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Compugen Touts Promise of In Silico Discovery Despite Dwindling Cash and Zero Q3 Revenues

Even as Compugen’s historical sources of revenue dry up and its cash holdings shrink, company officials remain confident that the firm is on track to begin generating revenues from therapeutic and diagnostic products it has discovered through its proprietary computational platforms.
This week, Compugen reported zero revenues for the quarter ended Sept. 30, compared to $95,000 for the third quarter of 2005 — an expected falloff that the company attributed to its decision in 2004 to discontinue sales of its bioinformatics products in favor of an internal development model [BioInform 04-26-04].
According to the company’s most recent annual report, filed in March with the US Securities and Exchange Commission, Compugen’s revenues fell by around 75 percent in 2005 compared to 2004 and by approximately 61 percent in 2004 compared to 2003. For the first nine months of 2006, the company posted $205,000 in revenues — a 68-percent decrease over $646,000 in the first nine months of 2005.
The company has adjusted for the anticipated decline in revenues by tightening its belt. The company’s R&D expenses for the quarter fell to $1.7 million from $2.3 million in the year-ago period, while total operating expenses were reduced to $2.7 million from $3.9 million. As a result, Compugen’s third-quarter net loss narrowed to $2.5 million from $3.6 million in the year-ago period.
As of Sept. 30, Compugen had $22.5 million in cash, cash equivalents, short-term deposits, and marketable securities. During a conference call this week to discuss third-quarter earnings, Compugen officials said that the company burns through around $12 million per year, and acknowledged that the firm may soon need to raise additional capital. An official stressed that the company is “not actively trying to do that right now.”
With this financial picture as backdrop the pressure is on to deliver on its promise of commercializing diagnostic and therapeutic products it has discovered with its computational platforms, which it calls discovery engines.
Company officials expressed confidence that the firm is on track to meet its commercialization goals. For example, Compugen announced last week that it had biologically validated three computationally predicted therapeutic candidates: CGEN-241, an antagonistic soluble variant of the cMet receptor with potential application as an anti-tumorigenic and anti-metastatic therapeutic; CGEN-54, an antagonistic variant of monocyte chemoattractant protein 1 with applications in inflammatory disease; and CGEN-34, a splice variant of the atrial natriuretic peptide with potential use in cardiac and renal disease.
Alex Koster, Compugen’s president and CEO, said during the conference call that steps to validate these molecules in vivo and in vitro are in line with the firm’s commercialization roadmap, laid out last November, which calls for the company to begin outlicensing these proteins by the end of 2006. Koster said that the firm has already begun discussing licensing or co-development deals with potential partners.
“The next step on our commercial roadmap for these molecules calls for signing our first licensing and product development agreement by mid-2007,” he said.
Koster noted that the company is also on schedule for its immunoassay diagnostics. The company has signed agreements so far with Diagnostic Product Corporation, Ortho-Clinical Diagnostics, and Biosite related to molecules it discovered with its diagnostic discovery engine.
“To date, more than 10 candidates have been selected by our partners and are progressing with their validation,” Koster said, adding that validation of initial candidates should be completed by year end.
One area where Compugen has fallen short is in nucleic-acid-based testing, where it had expected to sign a licensing agreement in mid-2006. Koster said that the company’s new target date for an agreement in this area is mid-2007.
The company is meeting its technology-development goals, however, and Koster said that the firm has “successfully validated two new discovery engines and initiated discussions with potential partners for various types of collaborations based on these new engines.” He declined to provide further details on these new platforms, aside from noting that they are based on “different biological phenomena” from the company’s current technologies, “and will allow us to enter new and important medical areas.”

“We clearly recognize that within the next 12 to 18 months, if the company is to remain financially secure it will have to have available to it additional resources, but there are many ways to get it.”

Martin Gerstel, Compugen’s chairman, admitted that some investors have shied away from the company in the last few years, “since the fact is we had neither a clear business model nor specific products that we could point to.”
While stressing that the firm has yet to recognize any revenues from its scientific discoveries, Gerstel said that the “evidence is very quickly accumulating” that it is on the right track. “With respect to immunoassay diagnostics, and more recently with therapeutic proteins, we have demonstrated that we have the unique capability to predict potential product candidates in silico and then prove that these predicted molecules not only exist, but also have the functions we predicted they would have — not cash in the bank, but clearly a major step in that direction.”
Gerstel said that while the firm may need to secure additional financing soon, it’s not in any rush.
“We clearly recognize that within the next 12 to 18 months, if the company is to remain financially secure it will have to have available to it additional resources, but there are many ways to get it,” he said. “My own bias is against anything that involves debt, so I would be more interested in strategic arrangements, [or] different things that may or may not involve equity.”  
However, he noted, “We are not near any significant arrangement that would provide capital at the present time, and we’re not actively trying to do that right now.”

The reason, he said, is that “we believe over the next three to six months we will hopefully be reporting a lot of good things that are based on a decade of hard work. So let’s wait and let the market determine the value of what we’re doing before we move forward.”

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