Compugen's (CGEN) CEO Dr. Anat Cohen-Dayag on Q1 2014 Results - Earnings Call Transcript

May.19.14 | About: Compugen Ltd. (CGEN)

Compugen Ltd. (NASDAQ:CGEN)

Q1 2014 Results Earnings Conference Call

May 19, 2014 10:00 AM ET


Martin Gerstl - Chairman of the Board

Dr. Anat Cohen-Dayag - President and CEO

Avihai Shen - Interim Chief Financial Officer


Thomas Wei - Jefferies

Mike King - JMP Securities

Graig Suvannavejh - MLV

Brett Reiss - Janney Montgomery Scott


Ladies and gentleman, thank you for standing by. Welcome to the Compugen Limited First Quarter 2014 Financial Results Conference Call. All participants are present in a listen-only mode. Following managements’ formal presentation, instructions will be given for the question-and-answer session. (Operator instructions) As a reminder, this conference is being recorded May 19, 2014. With us online today are Mr. Martin Gerstl, Chairman of the Board; Dr. Anat Cohen-Dayag, President and CEO and Mr. Avihai Shen, Interim CFO.

I would like to remind everyone that the Safe Harbor language contained in today’s press release also pertains to all contents of this conference call. If you have not received the copy of today’s release, and would like to do so, please contact Marty Rickman, at +972-3-765-8175 or 415-373-0565 extension 320.

Mr. Gerstl, would you like to begin.

Martin Gerstl

Yes, thank you. Welcome to Compugen’s first quarter 2014 conference call. As mentioned by the operator, joining me on this call today is Avihai Shen, who was recently announced as Compugen’s Interim Chief Financial Officer.

I would begin my prepared remarks with some brief comments regarding our financial reports for the first quarter which were issued today. And essentially as expected, Anat will follow me and her prepared remarks were primarily addressed how we are now leveraging our competitive advantages by undertaking a substantial expansion and acceleration campaign with respect to our pipeline program, highlighting some of the ongoing activities and plans in that campaign and some of our achievements today.

My introductory remarks will be very brief but I will be back later since Anat has agreed that I would give the closing comments today. In those closing comments, I would like to provide some perspective on the status and potential of Compugen and the rationale we’re now undertaking the aggressive expansion and acceleration campaign which will be summarized by Anat.

It is my belief that neither our short term nor long-term potential as a company, nor the value of this expansion campaign can be properly evaluated without an understanding of our unique history and resulting current status. With respect to the financial statement issued today, the key items relate to our R&D expenses and cash balances.

As noted in the releases, our R&D expenses are accounted for as both R&D expenses and cost of sales in the statement of operations and as previously disclosed are projected to be significantly higher this year compared to 2013. With respect to cash related accounts, such accounts totaled approximately $118 million at March 31, 2014, compared with $47 million at December 31, 2013, primarily reflecting the net proceeds from the company’s offerings during the quarter of ordinary shares.

With respect to full year 2014 and without taking into consideration any expected or potential cash receipt, Compugen has budgeted total cash uses of approximately $24 million. Although there is substantial increase in available cash, it’s very important to us.

It is interesting to note that our key assets and competitive advantages consisting of a proven and unique broadly applicable, predictive discovery, infrastructure for therapeutics and a world-class early stage pipeline in oncology and immunology, including a large number of candidates based on Novel Immune Checkpoints discovered by the company, are assigned no value in these financial statements. However, these key assets represent the overwhelming percentage of our corporate value and provide the rationale for the ongoing expansion and acceleration campaign that Anat will now address. Anat?

Dr. Anat Cohen-Dayag

Thank you, Martin. In addition to achieving significant progress in our ongoing research and development activities and collaboration discussion for our leading product candidates and with additional resources available from our recent underwritten recent public offering in the U.S., we’re undertaking substantial efforts to expand and accelerate the advancement of additional novel discoveries within our patent program.

As Martin mentioned, my prepared remarks today, we’ll focus primarily on the expansion and acceleration campaigning, highlighting some of our ongoing activities and plans in some of the achievements to-date. I will end my prepared remarks with some updates with respect to some of our previously disclosed ongoing program.

A key factor with respect to initiating our expansion and acceleration campaign at this time and the reason for its focus primarily in the area of immuno-oncology has been our success in the discovery of Novel Immune Checkpoint candidates in a field with a very high industry interest and activity which offers the promise to transform cancer therapy.

In view of the importance of this area to our company, I would like to make a few comments about the immune checkpoint landscape and our position in this field. With the realization that there is no one checkpoint that can widely inhibit all forms of cancer in the majority of patients, drug targeting additional checkpoints have the potential to be of great value, particularly of high industry value would be drug having a first-in-class provision which typically would require a novel target.

This is where our unique predictive discovery capabilities provide us with an important competitive advantage in this heavily research field of cancer and immunotherapy. Unlike many companies pursuing the same few target in this field, Compugen has discovered a large number of truly novel target that providing the potential for first-in-class drug opportunities, evolving possible new modes of action to potentially benefit unresponsive patient population and address anti-cancer indication.

In support of this opportunity, our validation and research effort involving these targets to-date both by us and by world recommend leaders in the field, even though early, are beginning to demonstrate their potential uniqueness relative to other non-check point targets and to each other. These sets Compugen apart from the rest of the field and provide us with a very meaningful potential competitive advantage both from mono and combination therapy.

Of course, being truly novel also means that we need to carry out much of the research and characterization of these checkpoint candidates. Therefore it is imperative now for us to expand and accelerate our research activities on these multiple unique opportunities.

As previously mentioned, our ongoing expansion and acceleration campaign has a primary focus in the field of immuno-oncology. And it’s clear objective is to allow the parallel advancement of multiple immune checkpoint-based product candidate to additional collaborations during 2014 and thereafter.

To support this expansion, during the first quarter, we recruited extra personnel in the field of immuno-oncology, who break enhance our level of expertise in this rapidly evolving area of cancer therapeutics. We established two new cancer immunology groups in Tel Aviv and in South San Francisco. And we added new equipment and technology to increase workload throughput.

We are now generating cutting edge immuno-oncology experimental systems to enable further testing of our multiple candidates. Furthermore, in addition to our internal expansion effort, we entered into new or expanded agreement with leading project research organization and academic research centers.

These efforts enable us to evaluate multiple candidates and extraordinary immunomodulatory functions and therapeutic potential. Such information is essential to quickly and accurately asses the potential value of each candidate prior to entering into collaborations for further development and commercialization.

We are already observing encouraging preliminary results for our multiple checkpoint candidates regarding their functional activities and their expression profile. Our recent data suggest differentiation between candidates, some of these in terms of their expression profile.

Some of the candidates are expressed specifically on epithelial cancer while others are more widely expressed in multiple cancer types in tumor infiltrating immune cells. In addition, our initial results indicate that our various checkpoint candidates are expressed on different immune cell type further supporting their unique function.

As an example, preliminary results suggest that one of our target is expressed on natural killer and T cells and seem to resemble an immune checkpoint receptor analogous to PD-1 while another is expressed on antigen preventing cells and is showing latent like properties analysis to PDL-1. Also using several experimented systems, we have successfully shown that certain of our targets demonstrate immune cell in addition and in some cases this activity was already translated into In Vivo delta.

Our expansion campaign in immuno-oncology is over significantly impacting our South San Francisco subsidiary, which has the acute responsibility of generating therapeutic antibodies for naval targets and moving them forward. This capability which was established by an organization in 2012 enabled us to enter our early stage collaboration with Bayer and to generate and execute a joint preclinical research plan as part of this partnership. This capability will also support our ability to do so in future antibody therapy collaborations and to accelerate development of our internal therapeutic antibody program.

To accommodate this continuing increase in throughput and reduction in development timelines, during the past quarter, senior staff was added to support both alliance and I&D management and the subsidiary is now in the process of moving to a larger facility and further expanding its scientific staff. We are applying various additional antibody discovery technologies, hybridoma and phage display technologies into our antibody discovery process.

These increases in capacity and technical approaches are now aligned parallel for execution of five therapeutic antibody program, one of which is an ADC program and the sixth program is expected to start in the fourth quarter of this year. Antibodies have been identified for all five programs and are now in various stages of authorization.

Beyond creating additional capacity to do more in parallel, another dimension of our expansion campaign relates to extending our capabilities and expertise to allow us to understand future human clinical trials for selected candidates in the field of cancer and immunotherapy.

We are now in the planning stage in this regard and expect to be able to provide more information regarding the actual candidates and the timing later this year. In all of these efforts, an important component, allowing us to move rapidly and with confidence, both with respect to the advancement of our pipeline candidates and the addition of new capability is the expert guidance provided by our newly established Scientific Advisory Board. Our SAB, with which we enter are frequently and regularly consists of well recognized and highly experienced world leaders in our current fields of focus and their very active participation is proving invaluable.

Before ending my prepared remarks, which so far has focused on our expense and acceleration campaign, I would like to briefly comment on the status of some of our ongoing publicly disclosed programs. First, we of course continue to add additional capabilities to our industry-leading predictive discovery infrastructure and expect to be able to disclose some specifics about certain of these new capabilities during the second half of 2014.

Also as previously announced, we’ve discovered five potential targets in our second focused discovery program in the area of antibody-drug conjugate therapy for oncology and these candidates are being aggressively pursued in our validation pipelines. We should be able to also provide updates on this effort within the next several months.

Next, with respect to our Bayer and [Avia] (ph) collaboration, although we are precluded by our agreement with Bayer and Merck-Serono from providing details, I can say that we are pleased with the progress to date and expect to be able to provide some additional information about each before year end. We are also pleased with the progress of our previously disclosed CGEN-15049 immune checkpoint program in oncology, which is one of the five programs now being pursued at our South San Francisco subsidiary.

Currently, the focus is on identifying the functional antibodies blocking the targets inhibitory effects on the immune system and pursuing extended research, exploring the biology of this target in immuno-oncology, which is an important step for choosing the therapeutic antibodies to move forward with and focusing the right cancer indication.

With regards to CGEN-15001, our most advanced candidate targeting autoimmune diseases, we have made considerable progress in demonstrating long-term efficacy and tolerance induction in animal model. The reestablishment of immune tolerance is very attractive focus for a novel therapy of autoimmune diseases that can provide sustained long-term benefit to patients in the absence of general immunosuppression.

In support of these efforts, we recently expanded our long-standing collaboration with Professor Steve Miller from Northwestern University to further study immune tolerance being used by CGEN-15001 and to start translational research using biological sensors from open immune patients. We are also about to enter a new collaboration with an addition leading expert in the field, expanding the translational research activities involving CGEN-15001.

Lastly, with respect to additional industry collaborations, as we have stated many times in the past, the process of entering into collaborations makes it impossible to predict with any degree of certainty, the timing for finalizing a deal. However, we can assure our shareholders that Compugen has both discovery capabilities and specific pipeline product candidates regardless of significant interest to multiple leading companies in our industry.

In this regard, I would like also to point out that the additional financial and other resources, we now have provided much greater freedom, choosing the appropriate time for collaborations on a candidate-by-candidate basis. While in the past, our goal was to license as soon as we were able to obtain reasonable financial terms, now we have the alternative of advancing the development on our own, significantly strengthening our negotiating position and creating greater potential shareholder value from our discovery.

As I assume is obvious from my prepared remarks today, activities at Compugen are both multiplying and accelerating and also as you may have noted, the company has began to participate in more scientific and industry-related conferences. For both of these and other reasons, we are determined that to keep our shareholders properly informed, we will need to significantly strengthen our corporate communication channels and therefore, we are now evaluating various alternatives.

I will last comment before opening the call for questions. In year end 2013, press release and quarterly calls, we disclosed certain objective for the company for 2014. Although, we did not specifically address these objectives to one-by-one in this call, I want to assure you that we remain fully committed to achieving each one of them.

And with that, we will be pleased to answer any questions you might have.

Question-and-Answer Session


Thank you. (Operator Instructions) The first question is from Thomas Wei of Jefferies. Please go ahead.

Thomas Wei - Jefferies

Thanks. Just a couple of questions on -- to clarify you had said you have five antibodies that have been identified in your undergoing optimization at the South San Francisco site, including one ADC and then you also separately mentioned that you have five other ADCs that you are going to provide some additional information for over the next few months. Could you just clarify that that’s 10 in total and for the five ADCs, you are actually going to share with us, what the nature of the target and toxin are?

And then my second question was on -- just in general, is that the predictive signs and platform that you have out there. There has been a little bit of mix data recently on some novel immune checkpoint combinations in alternate tumor, so the one that everybody has been focused on is nivolumab and [AP] (ph) in lung cancer. Do you have ways of looking at those sorts of questions pre-clinically to rationally predict, which combination should be pursued in which solid tumors, or is that really just an empirical exercise of getting into clinical trials and seeing where it works and it doesn’t work? Thanks.

Dr. Anat Cohen-Dayag

Okay. So I will start with the ADC. And indeed, the program is now emphasized with the antibody discovery program at the South San Francisco operation is different from the 5 five that we have disclosed by year end 2013 that we discovered that we’re aggressively moving forward with. As I disclosed, as I stated that possibly by the second half of the year we will be able to stay some more -- to disclose some more information with respect to this program. And indeed, if you are just combining the checkpoints and the ADC, the five plus one indeed you get the number of 10. Okay. So this is with respect to the ADC.

Now with respect to the novel checkpoints and the cancer, indeed the different cancer indications. So there are two fronts to work. I wouldn’t put too much emphasis on our predictive discovery capabilities on this, although I wouldn’t say that it is totally irrelevant. I think that we had some data in order to be able to direct us, but indeed at the end of the day, the final answer would be at the clinical setting testing different checkpoints with cancer patient so -- or the drug with different cancer patients.

So I am sure that I was giving you a very clear answer, but I think that our discovery capabilities can direct us, but I wouldn’t say that this is the one thing that we should focus on and would give the final answer. Definitely, the final answer would be in the clinic. So we are taking everything into consideration and we are trying to single out or differentiate ourselves with respect to, what is it that we would like to pursue in the future with respect to the cancer indication.


The next question is from Mike King of JMP Securities. Please go ahead.

Mike King - JMP Securities

Thank you for taking the question. Thomas just asked the question that I was going to talk about the biology of potential for combination adverse events. So perhaps I will ask it little bit differently which would be, is it your goal when you are searching for novel checkpoint targets to also incorporate biomarker discovery at the same time?

Dr. Anat Cohen-Dayag

Indeed, we disclosed in the beginning of the year that one of our objectives is to establish a biomarker discovery program to support the checkpoints that we are pursuing internally. I need not relate it today. And as I said in the next call probably we will relate it to the specific objectives one by one. But indeed as we disclosed, we did initiate biomarker discovery program, but I can’t say more than that at this stage and I prefer to relate it later in the year.

But I just want to add that with respect to the cancer indications and safety issues, what we are taking into consideration with respect of the different candidates that we have is not only the expression but also the functional activity and the proposed or potential mechanism affection that may differentiate the different candidates not only on the basis of the specific cancers that they are expressed on and this is one thing that is important to take into consideration.

Martin Gerstl

I just wanted to add that in the area of biomarkers, clearly the predictive diagnostic -- the predictive discovery infrastructure that we have provides us with the substantial competitive advantage. So although we are saying we are starting that program like most of the programs we start here, we are starting by building it on the base of the predictive infrastructure.

Mike King - JMP Securities

Right, but it was just seemed to be more logical and efficient to do it as sort of the simultaneous process rather than something that is sort of independent to your target discovery efforts. Does that make sense?

Dr. Anat Cohen-Dayag

I agree. I very much agree.

Mike King - JMP Securities

Thank you.


The next question is from Graig Suvannavejh from MLV. Please go ahead.

Graig Suvannavejh - MLV

Great. Good morning from New York. I just had a few questions. Anat, just to be clear on your prepared remarks with regards to the potential next commercial pharmaceutical collaboration. I don’t know maybe if I read too in between the lines, but are you backing off of formal guidance of you will have a partnership by the end of the year, or is that still a primary objective? I do realize that you have a healthier balance sheet now and maybe you don’t necessarily need to do one, but I just wanted to get a confirmation of what the current policy or goals are?

Dr. Anat Cohen-Dayag

So I do state towards the end of the prepared remarks and maybe it was not very clear, but that we remain very much committed to each and every one of our objectives that we stated in February 2014. And this is -- it’s in our objective.

Graig Suvannavejh - MLV

Okay. Thank you for that clarification. My second question is, I was just curious about the comments around the expanded collaboration with Northwestern University and the PI there. Could you give us some more detail about the types of experiments you are running there with Steve Miller?

Dr. Anat Cohen-Dayag

Not much more without getting any permission from Steve Miller, but the one thing that we do ignore of a translational research in order to be able to practice a very potential more in human systems and these human systems, it’s basically with samples taken from patients with autoimmune diseases. So this is more or less overtaken say without getting more permission from the Northwestern University.

Graig Suvannavejh - MLV

Okay. Great, thank you. And then my last question is just regarding the existing collaborations you have with Bayer and Merck Serono. And I appreciate the comments you made earlier that we should or you would like hope to have updates on how those are going later this year. Is there anything that you can say with regards to any potential milestone payments that you think that you might be entitled to this year? I’m just trying to get a sense of whether -- if there is progress whether you would be entitled to something financially?

Dr. Anat Cohen-Dayag

Well, it is really more or less what we can say that we are pleased with the progress and we expect to share more information during the year, but we really cannot say more than that.

Graig Suvannavejh - MLV

Okay. Maybe I will just ask one last final question and I will jump back in the queue. Just given AACR this year, were there any from a Compugen perspective any great accomplishments or takeaways that you left AACR with relative to coming into the meeting?

Dr. Anat Cohen-Dayag

It’s fair to say having a very, very interesting conference with many advancements that were reported in the industry. And we remain very enthusiastic with the discoveries that we have made. We remain very comfortable with the approach in the company. And you can state by the amount of investments that we are doing in the last quarter in order to advance everything forward. So the only comment is that we remain very enthusiastic following the AACR.

Graig Suvannavejh - MLV

Great. Thank you very much.


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

Brett Reiss - Janney Montgomery Scott

Good morning, everyone. Thanks for taking my questions. Since you’re speeding up all of the discovery program, does that make it more likely there will be several collaborations possibly announced before year end?

Dr. Anat Cohen-Dayag

I think that we will -- we can’t really answer now such question. We will take care to generate the right arrangement partnership. We’ve expected a specific pipeline candidate. I think that maybe generated some misunderstanding because of the question that I was getting. But we are now in a unique situation. On one hand, we have multiple opportunities in our pipeline and we have the resources in order to take them forward. We’re not going to take forward everything we cannot do it, so we will partner some. But I think it is really -- it’s not the right thing for the company now at this stage to say whether it will be one or more and what would be the structure. This is something that we can’t discuss.

Martin Gerstl

So I think that you can divide the issue up into sort of two parts. So one is, will this campaign bring more product candidates to the stage where they could be licensed out on favorable terms? And the answer to that is absolutely, yes. I mean, that’s the whole purpose and what we’re doing. We’ll be moving more things in parallel and so more product candidates will reach that stage where they could be licensed out.

Now with resources we have though, as Anat was suggesting, that there is also the issue of, at what point should we license them out. Keep in mind that the Bayer agreement was at a very early stage and whether or not we will want to continue at that stage or not, we’ll be obviously becoming right that the kinds of discussions that are now ongoing.

Brett Reiss - Janney Montgomery Scott

I get a lot of question from shareholders that if and when the next deal comes out, whether the term of the Bayer deal will kind of a baseline. Since from your comments and answering the question, it seems that you’re opting to hold on to develop the molecules more in-house that cannot assume that the collaboration deal that will follow will be in on even more attractive terms to Compugen versus the Bayer deal?

Martin Gerstl

Every deal is independent, different, and so they’re really -- I mean, without putting any timeframe and no doubt that we will do some interesting deal in the future with much better financials and we’ll do some interesting deals with worst financials. Even though when I say worst, what I mean is that the numbers that you see maybe lower. But you really need to look at each individual candidate and make judgments based on it. Unfortunately given the resources we have now, we can't make those judgments on a candidate-by-candidate basis. But still for financial reasons, we really need to get the -- is like again, get that in that hands of another party as soon as the terms are acceptable. We would like to get better than acceptable terms now.

Brett Reiss - Janney Montgomery Scott

Right. Right. Now, did I hear your comments correctly, later in the year, you’ll give us some sort of timeline on when you think you will have possibly your own molecules in the clinic?

Dr. Anat Cohen-Dayag

Yes. We will receive more information with respect to this year.

Brett Reiss - Janney Montgomery Scott

Okay. Thank you for answering my questions and I’ll drop back. Thank you.


There are no further question at this time. If I ask, Mr. Gerstl to go ahead with his closing statements, 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 1888-269-0005. In Israel, please call 039-255-940. Internationally, please call 972-3-9255-940. Mr. Gerstl, would you like to make your concluding statements?

Martin Gerstl

Yes. Thank you. First, let me say that although these closing remarks will cover our progress by history, they will be very brief. First, it’s interesting to note that like most paradigm shifting companies in any industry, concentrate on what we have to establish to be a predictive discovery company (indiscernible) based company. In the mid 90s, it was a bit small computer company providing special purpose computers to analyze the enormous amount of royal biological data being generated for the human genome project and other DNA sequencing efforts.

Compugen was by the far the world leader in its field and the reason for its success, as has been the case for most Israeli hi-tech companies with the huge superiority of the algorithms it has developed, a capability that Israel is well know for. Unfortunately, Compugen was a world leader in an extremely small market. When I was running the company as Chairman approximately 15 years ago and also the reason why I joined, the company had just discovered through the issue of its initial data analyzing algorithms that certain well established beliefs and molecular biology, actually fundamental belief were not correct.

With this almost unbelievable understanding as the starting point, Compugen reoriented itself to focus on gaining deeper understandings of this phenomena and many other key biological phenomena and then building predictive models based on these understandings.

By 2010, these pioneering efforts by our world-class multi-disciplinary team, has resulted in a unique multi-layered predictive biology infrastructure, integrating multiple proprietary understandings of life at the molecular level.

Our scientific capabilities were recognized by many inactive demeanors due to the very large number of key scientific papers coming from our research team. However, in view of the product failure of so many others in this field, there was a great deal of skepticism in both the pharmaceutical industry and the financial world regarding the [practical] (ph) accountability and therefore the commercial value of our efforts.

But 2010 was a perhaps to date the key year for the company. Anat previously our Head of R&D became CEO and she quickly focused our world leading predictive biology infrastructure to the fields of immunology and oncology with our first focus discovery program in the area of immune checkpoints. And as they say, the rest was history. During the past four years, under Anat’s leadership, the company has leveraged the advantages offered by our unique infrastructure to create in parallel two additional very valuable assets.

A world class early stage pipeline in oncology and immunology likely based on immune checkpoint protein and of course the government capabilities required for early stage product research and development in these fields. And fortunately, the specific initial area of focus of the company immune checkpoint has currently and perhaps the number one [analytical] (ph) and pharmaceutical research, in terms of both therapeutic commerce and commercial opportunity, which brings us to the prices.

Our step forward in our disclosed objectives for 2014, we will of course, continue incorporating further breakthroughs in the undermine science, making further discoveries and interest and advancing the development and commercialization of our existing, excuse me -- LEADS product. But as I last summarized in her prepared remarks, in addition, we have begun an aggressive campaign to leverage our unique and proven capabilities to maximize both short and long-term corporate value.

We thank you for participating in our call today and look forward to communicating to you on our continuing progress and achievements. Thank you.


Thank you. This concludes the Compugen Limited first quarter 2014 financial results conference call. Thank you for your participation. You may go ahead and disconnect.

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Compugen (CGEN): Q1 EPS of -$0.04 beats by $0.06. Revenue of $2.1M (+1231% Y/Y) beats by $0.26M.