this juncture, you are complete with that or this year more to come?
Dikla Czaczkes Axselbrad
May you elaborate a bit about just verify for us what do you mean with respect to strategic review?
Mara Goldstein – Cantor Fitzgerald & Co.
Well, in terms of – it seems as if you are reprioritizing programs and maybe changing resource allocation, things like that.
Dikla Czaczkes Axselbrad
Okay, I got it. Thank you, Mara. This is very interesting. We are having multiple opportunities in our pipeline and we are advancing forward programs based on priority. You are aware of the fact that we have discovered immune checkpoint program and also other programs that are interrelated to another immune modulation type of proteins or totally other different type of proteins that work for other mechanism of action. And we're pushing forward the immunomodulatory program mainly the immune checkpoint program is very hard forward, but with certain priority.
Based on the current interest in the industry as I said the general interest that the industry has in immune checkpoint and the industry interest in our checkpoint, we have decided that those that we have prioritized to a lower extent in our pipeline, we’ve decided to push them more up in the pipeline in order to make sure that we are using very efficiently the time window that this immune checkpoint programs should meet. I think that probably you are aware of the fact that the results that were generated by Bristol-Myers Squibb for these anti-CTLA-4 and Anti–PD-1 have generated a lot of enthusiasm and other pharma companies were following it with early stage program, pre-clinical Phase I, and we want to make sure that we are extracting the maximal value from our programs that are in the pipeline and this is the reason for the change.
Mara Goldstein – Cantor Fitzgerald & Co.
Okay. Thank you.
The next question is from [Ken Farber]. Please go ahead.
All right, thank you. Even for me and I can feel the excitement here today, so I appreciate this conference call, it’s quite helpful. I have a couple of questions that are sort of older questions, and I just want to get a sense of follow-up. Is the work at the University of Pittsburgh and with Dr. Miller’s Lab at Northwestern continuing?
Yes, definitely, and we are very happy with the work that is done there.
So both of those projects are ongoing?
Yes, definitely. Martin, would you like to add?
No, I just say, I think because these arrangements involve third-parties and they are sort of out of our control. I just would prefer that we not comment on the stated development….
I fully agree, so I was answering for this one, but bear in mind for next time we are not going to provide additional details.
So it puts us in a very awkward position with respect to these other organizations that many of whom we will obviously want to publish or announce results when they feel it’s appropriate for competitive reasons, don’t want to – would prefer that we not keep the world up to-date with what’s going on. So just…
The question I was asking, I was – the only question I was asking in over the years, you have identified a series of collaborations. And as a shareholder, I feel like we are never updated as to whether those collaborations are still ongoing notwithstanding the details of where they are. And it is helpful to know when you’ve made press releases that something has started to also know if it is ongoing or if it’s been completed without necessarily divulging the results of that.
Dikla Czaczkes Axselbrad
At last quarter we do understand and they do want to maintain to [rise rates] what Martin said. I did answer this, but I fully agree with Martin it is. We can’t specify and relates to a specific collaboration, we can have general statement and we will do so.
I also like to make a comment that, as we were built in the infrastructure and validating, the only thing you can validate something as to discover something. And almost all of our higher agreements that we entered into the collaborations of different types, our licensing arrangements, all of them were on these almost accidental, I mean calling accidental was not a good word, because it was a very focused research. But they weren’t in the category of this, of when actually having our infrastructure in place going forward with our first really focused discovery effort twined to discover this, the first ones name to be (inaudible).
So these, I literally, I look at all of these past agreements as kind of the icing on the cake. They are out there, some of them are hopefully, and I expect some of them are going to lead to some nice outcome and appears that, then I can say it’s now, because it was public, it appears that the mix is moving forward nicely. But I would, I strongly infer if anyone is investing in us because of these earlier agreements, they should sell their stock.
That is not the reason to invest in our company. This is the icing on the cake. I mean what we are is a company that is created an amazing infrastructure we’ve now validated it, we’ve proven it with our first focus one where we have vaulted our self into a leading position in one of the if not they are prominent in areas of pharmaceutical research from out and nowhere companies that have been working in this field for decade or more. And suddenly we’re right up there with them with respect to the discovery capabilities and the pipeline that we’ve established.
So I really would hope that people for, whatever their decision is, they should, they really should be looking at our company now with respect to the infrastructure that we have this first and set of products and the types of agreements that we will be entering into as we talked about starting this year.
Mr. Farber, does that answer your question?
Yes. Thank you.
(Operator Instructions) There are no further at this time. Before I ask Dr. Cohen Dayag to go ahead with your closing statement, I would like to remind participants that our 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 039-255-918, internationally please call 972-3925-5918. Dr. Cohen Dayag, would you like to make your concluding statement.
Thank you. I want to thank all of you for participating in today’s conference call. We’re glad to have this opportunity to bring you up to-date with our progress and hope you find this call informative. Last but not least, I personally want to thank all our long-term shareholders for their support and the confidence that they have shown in us. We look forward to providing a further update in our second quarter call.
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