Compugen Ltd.
Q4 2014 Earnings Call Transcript

Published: 10 Feb 2015

[Operator:]

Ladies and gentleman, thank you for standing by. Welcome to the Compugen Ltd Fourth Quarter and Full-year 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 February 10th, 2015. With us online today are Mr. Martin Gerstl, Chairman of the Board; Dr. Anat Cohen-Dayag, President and CEO and Mr. Ari Krashin, 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 Ari Krashin, at [phone]. Mr. Gerstl, would you like to begin?

[Martin Gerstl:]

Yes, thank you very much. On behalf of my associates and all the employee at Compugen, welcome to our year-end 2014 Conference Call and thanks also for joining us today. Following my brief introductory remarks, Ari will provide some additional insight into the financial results reported today. And then Anat, in the primary focus of today's call, will review our performance for 2014 and provide some expectations for 2015. Following our prepared remarks we will have a Q&A session and then today I will provide the closing remarks. Compugen's market value results from three key value drivers. The first is of course our unique discovery infrastructure which for much of the past was essentially the sole value driver. But during the past few years this has been rapidly reinforced and in the minds of some surpassed by the second value driver, our very attractive and growing number of pipeline program product candidates particularly in immune-oncology. As these product candidates moved forward from computer predictions to validation and early development, the third value driver, the establishment of high-value commercialization pathways for our product candidates became much more of a focus for our company and for our shareholders. Very fortunately, certain events and achievements, last year has significantly and very positively impacted our ability to maximize this third value driver. With the result that our guidelines for evaluating potential commercialization alternatives for our multiple product candidates had been revised to take advantage of this strengthened situation as it will be more fully addressed by Anat in her prepared remarks. But first, I would now turn the call over to Ari, our CFO to briefly comment on our year-end financial results that we reported today and on our overall financial status. Ari?

[Ari Krashin:]

Thank you, Martin. As previously mentioned, we anticipate that our main source of revenues and profit in the future would be from milestone payments and royalty. However, in the short-term our revenues will likely to be from upfront payment, fees, research revenues and preclinical milestone payments. During 2014, substantially all of our revenues related to our culture, immunotherapy collaboration with Bare Healthcare announced in August 2013. Included in the $12.4 million, total revenues for the year was $7.2 million from the achievement of preclinical milestone and approximately $4.9 million from amortization of the upfront payment in the amount of $10 million from that agreement. To date, we have recognized approximately $8.2 million of this upfront payment and we have sent a reminder remain this to be recognized over the next few quarters. Our remaining revenues for 2014 were related to our collaboration with Neviah Genomics, our joint venture established with Merck Serono. Revenues for the fourth quarter of 2014were approximately $6.6 million compared with $1.8 million in the comparable quarter of 2013. The revenues for the fourth quarter of 2014 include $6 million relating to the achievement on the second preclinical milestone. R&D expenses for 2014 totaled $15.1 million compared with $12.3 million in 2013 with $4.8 million for the fourth quarter of 2014 compared with $3.3 million in 2013. The increase in both cases reflecting primarily substantial increase in our discovery and development activities for our pipeline program candidates. These includes the hiring of additional professional employee, both in Israel and in the US for our South San Francisco subsidiary which as previously reported moved to a larger facility in the second quarter of 2014. During 2014, our total cash expenditures amounted to approximately $22 million compared with estimated $24 million projected for the year. For 2015 we expect total cash expenditures to be in the range of $31 million to $33 million reflecting largely continuing increase in expenditure in support of our pipeline program for the products candidates. As of December 31, 2014 we had approximately $108 million in cash and cash related accounts including short-term and long-term cash deposits compared with $47 million at the beginning of this year, with the increase resulting primarily from the net proceeds of $67 million from the Company's underwritten public offering of ordinary shares completed in first quarter of 2014. Our strong cash position is now allowing us to advance multiple pipeline therapeutic candidates in parallel and to pick the most advantageous, commercialization pathway for product candidates while continuing to enhance our unique predictive discovery capabilities. And with that I will turn the call over to Anat. Anat?

[Anat Cohen-Dayag:]

Thank you, Ari. 2014 was the year of substantial progress and achievement on multiple front for our company, allowing us to enter 2015 as a stronger company with more robust and higher value opportunities. More specifically, these achievements included first and foremost the demonstration of impressive continuing success for our early stage immune check-point candidates. This provides us with multiple immune-oncology target opportunities for first-in-class therapeutics. Compelling and differentiating data were generated for each of our novel target tested to date confirming our computational predictions and we’re advancing with therapeutic antibody discovery programs for selected candidates. These achievements allowed us to select two programs to be advanced by the company towards future clinical trials in oncology. We were also of course very pleased by the progress of our antibody programs under their collaboration signed in 2013 which was already resulted in the receipt of two milestone payments in 2014. In addition to the success related our immune checkpoint based program, we also experimentally confirmed in 2014 our predictions for two of our five antibody conjugate drug target candidates supporting their potential utility as target for therapeutic ADC. Moreover, we obtained promising data for the first of four immunomodulatory proteins which are distinct from our B-7328 slide immune checkpoint candidates providing us the opportunity to enter the field of tumor associated macrophage target an additional area of immuno-oncology which is generating excitement in the industry. We believe that these additional recent achievements based solely on our unique predictive discovery capabilities are resulting in one of the broadest and most promising early stage target discovery pipelines for oncology in the industry. Beyond the progress of our oncology candidates we continue to demonstrate the broader capability of our predictive discovery infrastructure, pipeline it to the field of biomarker discovery. This included the recently announced progress of Neviah Genomics, our joint venture with Merck Serono involving our identification of the biomarker signature for drug-induced liver toxicity and the establishment and the initiation of biomarker discovery activities for certain of our immunotherapy program. Neviah Genomics intends to introduce its commercial toxicogenomic services in 2016. Also, during the past year we have utilized our predictive discovery infrastructure to further enhance the intellectual property on selected product candidate, a key advantage of our novel and unique programs in this promising but highly competitive field of immune-oncology. Underlying and supporting all of these achievements was the significant expansion of our throughput capabilities and expertise, both in-house and through a broad network of multiple key scientific collaborations culminating in our recently announced major collaboration with Johns Hopkins University. Moreover, we secured substantial additional capital primarily from our public equity offering early in 2014 to provide the required resources for these sharply increased and broadened activities. In my remaining prepared remarks today, I would like to offer further insight concerning some of these achievements that measure the gains of our 2014 objective and to provide our expectation for 2015. However, before doing so I would comment on one 2014 objective that we did not accomplish. I'm referring to the objective of entering into one or more additional pipeline program collaboration. First, it is important to note that in view of the large number of product candidates provided by our predictive discovery capability, entering collaborative arrangement of different types and at different stages for our product candidates is a key aspect of our overall strategy. However, as I already stated, key events and achievements last year resulted in a significant increase in our corporate trends and confidence in our candidates. This allowed us in May 2014 to consider modifying the way we view collaborations in order to maximize the value of our growth pool of candidates. Therefore, we are now primarily focussing on exploring collaboration opportunities where we are more involved in downstream value adding activities, which would enable us to retain more value. In general such arrangements can now be considered by us only due to the progress we made during 2014 and our increased financial resources. In addition, as we continue to evaluate with potential partners such collaboration opportunities we have the resources to continue to aggressively advance our early stage immuno-oncology candidates with a special focus on those that we have selected to advance the future clinical trials. Therefore, although we are actively evaluating various collaboration opportunities, we have not set for the company specific timelines for finalizing such opportunities. I would like to conclude my remarks today with some additional information regarding some of our achievements of last year as measured against our 2014 objectives. With respect to my prior comments regarding the demonstration of impressive continued success for our early stage immuno-oncology candidates, six of the 11B-7328 slide candidates have now demonstrated potential to service targets for cancer immunotherapy through their involvement in the tumor immunology of multiple types of cancer. Our remaining five B-7328 slide candidate are at various stages of evaluation. Having novel programs in these highly competitive field of immuno-oncology, which is becoming more and more proud with time not only we care for the inhibitors but also with additional approaches to stimulate the immediate response against cancer is of significant value. While CTLA4 and PD-1 service game changers and paved the way for breakthroughs in the field of cancer treatment, many patients are still not responding. Furthermore, clinical benefit demonstrated to date is limited to a small set of cancer indications and only a minority achieved a promise of long-term survival. What is required for a more excessive immunological cancer treatment may be visualized by analogy to a car, with an ignition switch, gas pedal and break. First, the immune response against the cancer cells need to be turned on. This can be carried out for example by cancer vaccine which acts like the ignition switch that starts an immune response towards the cancer. But this is insufficient, as the car will not move unless the breaks are released. The same is true for the immune system. The immune check point breaks need to released and in parallel you have to step on the gas and these are the immune stimulator. Check on broad case is therefore central in harnessing the immune response against the cancer and while others are competing on their known check points, competent discovered and is acting on a large number of novel check points that has a potential to increase response rates and extend the range of cancer indications treated. Having such a pool of novel check point candidates is therefore of significant value. In this respect our multi-year broad collaboration with John Hopkins will allow us to further enhance the value of our program. Under this collaboration, we will focus on further evaluation of our candidate differentiation profiles with respect to known check points and their potential to serve either hormonal therapy or in combination with other cancer treatments. In 2014, we achieved promising experimental validation data for the first of four new immunomodulatory protein discovered by us, there are no B-7328 slide immune checkpoint. These proteins very initially predicted through other methodologies including understanding of tumor-associated macrophage biology. Therefore this is an additional example of how our ability to understand and then predictively model biological phenomena is allowing us to make discoveries in challenging, well researched areas of high industry interest. This new immuno-oncology area is becoming of greater interest to pharma due to promising early clinical data of others. The candidate we have disclosed is being advancing our validation pipeline while we continue to take the other three. With respect to our ADC activity, two of our five antibody conjugate drug target has demonstrated data supporting their potential utility as therapeutic ADC targets. This discovery platform which independently identifies unknown target for ADCs progressing in other companies clinical trials allows us to discover new candidates with differentiated profile, to serve as targets for ADCs. The two candidates that were tested by us demonstrate a desired profile of low expression in normal critical tissues such as heart and liver and higher expressions in multiple cancer sites such as colorectal and prostate cancer. The experimental validation effort for the remaining three is ongoing and our intention is to advance at least one program to therapeutic antibody development during 2015. As previously mentioned, as per our 2014 objective, we selected two therapeutic antibody discovery program to be taken towards future clinical trials in oncology by the company. The two targets on which these programs are based CGEN-15049, CGEN-15027 both show compelling links to tumor immunology and biological differences that project therapeutic differentiation. Currently, both are moving forward in parallel at our San Francisco site towards selection of lead antibodies. As additional experimental data becomes available we may be trying to focus more resources on one. With respect to future clinical trial by the terms of our agreement with Bayer, we cannot provide information concerning the timing of possible IND filings for CGEN-1501T and CGEN-15022 although we continue to be pleased by the progress being made in this collaboration. Concerning CGEN-15049 and CGEN-15027, it is our intention to help identify on at least one of the two programs in about 24 months. With respect to CGEN-15001 which is our primary product candidate in autoimmune diseases, in view of our substantially increased pipeline program focus on the multiple product candidates for him you immuno-oncology, we are now at the early stages of exploring various collaboration alternative to provide the resources and expertise required to further develop these product candidates for future clinical trials, and to witness inflection point where we believe it will become a valuable asset for pharma companies. With respect to our activities in the growing field of biomarkers as previously mentioned, during 2014 we successfully established as part of our objective for the year, a biomarker discovery for one of our collected checkpoint candidate. The ultimate growth with newly established discovery program is to identify biomarkers that will provide significant that is value to the development of our future clinical program. Currently we are applying the platform to the CGEN-15049 program to identify T-cell gene signatures that provide an insight into the molecular mechanism by which the specific immune check point target exerts inhibition on T-cell. Our company has a unique capability in the biomarker discovery area as demonstrated by our successful discovery of [indiscernible] for Neviah Genomics, or joint venture with Merck Serono. Therefore in addition to our ongoing [indiscernible] we intend to evaluate several other opportunities for gaining value from our predictive capabilities in this scale, but without interfering with our timed primary focus on immuno-oncology therapeutics. Looking forward to the remainder of 2015, our primary goal with our sharply increased resources and capabilities is to aggressively advance in parallel a number of our early-stage immuno-oncology candidates with a focus on CGEN-15027 and CGEN-15049. Additional plan for 2015 are to further expand selected antibody drug conjugate program to apply our biomarker discovery capabilities to selected checkpoints, continue to meet our commitments under the existing collaboration and explore new collaboration opportunities and to extend and enhance our unique predictive discovery capabilities. And with that we would be glad to address any questions that you might have.

[Operator:]

Ladies and gentlemen we will begin the question-and-answer session. [Operator Instructions]. The first question is from Mike King of GMP securities. Please go ahead.

[Mike King:]

Can you hear me now?

[Operator:]

Yes, please go ahead.

[Mike King:]

So I was just wondering if you could speak to, may be a little more clarification on your formal comments are about clinical development of 049 and 027, I am just wondering how you balance the, sort of compelling biology against the necessity for biomarkers, in other words will you absolutely require biomarkers to take these assets into clinical development or will you at some point decide that if the biology is compelling and I guess supply to anything else you might nominate for clinical development. If the biology itself is compelling enough to move forward that that will trump the need for biomarkers or is everything is going to be dependent on biomarkers.

[Anat Cohen-Dayag:]

Actually it’s a later and I think that if you look at market trend and what it has done in the industry definitely the compelling biology is important and this will drive the program for the differentiation and the link to join analogy and it’s being compelling. The biomarkers are a ad-on both also as the market relates to it as of today but also in the internal programs that we are having at Compugen. So we are very much – it’s where the client are discovering capabilities and we are very much expect to be able to indentify biomarkers but it’s an ad-on. We will not however this program predict.

[Mike King:]

Okay. Great. Thanks for clarifying that. And then I have a number of questions but limit to myself, the follow up would be just on, from milestones is there anything that you can speak to with regard to the potential to earn additional milestones under the bio-collaboration during 2015? Thank you.

[Anat Cohen-Dayag:]

Yes, there is not much I can say but I can say that still based on the information there is in the public still under the joint for clinical research program, we are still entitled for additional more than $20 million and we are very, as I said were pleased with the progress. So this should—we are still on to it but I cannot share more information about it.

[Mike King:]

Thank you.

[Anat Cohen-Dayag:]

Thanks Mike.

[Operator:]

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

[Brett Reiss:]

Hi, everybody. With respect to 049 and 027 will Johns Hopkins be working with you and provide you with the trial design to get it into the clinic?

[Anat Cohen-Dayag:]

John Hopkins is working with us on a number of programs. We do not state specifically which but they are working on our internal program and whatever we think that they can add value, CGEN-15027 and 49 are very important for us and definitely this is something that will be requested under this collaboration.

[Brett Reiss:]

Great. Thank you.

[Operator:]

The next question is from George Zavoico from MLV. Please go ahead.

[George Zavoico:]

Good afternoon, hi everyone. Congratulations on the quite a productive 2014. I have a question regarding 049 and 027 because they are of two as we said multiple product candidates. Was there any particular reason for picking these two? Were they among the first discovered and possibly they are the first in the queue. On the other hand, are they the one perhaps that are the most potential, because I know from some of the conferences that you've presented you've -- where you presented data there has been good data, on multiple of your candidates. So if you could clarify perhaps why 049 and 027, if you can say anything about it, why they were chosen as the leads?

[Anat Cohen-Dayag:]

Thank you for asking this question. Actually it is an important question and I do want to shed more light on it. Yes, we have multiple candidates that are progressing and we did show data on multiple candidates and part of the reason for us to take the time to consider was the fact that we had multiple candidates. So it was not a straightforward decision for us. Having said that this programs were advanced by us -- were incorporated to San Francisco site earlier than others and this was also part of the reason. The data looked compelling enough in order for us to make the decision to take them forward.

[George Zavoico:]

Okay. Having said that could you provide, may be this question is for Ari, you clearly have sufficient capital to go forward but can you provide any guidance as to what you expect the burn might be, and how much cash you expect to end up with at the end of 2015, if you can?

[Ari Krashin:]

Well as I said it earlier, I mean our cash expenditures for 2015 are expected to be in the range between $31 to $33 million. This is only cash out from the company. That does not include any focus of inflows into the company from the milestone that we may collect. So, I mean [indiscernible] now you know more inflows into the company, so cash will be reduced by 31 to 33, but obviously that again as I said it does not includes any potential inflow to the company.

[George Zavoico:]

Okay. Thank you very much.

[Operator:]

[Operator Instructions]. The next question is from Shaunak Deepak from Jefferies. Please go ahead.

[Shaunak Deepak:]

Thanks for taking my question. I was just curious like -- the commentary on enhancing your IP position, if you'd like any additional color you could add about that, is this like extending more specific biomarkers or is it more generally like a broad coverage that you’re shooting for here.

[Anat Cohen-Dayag:]

Yes. So, with respect IP we're trying to think about this as little as possible and this is because of two reasons. In general, competition is very strong out there and we try to make sure that we're not disclosing too much information about our target. By the way this is one of the claims against us that we're not talking enough about the nature of our target and who they are; and this is for a reason, and it relates to us being able to protect our candidates. And the other reason is that the field is becoming -- the legislation and the guidance in the field for patent and again the professional department is becoming harder and harder. So, our activity has to do with getting as much as possible broader claims and it has to do with all the different aspects that are possible. We're harnessing all the different tools and activities that we can. It has to do with the targets themselves, it has to do with the antibodies, other modalities and also with respect to biomarkers, so all of the above.

[Shaunak Deepak:]

Like, how much more of a runway do you expect if there is new patents might be provide you guys?

[Anat Cohen-Dayag:]

It's very hard to tell and it's not because of the stage of our patent applications, it is more with respect to how the landscape will look like at the time that we will be in the market. And it's very hard to tell -- the field is changing very rapidly. Having said that I think that if you compare us to another company that is working on a known checkpoint our situation should be better with respect to our IP position; but it's very-very hard to tell and estimate exactly what would be the run rate and how broad will it be, I wouldn't get to these now.

[Shaunak Deepak:]

Okay. Thanks for taking questions.

[Operator:]

The next question is from George Zavoico of MLV. Please go ahead.

[George Zavoico:]

Thanks for taking the follow on, I appreciate that. I have a question about the Johns Hopkins collaborations. What is the extent of that and how is it managed, is it with a joint committee? Is Johns Hopkins pretty much independent? And what they can do in terms of discovering novel biochemical pathways and checkpoint interactions or is it much more focused and more like an extension of your own R&D group?

[Anat Cohen-Dayag:]

John Hopkins and specifically Drew Pardoll and Charles Drake which are involved with this collaboration; has their great expertise and experience in this field and working together jointly on these program with Compugen can bring with respect to its experiments and expertise and assets and Hopkins expertise and experience; this is what is driving this collaboration. So I would view it from what you were describing and would view it as a true collaborative effort.

[George Zavoico:]

Does that mean that any IP that might come out of that would be shared, following on Deepak's question?

[Anat Cohen-Dayag:]

In general, our guidelines to collaborative arrangements that are scientific collaborative arrangements would be that the IP has to be protected by Compugen. And this is true for -- as a guideline in the company, for all our scientific collaborations.

[George Zavoico:]

And then one follow-on on that, what is the size of the -- how many people are going to be working with you at John Hopkins? Just to get an idea of how larger laboratory it might be?

[Anat Cohen-Dayag:]

I'm not sure that I can speak on the behalf of Johns Hopkins in this respect. But it's a broad collaboration. It's a multi-year collaboration, so I wouldn't want to get into these details. This is really -- it's a Hopkins information.

[George Zavoico:]

Okay. That's understandable and thank you very much, Anat Dayag Martin and Avi.

[Anat Cohen-Dayag:]

Thank you George.

[Operator:]

There are no further questions at this time. Before I ask Mr. Gerstl to go ahead with his 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 1888-782-4291. In Israel please call 03-9255-904. Internationally please call 9723-9255-904 Mr. Gerstl, would you like to make your concluding statement.

[Martin Gerstl:]

Thank you. In closing, I would like to comment today on how a relatively small company like Compugen can now be in such a unique and promising position in not only the very competitive field of the immuno-oncology, but potentially and in coming years in many additional major areas of drug and diagnostic discovery. My comments will cover a lot of history. Some of you may know I became chairman here in 1997, but my comments will be extremely brief. I assume that some of you remember that beginning in the late 1990s, and deal with the human geno and project and related scientific breakthroughs regarding life at a molecular level, it was generally believed that there existed a fantastic medical and commercial opportunity to finely address the key strategic problem for the pharma industry. That problem is the ability to provide systematic drug discovery by basing your discovery methodology on science based prediction rather than on group force and often largely random experimental observation. Many companies recognize this potential as did the financial world. And there were numerous companies established that quickly obtained multibillion with a few at 10 billion, 20 billion and more market value. However, unfortunately, within the following decade essentially all of these companies either disappeared or at least discontinued their predictive discovery efforts as the extreme difficulty and unanticipated complexity of this undertaking became more evident. But Compugen did not waiver in its conviction and pursued a prediction based discovery. And now following many years of focused multidisciplinary research into the understanding and predictive modeling of key biological phenomenon we are beginning to clearly demonstrate the enormous potential for significant contributions to the world of medicine and substantial financial rewards to share holders provided by this unique capability. And, these impressive results to-date result only from our first discovery capability, or focused discovery. Clearly this is just the beginning. I want to thank all of you for participating in our call today and look forward to reporting our future progress. Thank you.

[Operator:]

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