Compugen Ltd.
Q1 2017 Earnings Call Transcript

Published: 12 May 2017

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to Compugen's first quarter 2017 conference call. At this time, all participants are in listen- only mode. An audio webcast of this call is available in the Investor section of Compugen's Web site, cgen.com. As a reminder, today's call is being recorded. I would now like to introduce Susanna Chau, Compugen's Director of Investor Relations and Corporate Communications. Please go ahead.

[Susanna Chau:]

Thank you for joining us today. With me from Compugen are Martin Gerstel, Chairman of the Board; Dr. Anat Cohen-Dayag, President and Chief Executive Officer; Ari Krashin, Chief Financial and Operating Officer. Before we begin, I would like to read the following regarding forward-looking statements. During the course of this conference call, the Company may make projections or other forward-looking statements regarding future events or future business outlook, anticipated progress on Compugen's pipeline program as well as commercialization efforts. We wish to caution you that such statements reflect only the Company's current expectations and that actual events or results may differ materially. You are kindly referred to the risk factors and cautionary language contained in the documents that the Company filed with the Securities and Exchange Commission, including the Company's Annual Report on Form 20-F, filed February 16, 2017. The Company undertakes no obligation to update any projections or forward-looking statements in the future. I will now turn the call over to Martin.

[Martin Gerstel:]

Thanks, Susanna. Welcome to everyone on the call. My prepared remarks today will be extremely short. Compugen today is a company with a proven broadly applicable discovery capability, a growing inventory of novel targets, an early stage pipeline with the potential for multiple first-in-class therapies primarily in immuno-oncology, and as announced in our last quarterly call we are currently pursuing business development opportunities in four different and very attractive program areas. However, in spite of this based on many of the questions we receive, it appears that the current focus of our investors and potential investors is almost entirely on when will Compugen sign its next pipeline collaboration. I assume the primary reason for this singular focus on our next collaboration is due to the fact that it has been almost four years since the Company's first such agreement was signed. In this regard, it is important to note that this first collaboration covered two of our multiple pipeline target programs, both of which along with our other programs at that time, were at much earlier stages of research and development that is typical for drug licensing agreements. In any event, although apparently not reflected in our market value, we are extremely proud of our accomplishments since that time as we substantially extended and expanded our R&D infrastructure beyond target discovery and validation and in addition, advanced the first wave of target and therapeutic programs in our pipeline. Thus successfully establishing the foundation that is now enabling us to fully implement our business strategy of pursuing multiple industry collaborations at various stages of development. Obviously none of these business development opportunities would exist today if it were not for the successful infrastructure and product development objectives achieved during these past few years. Achievements that have resulted in today's Compugen, a company with much greater potential for creating substantial and increasing shareholder value based on its unique predictive discovery capabilities and impressive pipeline opportunities. Following Ari, who will highlight a few aspects of our financial results published today, Anat will provide a brief update for each of the four very promising collaboration opportunities that as previously disclosed are now the subject of our business development activities. In addition, in view of the many questions by our investors and potential investors, Anat will be making an exception today and in her prepared remarks she will comment specifically on how we currently see the outlook for additional pipeline collaborations. Ari?

[Ari Krashin:]

Thank you, Martin. The full details of our financial results can be found in the press release issued this morning. Net loss for the first quarter of 2017 was $8.7 million or $0.17 per diluted share compared to a net loss of $8.6 million or $0.17 per diluted share for the first quarter of 2016. We ended the quarter with cash and cash related accounts totaling $54.5 million compared with $61.5 million as of December 31, 2016. The Company continues to have no debt. Our single largest category of expenses remain research and development expenses, which totaled $6.7 million for the first quarter of 2017 compared to $6.8 million in the first quarter of 2016, in both cases representing approximately 77% of total expenses for the relevant quarter. While the level of R&D expenses remain the same, they continue to reflect the shifting of resources within R&D to preclinical activities, primarily at our South San Francisco site supporting COM701 in its path to IND filing planned for Q4 2017 as well as increased activity related to COM902. Looking ahead, as we continue to advance our preclinical programs and enhance our pipeline, we expect that for the full year of 2017 total gross cash expenditure will be in the range of $33 million to $35 million not taking into consideration potential cash inflows from existing or new collaboration. I will now turn the call to Anat. Anat?

[Anat Cohen-Dayag:]

Thank you, Ari. As Martin mentioned, the focus of my prepared remarks today will be an update on the four program areas that are the subject of our current business development efforts. Before doing so, I would like to further comment on what Martin referred to as the apparent key current concern of our shareholders, the timing for our next pipeline collaboration. Since collaborations are an integral part of Compugen's business model, the four year period that has passed since our first pipeline collaboration without any additional one has clearly resulted in increasing disappointment among many investors. In this regard, I can assure you that we too initially assumed this would be a shorter period of time. But following numerous productive discussions with potential partners and in light of rapid and continuing changes in the immuno-oncology marketplace, we reached the conclusion that we should invest the necessary time and resources to translate our multiple novel drug targets into therapeutic products reflecting the stages that are more standard for industry collaboration. The implementation of this decision required time and the amount of time required was longer than what would typically be required for two reasons. First, we had to create the required infrastructure and capabilities to advance our programs. And second, our focus is on novel targets as opposed to commonly known targets. Compugen's approach of basing its therapeutic development on novel drug targets either with no or very limited published scientific data presents the potential to generate first in class drugs offering new treatment solutions, which clearly provides a significant market advantage. But novel targets require comprehensive research assessment, research which typically is already available in the scientific literature for known targets that have been investigated for years. To achieve our goal, we first had to significantly expand our R&D infrastructure to experimentally validate and prioritize our multiple discoveries and only then we could advance selected programs towards preclinical therapeutic development. And while we kept ourselves on the path of building a pipeline of our own product candidates, we had to make sure that we took into consideration the advancement in the immuno-oncology market and science trends to ensure our pipeline consists of competitive product opportunities and this is exactly what we did. This very exciting field is rapidly changing. The understanding of the complexity of the tumor microenvironment, the involvement of various immune cells, the necessity for drug combinations, the various modalities, and mainly the understanding that there is a large portion of resistant nonresponsive patient populations that should be addressed; all of this has been taken into consideration in the construction of our therapeutic pipeline. Today, we are confident that the four program areas discussed in our last call and to which I'll shortly provide an update are aligned with key market trends and currently possess significant potential value for partners. All four now represent opportunities for industry collaboration. Furthermore, we believe that each of these program areas represents a unique and different value proposition for various potential partners. In view of these achievements and the fact that multiple potential partners are currently evaluating our therapeutic candidate, we are now comfortable to state our belief that we should be able to achieve at least one new commercial partnership by the end of this year. Of course as we have stated many times in the past, it is not possible to predict such events with any degree of certainty. The four program areas are COM701, our anti-PVRIG drug candidate; COM902, our anti-TIGIT drug candidate. Each of COM701 and COM902 may serve for mono and combination cancer immunotherapy. Myeloid target for immuno-oncology, which have the potential to serve as complementary portfolio to our T-cell checkpoint program and those of others; and CGEN-15001, our Fc fusion protein drug candidate for autoimmune diseases. In briefly updating these four program areas that are the subject of our business development efforts, I will be focusing my remarks primarily on the potential medical and commercial benefits of each and not elaborate on our continuing scientific and development progress. Three of these four product areas are in the field of immuno-oncology where checkpoint inhibitors are revolutionizing cancer treatment. Checkpoint inhibitors are projected to be the biggest drug class in the industry and the backbone of all cancer treatments. But despite this, only a subset of the patients respond to currently available checkpoint inhibitors; the anti-CTLA4, PD-1, or PDL-1 treatment. Most patients do not have lasting responses to treatment and there is a significant gap to bridge by identifying additional treatment options for non-responsive patients. With the notion that various individual tumor types use diverse checkpoints to block immune responses, there is fierce competition in the field targeting additional checkpoints. We believe that the novel immune checkpoint target candidate that we have discovered should play an important role by offering multiple potential new treatment solutions either as monotherapy or as combination including with existing checkpoint treatments, which is where the field is heading. Our most advanced internal anti-body program in immuno-oncology is COM701 targeting PVRIG. PVRIG being a novel T-cell immune checkpoint also plays a unique role in the preclinically validated and widely pursued TIGIT axis. Each of these two separate pathways removes the break of the immune system in a different way. While our data supports a monotherapy treatment potential for COM701 targeting PVRIG, our prediction and data indicates a combination therapy of COM701 with our TIGIT antibody is likely to generate an increased response in cancer patients. I will first focus on the monotherapy potential of COM701 as a potential first-in-class biologic for cancer immunotherapy. The target of COM701 PVRIG is one of the few novel immune checkpoints that has been described in recent years and our early discovery of it and demonstration of its potential relevance in cancer positions COM701 to be the first PVRIG directed therapy in the clinic. In addition, our preclinical data indicate that COM701 should successfully combine with both TIGIT and PD-1 pathway inhibitors providing an opportunity to treat patients who are refractory to existing immunotherapy. The potential for combination therapy in immuno-oncology is a significant opportunity to increase the response rate of patients for which anti-PD-1 or PDL-1 drugs do work in addition to potentially being effective in patients who do not respond to these drugs. With hundreds of drug combination clinical trials, it is strongly believed that the key driver for an optimal combination is one where a strong biological rationale exist for the two drugs to work in synergy. The fact that PVRIG and TIGIT are different, but comprise complementary inhibitory pathways, strongly supports this notion. We believe that our unique and novel drug combination is posed to serve a significant unmet need in immuno-oncology and will hopefully generate a significant opportunity in treating PD-1 or PDL-1 non-responders and for combination of first-line treatment for new cancer indication. As we disclosed last week, we intend to share new information on our COM701 program in ASCO, a major clinical conference for breakthroughs in cancer therapy to take place next month. Moreover, we are planning our first clinical investigators meeting to take place at ASCO with a select group of leading clinicians to discuss the path to the clinic of COM701 and possible investigator involvement with a trial. On the development side, CMC activities and non-clinical safety studies are in progress and proceeding according to timeline. From computer prediction to functional activity in preclinical models, COM701 targeting PVRIG is on track for IND filing in Q4 this year. Following COM701 in the Compugen pipeline is COM902 targeting TIGIT. During the first quarter, we reached another important pipeline milestone, which we previously announced, regarding the selection of a lead candidate for our TIGIT program. As was previously mentioned, we identified TIGIT using our predictive discovery platform and published it as an immune checkpoint in parallel with publication of other groups. COM902, the lead anti-TIGIT clinical candidate, is our second advanced internal asset having progressed from computer prediction to preclinical development. It is a very high affinity antagonist antibody selected for its ability to activate T-cell responses both alone and in combination with COM701. While currently there are multiple ongoing development efforts of therapeutic antibodies for TIGIT by other companies with the most advanced having recently entered Phase I, we believe that the combination of COM902 with COM701 generates an opportunity for unique clinical differentiation of our TIGIT program from others. From a business perspective, the combination of COM701 and COM902 provides multiple partnering opportunities based on the content of a potential partner pipeline. On the development side of the COM902 program, a cell line for the use in clinical manufacturing is currently being generated and we look forward to providing further details on the program as it progresses through preclinical development. Our third immuno-oncology program consisting of a group of novel myeloid target is at an earlier stage than COM701 and COM902 programs with one of these myeloid targets being at the therapeutic antibody discovery stage. It is believed that myeloid cells create an immunosuppressive tumor micro-environment that prevents T-cells from entering the tumor and fighting the cancer. This concept supports myeloid targeting approaches as both monotherapy and combination therapy with other immune checkpoints. Therefore, it was logical for us to extend our proven immune checkpoint discovery capabilities into the discovery of myeloid targets enabling the expansion and diversification of our pipeline to include such targets. This expansion was also driven by the fact that the current efforts in this new field in the industry are directed against a limited number of known targets. Therefore, there is a growing interest in the industry for such novel myeloid programs even at an early stage. During the past quarter we were pleased to announce the addition of Professor Miriam Merad from Mount Sinai, an expert in clinical myeloid biology, to our Scientific Advisory Board leveraging her vast experience in the field for the development of powerful myeloid-based therapeutics. Our fourth program area relates to CGEN-15001, our Fc fusion protein product candidate for autoimmune diseases. While there are a number of agents for autoimmune diseases, it is estimated that two-thirds of the large patient population with autoimmune diseases suffer from inadequate response to currently available therapies, the most common being anti-TNF drugs. In addition, currently available anti-TNF therapies are approaching the tail-end of their patent life. These medical and commercial needs of the $70 billion auto immunity therapeutics market are driving the industry interest towards alternative and new therapeutic approaches including induction of immune tolerance and a number of deals were recently signed for preclinical autoimmune assets. Leveraging the success of immune checkpoints for autoimmune diseases is a new concept in the field of autoimmune diseases, which may well address the need for immune tolerizing agents. CGEN 15001, Compugen's third internal preclinical pipeline asset, clearly presents a differentiated value proposition as a first in class therapeutic agent of a novel inhibitory checkpoint pathway potentially providing a paradigm shift in the standard of care. As we have stated previously, due to our immuno-oncology focus, we do not intend to advance this program towards the clinic on our own and we have been experiencing a high level of interest from the industry. Next week we will provide a podium presentation at the Immunology 2017 Conference with data highlighting the potential for CGEN 15001 to be a first in class biologics to induce immune tolerance. I began my prepared remarks today by addressing the apparent key current concern of our shareholders that is the timing of our next pipeline collaboration. Hopefully, the brief program area update I have just provided will help you to put in perspective my earlier statement regarding this specific issue that is we are confident that the four program areas are aligned with key market trends and currently possess significant potential value for partner. All four now represent opportunities for industry collaboration and as I stated earlier, we believe we should be able to achieve at least one new commercial partnership by the end of this year. Thank you and we'll now open the call for questions.

[Operator:]

Thank you. Ladies and gentlemen, at this time we'll begin the question-and-answer session. [Operator Instructions] The first question is from Brian Coleman with Hawk Hill Asset Management. Please go ahead.

[Brian Coleman:]

My question is on PVRIG and COM701. You've talked about the potential of COM701 as a monotherapy and a combination therapy. You've also talked about it as being highly correlated with the expression of PD-1. And I'm curious if you could just give a sense of how significant you think the PVRIG pathway is relative to PD-1 and is it right to think about those two checkpoint pathways as kind of co-equal with PD-1 simply being the first among equals? And then what is your current view as to the potential size of the market for PVRIG antibodies relative to PD-1 antibodies?

[Anat Cohen-Dayag:]

Maybe I'll first answer the second question and then we'll go to the first one that involves various parameters. With respect to the size of the market, I think that if you see the current trend, it is clear that there is no one treatment that fits all and more than that, the treatments are targeting a care specific population even within a specific cancer type. And more than that, the market is heading towards combination and not only combination drug, combination treatments; but also people that are now tested in the clinic. So, it means that the biology is more complex as always than we think and the more the science is explored in the field of immuno-oncology, it is understood that the market will be segmented. It is really hard now to predict what would be the size as much as up until now also for the current treatment, it is not clear whether the projections will be the right projections. We learn every day new things also about the drugs that are already in the market. So, that's on the market front. But it is clear that immune checkpoints are required. The notion that different cancers evolved to use different checkpoints in order to deal with a complexity of the immune system is out there and while PD-1 and PDL-1 are representing a prominent pathway in the discussion between the cross stop between the cancer and the immune system. It is still clear that the majority of patients are not responding not only within the indications that are targeted by these checkpoints, but also with other indications. So the need is there, checkpoints are needed, combinations are going to be probably dominating this field; it's hard to assess the market size. So, that's one for your second question. With respect to the first question, addressing the question that you just asked with respect to them being equal or one dominant on top of the other. This is really what we were trying and still trying to address even before getting to the clinic, understanding the biology behind this novel target. It relates to the expression. What does it mean related to it that it has a similar expression profile as compared to PD-1. Is it redundant? Not necessarily even if you sit in the same samples. Is it on the same sales, is it under the same conditions, is it at later times after PD-1 is presented on the [indiscernible] and therefore target a different patient population? There are many questions to ask and this is only about the expression profile and we are exploring all these. The collective data that we have seems and this is not only in the individual functional studies and the individual functional studies either in syngeneric models or in knockout mice and expression data. The totality of the data suggests that this checkpoint is important in the cross-stop between the cancer and the immune system and it should affect the function of the immune system against the cancer. This is the data that we have. We hope to share more data in ASCO as I stated in the prepared remarks. And I can't say specifically whether it is going to be more dominant, less dominant, equal; it is hard to say and for sure the data in the clinic will shed more light of it. But the current data that we have, the preclinical data package that we have indicates that it is an important checkpoint.

[Brian Coleman:]

My follow-up question. You mentioned that the nature of novel targets has naturally extended this process from target validation to product development and having a therapy that you can turn around and engage pharma with in potential collaboration discussions. The question is how does the novel nature of your discoveries then affect the time to actually sign a collaboration? Is there an extended period of time that your potential collaborators need? Is it significant over what another PD-1 kind of collaboration would look like? And how does that affect the actual time to actually signing a collaboration deal?

[Anat Cohen-Dayag:]

It's a very good question and actually there are two parts for this answer. First, the novel targets as I stated and also in the past not only in this call, you need to make sure that you build the biology around these novel targets. And this definition that we use for novel targets, I also related to it in the past, is different from what the industry is using. When the industry is talking about novel targets, usually these are targets that were explored in multiple scientific publications, in academia for years, and a lot of biology is known around these targets; and usually when one starts a therapeutic program against this target, they can immediately jump into a therapeutic development program. When we are saying novel targets, what we mean is targets that we usually identify a new function to a protein and we need to catch up with the biology that is usually found for known. So, that takes time and this is what I was talking about here. Talking about partnerships, there are two things. First, it is not that common to work on the type of novel targets that we are dealing with so partners are not used usually to look at these type of targets with the amount of the biology that is behind them. We use the time in order to get to the stage now that we can sit here today and tell you that we are in line with market trend and that we think that these are representing potential assets for partner, but we had to invest time and resources in order to get there. In evaluating novel targets, of course potential partners can trade information in the public domain about these targets and get the sense from external validating entities in the form of scientific scientists from the academia about this target. So the data and the package and the material is with Compugen in most of the cases and if not all the data, but most of the data is with Compugen. So yes, so there is an evaluation period that I would just guess that is longer than one can also do in pilot from searching the public domain. So in general, yes, it affects the timing.

[Brian Coleman:]

Okay. Can you just give us a quick update on where the search for a new Chairman is? That would be terrific too. Thanks.

[Anat Cohen-Dayag:]

So, I'll relate to this and we'll then move to the next question. So just with respect to the search, we did not refer to it when we disclosed it. But since we got questions about it, it is important to say that we're not limiting the search only to Israel. We hired a U.S. based recruiting firm that is helping us with the search. We're working closely with them. And as we stated, we're looking for the appropriate person with the required capabilities and experience to replace Martin and we're not in a rush. Martin is not in a hurry and we are not under any rush. So, that's the update for the process.

[Operator:]

The next from Denis O'Hara from Wells Fargo Advisors. Please go ahead.

[Denis O'Hara:]

Just a quick comment. I thought you guys did a nice job on controlling expenses in the quarter. Related to that, Ari or Anat, could you just give me an update on R&D headcount? What's that number roughly right now?

[Ari Krashin:]

So Denis, the exact number is that of importance. Overall we have about 95 employees in the Company, about 75%, 80% of those employees are R&D related.

[Denis O'Hara:]

Okay. That answers the question. Anat, just pivoting a little bit to TIGIT, I know Brian was mostly asking questions around PVRIG. The market opportunity for TIGIT, would you answer the question in a similar fashion as you did regarding PVRIG? Does TIGIT represent an opportunity that's equal to or could potentially be bigger than either PD-1 or PVRIG?

[Anat Cohen-Dayag:]

It's a good question. I would say that with the totality of the data for TIGIT from the preclinical trials because there is no data from clinical trials and I'm trying to compare here the preclinical, I tend to think that TIGIT is also an important checkpoint. Whether it will be equal to PD-1 or PVRIG or better or less dominant, it's hard to tell. It's a different checkpoint today, it's a different pathway than the PD-1, it has its own opportunities; hard to tell whether it is going to be better or not. If I would need to focus only TIGIT, I would probably say that it has potential as well. So, that's something that relates to TIGIT. I would say that and this is I think is important for investors that are looking at Compugen, I would strengthen the fact that we also have COM701 and we have COM902 for TIGIT. The fact that these two checkpoints are different as I related to them now, but are also complementary, they are actually targeting the same axis; but are inhibiting two different pathways with this axis. This is what we're focusing. It's generating what we think is getting the best out of each. Not to say that monotherapy won't work, but really what we see as the differentiation in this field is the fact that we can enjoy from the two worlds and combining the two.

[Denis O'Hara:]

Okay. The upcoming presentation at ASCO in June around COM701, there will be new data I presume. Does that new data have any connection to or could you just answer the question if you've been able to obtain KO mice for TIGIT?

[Anat Cohen Dayag:]

So, we can't really disclose due to ASCO regulations as well not only because of us what we're going to discuss at ASCO so that's very sensitive. But as I stated, we're working on all fronts both on COM701 and COM902 in order to be able to explore each and in combination and we'll be happy to discuss after ASCO and after we present the data out there.

[Denis O'Hara:]

Okay. But you're not willing really to comment right now on whether you've got the TIGIT KO mice?

[Anat Cohen Dayag:]

The knockout mice, no, I can't comment on this.

[Denis O'Hara:]

And then lastly on Bayer, there was no mention, should I take that to mean that things are moving along as planned with Bayer and there are no changes? Thanks.

[Anat Cohen Dayag:]

So, I'll tell you. With respect to Bayer, you understand that we're bound to confidentiality and that we can't update about the programs as much as we want, we need to get Bayer's approval. And we do work with them from time to time closely in order to share more information on the programs. As you are aware of the fact, the last update was given in the R&D Day for Investors in December and also in the future we'll continue to work with them in order to provide additional updates.

[Operator:]

The next question from [indiscernible]. Please go ahead.

[Unidentified Analyst:]

My question was asked and answered. Thank you, Anat.

[Operator:]

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

[Brett Reece:]

On the website, there was a job opening posted for a Director of Program and Alliance Management, which seems to be critical if you're able to before year end announce a collaboration, has that position been filled?

[Anat Cohen-Dayag:]

No, but we are I would guess very close to fill it. It is not a new position. It's a replacement and for a long time we had this position in place and we're now in a replacement process.

[Brett Reece:]

Because I do get a lot of questions also. Could you be a little bit more specific on why you're confident that you'll be able to announce a collaboration before year-end because the last few years you've been very reticent and hesitant to make that kind of representation? What gives you greater confidence now than in the near-term past?

[Anat Cohen-Dayag:]

So, we used this four years in order to be able to advance the programs that we have to stages where it is more common to the industry to get into collaborations. We also took into consideration the market trend. So it's not that all the programs are at the lead stage and preclinical stages, some of them are much earlier than this, but we feel that they are aligned with market trends. Also as I stated, we experienced high industry interest and we felt more comfortable to give the statements that we gave. And the reason that we focused this call on this is because we understand that this is a major concern and focus of our investors and wanted to make sure that we address it.

[Brett Reece:]

When you say that you've gotten indications of high industry interest, has that risen to the level where you've been offered lowball offers of monetary consideration for collaboration, which you just choose not to enter into?

[Anat Cohen-Dayag:]

We thought very carefully on what we are sharing and this is a very sensitive information and we can't comment about specifics on this. This information is sensitive in the process so I prefer not to answer this.

[Operator:]

There are no further questions at this time. Dr. Cohen-Dayag, would you like to make a concluding statement.

[Anat Cohen-Dayag:]

Thank you. I wish to thank all of our investors for their continued confidence in and support of Compugen and we look forward to sharing with you our future accomplishments in 2017.

[Operator:]

Thank you. This concludes the Compugen Limited first quarter 2017 financial results conference call. Thank you for your participation. You may go ahead and disconnect.