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With Diagnostic Royalties on the Horizon, Compugen s Broad Approach Bears Fruit

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At a time when many bioinformatics firms are wrestling with the “tools or targets” question, Compugen is starting to reap the benefits of a carefully balanced mix of software sales, collaborative research, and target discovery. Following on the news of a Jan. 15 platform deal with Abbott Laboratories, Compugen last week announced its first significant royalty-bearing partnership. Diagnostic Products Corporation (DPC) has licensed two novel prostate-specific proteins from Compugen for use in diagnostic kits for the detection of prostate and other cancers.

DPC expects to complete development of the diagnostic assays in two years. Following an additional year or so for FDA approval, Compugen may see royalties from the kits in around three years. Furthermore, the company has retained the rights to develop therapeutic products based on the proteins — which they named prostate-specific-antigen-linked molecule and human-kallikrein-2-linked molecule — that it identified with its Leads computational biology platform last year.

“It is clearly a very important agreement for us,” said Mor Amitai, Compugen’s CEO. “Agreements in which we can get a part of the ownership or the revenues of the final diagnostic or therapeutic product have the greatest value in our industry.” While it is the first such deal for the Tel Aviv-based company, “we certainly hope that it is a sign of more to come,” said Amitai.

Meanwhile, in a world full of bioinformatics-turned-drug-discovery players, the company is sticking to its original game plan. Amitai said that licensing its technology platform to pharmaceutical firms remains a key element of Compugen’s strategy — not just because these deals are usually in the range of “millions of dollars,” but “because working with the best companies in our industry helps us a lot in further developing the technology.”

Proof that this mind-share approach is paying off lies in the company’s own track record, Amitai said: “We have the discoveries — the two prostate-specific proteins that we discovered using the Leads platform.”

The Toolkit

Compugen’s strategy of improving its technology through the knowledge gained in research collaborations has also paid off in the form of new customers. The company’s reputation was an important aspect of Abbott’s decision to initiate a platform-based research collaboration with Compugen, according to Don Halbert, director of genomics for Abbott. “Compugen had actually delivered to several other partners, and that was really the deciding factor for us,” said Halbert. Compugen’s technology is complementary to Abbott’s in-house bioinformatics platform, Halbert said. “They use a different set of algorithms in terms of identifying splice variants and transcript variants than what we’ve used in the past, and they have a different way to analyze sequence information than we have, and they’ve shown us many examples where they’ve identified splice variants that were not identified in the public domain.”

Abbott will also use Compugen’s Gencarta database as part of the collaboration. Financial details were not disclosed.

Spread Too Thin?

In addition to the collaborative deals it has with Abbott, Novartis, Pfizer, and other firms, Compugen continues to sell shrink-wrapped software, such as its Z3 and Z4000 systems for 2D gel analysis, as well as subscriptions to the Gencarta database either onsite or via the web.

How is Compugen able to maintain such a broad approach with only 160 employees worldwide? It’s not easy, Amitai admitted. “That is a question that we always ask ourselves: How do we find the balance between being focused enough and not doing too many things, and on the other hand not missing opportunities that we could benefit from?”

Amitai noted that Compugen was “struggling with this question” three years ago, as it weighed its options in the agricultural biotech market. While the company wanted to retain its focus on human healthcare, “everything we do is also applicable to ag-bio, and we felt that it might be a waste not to take advantage of it.” The company opted to create a small operation within Compugen with the aim of spinning off the effort. The resulting entity, Evogene, separated from Compugen a year ago, and closed a $2 million round of financing earlier this month.

“We feel that here we benefit from both worlds,” said Amitai. “We don’t damage our focus, we continue focusing solely on human healthcare-related technologies and applications and discoveries, but our technology is being used by another company that we have a substantial equity position in.”

This question also came up when Compugen was faced with what to do with its novel proteins. After the company published a paper on its work in the Journal of Biological Chemistry last May, several diagnostics companies approached Compugen, Amitai said. The question was how far to develop the proteins before handing them off. Compugen chose to give all development responsibility to DPC “ and we can move these resources to do what we believe we should continue doing…on the things that we do better.”

As Compugen moves forward, it is planning to expand its capabilities even further. The company’s researchers are now devoting their efforts to what the company calls “computational medicine,” in which it analyzes medical records in order to separate patient populations according to drug response, side effects, or other pharmaceutically relevant characteristics.

“We are not a traditional bioinformatics company,” Amitai noted. “We believe that our competitive advantage is in combining people and disciplines that are traditionally uncombinable — mathematics, computer science, and physics on one hand, and biology, medicine, and organic chemistry on the other hand.”

As the definition of what constitutes a “bioinformatics company” evolves, Compugen’s broad-based approach — traditional or not — may find some new adopters if it continues to find success.

As of September 30, 2002, the most recent quarter for which data is available, Compugen had $70.6 million in cash and cash equivalents.

— BT

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