Compugen Ltd.
Q3 2014 Earnings Call Transcript

Published: 29 Oct 2014

[Operator:]

Ladies and gentleman, thank you for standing by. Welcome to the Compugen Limited Third Quarter 2014 Financial Results Conference Call. All participants are at 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 October 29, 2014. With us online today are Mr. Martin Gerstl, Chairman of the Board; Dr. Anat Cohen-Dayag, President and CEO and Mr. Avihai Shen, 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 a copy of today’s release, and would like to do so, please contact Avihai Shen, at [phone]. Mr. Gerstl, would you like to begin?

[Martin Gerstl:]

Yes, thank you. On behalf of all us at Compugen, welcome to our Q3 2014 conference call and we thank you for participating. Also looking at the participation list, I am very glad to see that once we have a record number of participants on our call. I’ll begin today with a short introduction followed by Avihai Shen, Compugen’s recently appointed CFO participating in his first quarterly call with us who will comment on a few key items reported in our financial statements. Anat will then provide the major portion of our prepared remarks with a discussion of some of our recent achievements including as mentioned in our last call and update on our progress with respect to our 2014 objectives. My comments today will be very brief consisting only of stating again Compugen’s corporate mission and making two points regarding our progress in pursing it. Compugen’s corporate mission is to create substantial, medical and shareholder value by utilizing predicted biology to become a primary source to the biopharma industry of novel first-in-class drug candidates for major unmet medical needs. This is not a slogan, but rather has been the driving force for our company since shortly after I became Chairman in 1997. Therefore this should be kept in mind as you evaluate the company and its progress. My first point is that I believe a quick review of our press releases over the past decade or so, will make it apparent that the seemingly separate achievements reported by us fit together nicely as building blocks in creating, validating, enhancing, diversifying and more recently expanding the capacity of our industry-unique predictive therapeutic discovery infrastructure. Furthermore the resulting very attractive early stage pipeline of potential first-in-class drugs demonstrates that this is in fact the type of underlying capability required to achieve our mission. The second point and one that makes our current situation even more exciting is that these building blocks have come together to create an increasing number of commercial opportunity at the same time as our available resources have sharply increased, providing us with the flexibility and time to properly pursue them. Of course financial considerations must still be weighed; however, they no longer represent an overriding constraint to our progress. These two points have allowed us to expand our business strategy as we address these broadening commercial opportunities so that obtaining maximum shareholder value from our unique discovery capability can now be the primary driver in our decision making. Anat in her prepared remarks following Avihai will be reviewing and providing perspective on some of our key recent achievements and in doing so, will also provide an update regarding our 2014 disclosed corporate objectives. In addition, Anat will provide further calcification regarding our realigned business strategy. Now in turning the call over to Avihai, I want to again warmly welcome him to our company where as he is already making a strong positive impact. Avihai?

[Avihai Shen:]

Thank you, Martin for your warm welcome. Before relating to the company’s finances at the end of the third quarter, I just want to say how excited I am excited about joining Compugen and its dedicated management team. I look forward to working closely with Anat and Martin and to building our company’s rewarding shareholders. Now back to our financial highlights. In general, the third quarter of 2014 was in line with our expectation. Revenue for the third quarter of 2014 were $1.7 million compared with $1.6 million for the same period in 2013. During this quarter as one in the comparable one, most of our revenues consisted of recognition of the relevant portion of the upfront payment of $10 million related to our collaboration with Bare Healthcare announced in August 2013. To date we've recognized approximately $7.7 million of the $10 million and we expect the remainder to be recognized over the next few quarter. As a reminder on October 14, 2014, we announced that we had achieved second milestone for one of the two product candidate forming the bases of our culture, immunotherapy collaboration with Bare. Achievement of this milestone entitled Compugen to an additional $6 million and this amount will be recognized as revenues in the next quarter. As mentioned in the past, while we believe that ultimately Compugen's main source of future revenues and profit will be for milestone payment and royalties, in the near term it will likely consist of upfront fees, research revenues and free clinical milestone payment. R&D expense this quarter was $3.9 million compared with $2.8 million in the same quarter of 2013. The increase in R&D expenses reflect a significant increase in activities for our U.S. operation in South San Francisco resulting for high connected month, discovery, and development activities for our pipeline program candidate and the hiring of additional professional employees to perform these activities. During the second quarter of this year, this operation moved to larger facilities in order to accumulate discontinuing growth. Moving now to our overall cash position, as of September 30, 2014, we had approximately $107 million in cash and cash related accounts compared with $47 million as of the beginning of this year. This substantial increased cash position allowed us to enhance our discovery capabilities to advance multiple pipeline candidates in parallel and to pick the most advantageous commercialization of the facilities for our company and its shareholders. And with that, I would like to turn the call over to Anat. Anat?

[Anat Cohen-Dayag:]

Thank you, Avihai. And I also want to extend my warm welcome to you. As Martin mentioned, my prepared remarks today will include a review and sum perspective on certain recent key activities and include an update regarding the current status of our 2014 objectives. I’ll start with the progress achieved with respect to target candidates in our pipeline program. With respect to our B-7328 slide target candidate, which comprise a majority of our pipeline program candidate, six of our 11 computer predicted Novel union Checkpoint candidate have demonstrated initial successful biological validation, supporting their involvement in tumor immunology. To our knowledge this hit rate is unprecedented. In addition the remaining five target candidates are undergoing further validation studies all in keeping with our goal to aggressive advance in parallel multiple immune Checkpoint target programs for cancer and pneumotherapy. The result of these B-7328 slide candidates, not only illustrates the impressive power and accuracy of our unique predictive discovery infrastructure, but also suggests that our target candidate possessing different characteristics could potentially give rise to multiple first-in-class cancer therapeutic. With respect to our partners pipeline program candidate, we were very pleased to report the achievement of two milestones totaling $7.2 million for one of the two B-7328 slide target, licensed to Bare Healthcare for cancer and immunotherapy. These milestones are indicative of the progress of the collaboration, but also serve to validate the power and applicability of our discovery approach. These achievements were included in our objective for 2014, with respect to obtained goals and milestones for existing collaboration. We are also pleased with the progress being made at Neviah Genomics our joint venture with Merck Serono. Another pipeline objective for 2014 was to select a product candidate to be advanced by us to future clinical trial. We're currently engaged in selecting the target program to advance towards clinical development and expect to disclose more specific information in the near future. In addition to our efforts with respect to target candidates in our pipeline program, substantial efforts were undertaken during 2014 to provide expanded capacity, new capabilities and accelerate the timeline for the various activity. Our unique situation in the market with multiple and novel target candidates require the development and implementation of the parallel approach for the validation of multiple target candidate. This included the establishment of sophisticated state-of-the-art experimental efficient system to allow us to test and advance many target candidates at the same time. We're already obtaining benefit from this expansion and enhancement. As of now, we have successfully increased the number of B-7328 programs moving forward in parallel and have initiated validation activities on additional types of immune regulation target and targets for ADC therapy and we hope to provide additional information with respect to these activities in the next couple of months. Success with these activities should create new business development opportunities. Moving to our discovery capabilities, we continue to invest effort in the discovery of additional target within the area of immune oncology. In addition, during the most recent quarter, we utilized our discovering capabilities to further enhance the value of certain target candidates in our pipeline program consistent with two specific objectives for the year. Establishing a biomarker discovery program for selective Checkpoint candidates and utilizing the company’s predictive discovery infrastructure to further enhance the intellectual property position of selected product candidates. In recent years and significantly accelerating in 2014, we are accumulating a growing body of positive and very promising data for a number of the target candidates being advanced, some of which will be disclosed in the coming months. We are very excited that the number of these target candidates represent potential first-in-class predictive opportunities in perhaps the most attractive areas of cancer therapy. These and other recent achievements have resulted in additional and more diverse collaboration opportunities for us to consider as we pursue our mission and we have expanded our business strategy accordingly. This expanded business strategy facilitated by our successful achievements in a number of programs and our confidence in our discovery capabilities is a very important change for us moving forward. This change combined with our stronger financial position in large part, have resulted in our not entering into another collaboration agreement as provided in one of our objectives for the year. Therefore I would like to conclude my remarks with some further clarification in this regard. Our impressive results with respect to our pipeline Checkpoint program along with extensive capability enhancement and capacity expansion are now providing us with the possibility of different types and potentially more valuable commercial opportunities. Also as described by Martin, the substantial increase in our financial resources has provided us with a financial strength required for the practical consideration of these additional opportunities. Therefore, with respect to the pipeline program execution and collaboration opportunities under our expanded business strategy, we're now focusing on maximizing shareholder value without the previous overriding financial constrains. This could include under proper circumstances investing more in a candidate or in a collaboration that accepting a certain level of additional financial risk in return for potentially higher future returns of success. We are confident with the very positive recent changes in our corporate status that we have outlined this extended business strategy has the potential to more fully leverage our pipeline program candidates and to seek a more progressive discovery capabilities unique to our company for the benefit of Compugen and shareholders. The call is now open to any questions you might have.

[Operator:]

Thank you. Ladies and gentlemen, at this time we will begin the question and answer session. [Operator Instructions] The first question is from Thomas Wei of Jefferies. Please go ahead.

[Thomas Wei:]

Hi thanks, just a follow up on that last point about not entering into another collaboration agreement this year. I guess then can you give us a sense does that mean that you want to hang on to your various targets in the drugs that you're developing against them to clinical trials and that you feel like you have the financial resources to pursue, so I guess how many drugs do you or targets do you think you have the financial resources to parallel track all the way through to clinical trial?

[Anat Cohen-Dayag:]

It is a good question Thomas, thank you. And yes I will elaborate on this a little bit more, we do have two key objectives as a company we would like to make sure that we get value for our shareholders. One is to make sure that we advance in parallel the multiple programs that we have in order to make sure that we are selecting them based on their biology and their unique potential in order to make sure that we increase our centers to drive to the market successful products. So this is one and we need to make sure that we are investing in the right people in order to do so. In early stages we do have the resources in order to do that. Now the second objective is to make sure that we retain more value at least from some of these opportunities that we have on the table. And in order to do so, yes we will need to invest more money at least in some, as you recall we did state in our 2014 objectives that we are going to select one or more programs in order to take to clinical trial. If we can combine these two objectives and the business opportunity this is a good outcome for the company and for the shareholders and we are now as I said, we are evaluating the different options that we have in order to execute on the two different goals.

[Thomas Wei:]

And then maybe just a follow up on timelines, you had mentioned working on accelerating these timelines. I guess, can you give us an update on when you have selected a lead candidate to push forward, when do you think that could actually enter the clinic given all the new resources that you are putting behind this effort? And any insight that you can talk about in terms of what could be done to even further accelerate that timeline?

[Anat Cohen-Dayag:]

Okay, so it really depends on two problems again. One is there a program that we will select forward the programs are in different stages and it ties to the platform that we select and the stage of course we've committed over the publicly that will be a checkpoint for oncology, but even though if we want different stages. So this is one as we disclose more information we will be able to relate it specifically timeline. The other one has to do with the acceleration, indeed there is the regular timelines and timelines that you can make shortcuts on based on additional investments and ours is a small company and with the resources that we have we will take into consideration what are legitimate and reasonable shortcuts that we can apply in order to make sure that we aggressively advance the programs specifically in it. So we are very committed to it and we did not state any guidance with respect to this so I won't say any timeline now, but at the time we could share more information we will definitely relate to the timeline.

[Thomas Wei:]

Great, thanks.

[Operator:]

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

[Mike King:]

Hi guys, thanks for taking the question, congrats on the progress. A couple of questions, one is to briefly follow up on related question to Thomas' question regarding partnerships and not your comment about the opportunity to invest more heavily in existing partnerships begs the question about whether you are contemplating that for the current buyer relationship and could you just remind us what option Compugen has to step up its commitment and what the quid pro quo might be?

[Anat Cohen-Dayag:]

Thank you Mike, at first it was expected the Bayer collaboration it is ongoing, it is progressing and I did not refer to the Bayer collaboration.

[Martin S. Gerstl:]

I think we should make it clear, we have not rights under that agreement to step up. It's a straightforward agreement with us getting very substantial milestones and royalties. But the full responsibility and expenditures would rest with Bayer. Sorry Anat go ahead.

[Anat Cohen-Dayag:]

Mike maybe you'll emphasize the exact point that you would like me to address other than the Bayer?

[Mike King:]

Sure then, I just wanted to come back to your release from the other day regarding the validation of the CGEN-15027 I'm just wondering how much more especially things can you provide for us in this regard? Just exactly how or maybe some general terms after how this was validated and whether or not we should expect to see this in either a public presentation that is upcoming scientific conference or in some kind of scientific publication, because I think that would be more meaningful if you were to provide that some kind of pure read reformat where, you know others might say, you know that they agree with the steps that you took to validate this target or other future targets for that matter?

[Anat Cohen-Dayag:]

Yes sure, of course. So with respect to CGEN-15027 mainly actually with respect to most of the initial work that we do on the checkpoints that we have registered, the first step is usually to prove to our self and then to show to others that these are checkpoints and this in relation to your question with respect to compare efforts to efforts as I think we can get through the industry and a checkpoint as specific. So we're attacking on two fronts, one on the expression profile cancer and immune cells and also in relation to the cancer itself, so in the tumor microenvironment the cancer cells and immune cells. And the second front is to tap it with effective functionality whether it does inhibit the new system otherwise there is no reason for us to develop an antibody and test it up with a potential. So this is one thing, the other path is while we are confirming the biology, namely that fact that it does serve as a checkpoint we're also testing the therapeutic potential and this is done through the development of a therapeutic monoclonal antibodies and testing them in different type of assay system. We're using assay systems that are commonly used in this field if you can call it common in general in this field it is a touch filed, but we also compare to an additional other checkpoints all the time to make sure that we are differentiating ourselves. So this is more or less a philosophy. And we have two lines of testing, one is the general line that all the candidates are pursuing on and then there are candidate-specific approach that relates to that now is based on the data and the prediction that we have with respect to the specific candidates.

[Mike King:]

Okay, that’s helpful, and I just wonder if I could ask if would it also include, I know the animal models aren’t that reliable, but would this include up to animal model testing or is this most of it in-vitro?

[Dr. Anat Cohen-Dayag:]

It’s in-vitro and is in-vitro and the general key is for in-vitro and laser and in-vitro and in proof of concept.

[Mike King:]

Okay great and then just with regard to a publication or abstract presentation on CGEN-15027 is that in the cards, could that be something for next year or…?

[Dr. Anat Cohen-Dayag:]

Thank you for reminding me, I forgot to answer this and yes definitely we are aiming to present the different candidates in different conferences, the near the ones that is happening next week is the efficacy conference we are going to show some more data, yes.

[Mike King:]

Great, okay thanks I'll get back in queue.

[Operator:]

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

[Martin Gerstl:]

We don’t hear anything, so maybe whoever was going to talk is on mute.

[Operator:]

We can go to the next questioner George Zavoico from MLV & Co. Please go ahead.

[George Zavoico:]

Hi thanks for all the information and the update, good progress, clearly in the last several weeks. A couple of questions about your shift in strategy which I hope translates into as you say better shareholder value and better opportunities for business development. But it also as you mentioned, it also means that you have to invest all the more in bringing these candidates to that point. And in that regard you've disclosed that you’ve done the validation. I suppose that’s the target validation and next step is actually develop and choose an optimized an antibody. Can you elaborate a little bit more on what your plans are for that and whether you are also going to invest in ultimately in manufacturing or fund that out to a CMO?

[Martin Gerstl:]

Let me, I think it’s clear, but let me first state that there is no possibility that we will be developing all of our candidates on our own that is this is no possibility of that. What we now are seeing is that given the number that we have we believe that we can put together a package of golden set of different stages and some of and a few of which we may take quite far, but without the ultimate majority of our product candidates will be placed relatively early in the hands of other companies. I mean this is the uniqueness of our company the fact that we have systematic discovery capabilities and we, the important thing for us is to get as many as Anat mentioned, to get as many of our product candidates in active development as possible, whether that's in our pipeline or in other companies' pipelines it will be a mix. Anat?

[Anat Cohen-Dayag:]

Yes George hi. With respect to your question the target validation is the first thing they've done and this is where we are looking to prioritize the candidates, but it’s not done exclusively without testing or aiming to test therapeutic potential of the candidate. So the work is combined. There are two paths, by the way, most of the target validation work is done here in Israel and the therapeutic antibody discovery and next stage of an early stage development is done in the U.S. With respect -- and we are progressing this program based on -- recent progress. So we're prioritizing them as needed. With respect to manufacturing or other stages, we are as an organization, since we've established the U.S. operation we have the ability in order to take the candidate forward into clinical trials. Specifically relating to specific actions that can be done by either CMO or CRO that are available out there in the industry, we have no intention to incorporate these activities to the company and if required these activities now we're doing that in small scale, with CMO in small scale. But as we need to do it in large scale, we will turn for the right service providers in order to complete or complement these activities for Compugen.

[George Zavoico:]

So that means -- that means that the priority is to develop these in parallel, not necessarily to take one or two out much farther than the rest. That seems to be the…

[Anat Cohen-Dayag:]

No, no, so I didn't -- so if this is the message, then I didn't explain myself correctly. Until a certain point there is a reason for us to advance the program forward because we want to make sure that we prioritize them based on their therapeutic potential and not based on budget constraints or based on any other parameters. But from a certain point, definitely there will be a selection of which candidates are moving forward and this has to do with their therapeutic potential and how much they're going to contribute to the market and based on the fact that we have put our certain objective to advance one or more, it doesn’t mean that we'll go ahead will all the program forward, definitely no.

[George Zavoico:]

Yes, I understand that you're not -- for a small company as you say the resources to do all of them and the strategy to license out incrementally, but within incremental a value add with the subsequent partnership makes a lot of sense for you guys.

[Avihai Shen:]

I think another way or a parallel way of looking at this is that we intend to license out at various stages and we now believe we have capital, the financial resources that will allow us to determine on a case by case basis, the appropriate time to license out if it's done on an individual basis. I will also want to say that one of the -- one of the things that was mentioned in our prepared remarks is that we're also looking at and considering other forms of collaboration other than the individual product licensing and I think it's reasonable to assume that until we have a better view of the overall package of how we want to move forward with our current pipeline, if we probably will further delay the signing of any individual licensing deal. So although nothing is definite in our situation, I would say that it's unreasonable, I would be surprised if we provide very little confidence at this point that we would be in a position where we would want to sign a individual licensing deal for this year. That's the reason why I not wanted to point that out in the prepared remarks.

[George Zavoico:]

Okay. That actually puts you in the acquisition with your financial situation right now. There is no urgency to do anything quickly or maybe without enough consideration. And as one final follow-up question in that regard, you mentioned immuno-oncology obviously Checkpoints are also involved in autoimmune diseases, any thoughts on that.

[Anat Cohen-Dayag:]

Yes, of course. We do have the program, the 1501 program that is for autoimmune diseases. We did report some progress with the specific program in the last quarter and definitely during the 2014 and we will relate to our plans moving forward and area of output in our yearend call when we will state our plans for 2015.

[George Zavoico:]

Okay. Thank you Martin and Anat, thank you very much.

[Martin Gerstl:]

Thank you.

[Anat Cohen-Dayag:]

Thank you.

[Operator:]

There are no further questions at this time. Before I ask Dr. Cohen to go ahead with your closing statement, I would like to remind participants that a replay of this call is scheduled to begin in two hours for a period of 72-hours. In the U.S., please call 1888-326-9310. In Israel, please call 039-255-900. Internationally, please call 972-3-9255-900. Dr. Cohen, would you like to make your concluding statements?

[Anat Cohen-Dayag:]

Thank you. As we move forward and continue to report our achievements, it is important to put them in perspective with respect to our corporate mission. Of most importance is how these achievements continue to reinforce the impressive power and accuracy of our unique producing discovery capabilities, which has only began to be utilized. Of course from a short term commercial standpoint, the focus is on the continuing progress of our B-7328 slide checkpoint candidates which although early stage represents multiple potential for first-in-class therapeutic opportunities. We enthusiastically look forward as we evaluate a number of potential commercial opportunities with the advantage of the substantial increase in our financial researches providing us with the financial strength required for their practical consideration. We thank you all for being with us today.

[Operator:]

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