Compugen Ltd (CGEN) 2003 Q3 法說會逐字稿

Ladies and gentleman, thank you for standing by. Welcome to the Compugen, Ltd., third-quarter 2003 financial results conference call. All participants are, at present, in a listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded October 29th, 2003. With us on the line today are Mr. Martin Gerstel, Chairman, Mr. Mor Amitai, President and CEO, and Nurit Benjamini, CFO. I would like to remind everyone of 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 this and would like to do so, please contact Nurit Benjamini at telephone No. 972-3765-8525. Mr. Gerstel, would you like to begin?

Thank you. To those in the US, good morning. In Israel and Europe, good afternoon. And to all of you, we thank you for joining us on our call today. As will be more fully described by Mor, we are, of course, very pleased by the continuing developments of Compugen, and in particular, the validation of the unique approach we are taking to increasing the probability of success of drug and diagnostic discovery. The power achieved by merging the most advanced computational technologies with modern molecular biology has now been clearly demonstrated by the deeper understanding of important scientific phenomena that we have achieved and by the substantial number of specific discoveries of large, potential commercial value that we have made.

Assembling a group of scientists with such diverse background as ours -- mathematics, medicine, molecular biology, computer science, physics, chemists, etcetera -- and then creating a team working together smoothly towards a common goal has not been easy. Nor has it been easy to begin the building, even with such an excellent team, of valid, predictive models of life processes at the molecular level. But the critical initial stages have been successfully and uniquely accomplished, and in many ways, the hardest part is now behind us.

The excitement really begins as we start to harvest the initial fruits of these efforts. Of even greater importance, the very powerful discovery engines that have been created, in terms of people, technologies, scientific understanding and work practices, continue to improve as we proceed with our iterative (ph) research efforts. A creation of these constantly-improving discovery engines was the first component of our corporate strategy. And the proof of our success with this component is now clearly available.

The second component of our corporate strategy is the development and commercialization, by us and other organizations, of diagnostic and drug products based on certain of these discoveries achieved through the use of our discovery engines. And as Mor will more fully describe, during 2003 we made very significant progress in this area. And now I will turn the call over to Mor Amitai, Compugen's President and CEO.

Thank you, Martin. This is a very exciting time for Compugen. As a part of our unique approach, it's being clearly demonstrated now in molecular biology labs (technical difficulty) using in vitro and cell-based assays, we are successfully validating our computer predictions, not just with the respect to the existence of the predictive molecules but also with respect to their biological function.

In addition to the progress that this represents in our drug discovery efforts, this is also critically important commercially. Our future success will largely depend on the strength of the patent (ph) coverage underlying drug and diagnostic product based on our discoveries. It is probably nothing of a statement say that the extent of our success will depend as much on the strength of our patent as on the (indiscernible) important extensions (ph) that we make. And in our field, in order to have a strong patent, in addition to the composition of (indiscernible), it is crucial to also show the productivity (ph). During 2003, we substantially improved our predictive discovery engine, with special emphasis on the prediction of biological function (indiscernible). And we are extremely pleased with the successful results we are achieving in our labs. As Martin mentioned, we are proud of the progress that we have made in advancing our in-house research. We have selected (indiscernible) initial (indiscernible) candidate to enter into our pipeline. Our approach combines a vast amount of information available on successful and (indiscernible) drugs with the power of our unique abilities in merging advanced computation technologies with molecular biology. Our pipeline consists of novel spice (ph) variants of non-genes that are themselves drugs all or are related to non-drugs. Therefore, we get the novelty of a new porting (ph) together with a huge amount of relevant biological and medical information related to the existing gene. This allows Compugen's scientists, using our discovery platforms, to predict not just the existence of novel molecules but also their (ph) biological function and (indiscernible).

We're currently advancing our initial four candidates farther downstream in the drug discovery process, and are carefully monitoring their progress. To support our discovery efforts, we shifted certain internal resources and recruited additional scientists, relevant to their particular (indiscernible). We recently established a protein production unit for protein expression and purification. In addition, we acquired a substantial amount of biological-sequence data that we believe will allow many additional discoveries of scientific and commercial value, and accelerate the development of our predictive capabilities for drug and diagnostic discovery. In summary, it is very exciting for us to see the initial experimental validation of the predictive(indiscernible), first, of our novel molecules. We hope and expect that this progress will continue leading to the development of the (indiscernible) protein answering critical medical needs. And with this, I will turn you over to Nurit.

Thank you, Mor. As in the past, we believe that the most important financial consideration for us is to ensure the availability of financial resources necessary for us to continue to develop until we reach positive cash flow from operations. Therefore, (technical difficulty) financial measurements for us relate to cash burn and cash balance. We began this quarter with approximately $65 million in cash and cash-related accounts, approximately equal to the amount we had at the end of the second quarter of this year. In addition, (technical difficulty) quarter amount included $1.4 million resulting from the consolidation of Evogene, our agricultural-biotechnology subsidiary, which as of the most recent quarter, (technical difficulty) for on an equity basis. A number of factors, including decreased expenses and reduction in accounts receivable, contributed to the increase in cash, not including the Evogene consolidation during the most recent quarter.

Based on our performance year-to-date and our expectations for the fourth quarter, (technical difficulty) our previously-stated expectation of $52 million of cash and cash-related accounts for year-end 2003 by approximately $6 to $7 million. This is explained by our actual expenses that are lower than our budgeted expenses, due in part to the favorable dollar-shekel exchange rate at the beginning of this year.

During the past quarter, we announced the transfer of our Bio-acceleration product line to Bio-acceleration, Ltd. This is part of our continuing effort to focus on our mission of increasing the probability of success of drug and diagnostic discovery, and developing selective, potential therapeutic proteins discovered through these efforts. Consistent with our focus, we are considering the divestment of certain other tools and products developed in the past and currently marketed. If we were to conclude any such transactions, we expect that as a consequence our reported revenues could be reduced. However, we would not anticipate any material impact on our cash flow or reported earnings.

Revenues for the third quarter were $2 million, compared to $2.8 million for the third quarter of last year. Revenues for the first nine months of this year amounted to (technical difficulty) million compared to $8.4 million (technical difficulty) last season -- year, sorry. We are prudent with our expenses by continuing to invest significantly in research and development. Research and development expenses for the third quarter of this year -- not including deferred compensation -- were $3.1 million. As we continued to expand our technology base in internal intellectual property portfolio, research and development expenses for the third quarter remained our largest category of expenditure and accounted for over 50 percent of our total operating expenses. Research and development expenses for the first nine months -- again, not including deferred compensation -- were $9.7 million, the same as in last (technical difficulty). The net loss for the most recent quarter was $3.2 million, compared to a net loss of $3 million for the corresponding quarter in 2002. The net loss for the first nine months of this year decreased to $7.9 million compared with a net loss of $9 million (technical difficulty) year.

Before I turn the call over to the question-and-answer session, I would like to request that you limit your questions to two at a time while others are waiting. Thank you. And now we will begin the question-and-answer session.

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