Compugen Ltd (CGEN) 2005 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Compugen Ltd. First Quarter 2005 Financial Results Conference Call. All participants are present in a listen-only mode. Following management's full presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded April 20, 2005. With us in-line today are Mr. Martin Gerstel, Chairman; Dr. Mor Amitai President and Chief Executive Officer; and Nurit Benjamini, 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 Nurit Benjamini at telephone number 9-723-765-8525. Mr. Gerstel, would you like to begin?

Yes, thank you very much and thanks for all of you joining our call today. For the past few years, there’s been an increasing use of the term Systems Biology in the life science research community. To the point we heard may well now be the key buzz word in the field are displacing the earlier favorites of genomics and proteomics. Furthermore, I have no doubt that this term will soon become a very hot topic in the financial community for pharmaceutical and biotech companies with all the claims and attention that implies.

Compugen has frequently received questions as to whether we are involved in Systems Biology, questions that we have actually found difficult to answer because of the very different vague definitions as to what the term means. However, yesterday we announced a new and very exciting pilot project with Novartis which clearly would be seen by anyone’s definition as Systems Biology. Therefore in our call today we would like to use this as an opportunity to discuss Systems Biology as it relates to Compugen or perhaps more accurately how the activities of Compugen relate to Systems Biology.

In Mor’s remarks, he will provide you with both additional information regarding Novartis’ collaboration that we announced yesterday and our efforts in the area in general. Following Mor, Nurit will comment on our first quarter report issued today, but as we normally do in this area we will mainly rely on any questions that you may have during the Q&A portion of the call which will follow Nurit's remarks. With respect to my comments, rather than proceeding as I usually do to present my views as to what Systems Biology means for Compugen, I would like to base my comments on an article in the current that is the April edition of Genome Technology magazine. This article reported on a meeting the magazine had sponsored with 4 of the recognized experts in the field of Systems Biology to try and reach some consensus as to what the term means and what their expectations were for its future development.

First, it is important to note that one thing that all 4 have in common was the belief and we share this view that this type of research will have a revolutionary impact on the understanding, treatment, and prevention of human diseases and conditions. More specifically here are a few quotes from the participants which I am sure those of you who have followed Compugen's development during the past few years. We both recognize and appreciate and are very relevant to our activities and capabilities. The first is from Andrea Califano from Columbia University Genome Centre. Dr. Califano stated that, "Quality, I find most attractive of Systems Biology is that it actually puts computational biologists and wet lab biologists to work on the same type of problems." The second quote is from Arnold Levin, Director, Centre of Assistance Biology Institute for advanced study at Princeton and a Nobel Laureate. Dr. Levin stated, "Schools are now hiring physicists, statistical mathematicians, and computer scientists to be in biology departments or in physics departments that do biology". The people in this room, and this is a quote from Dr. Levin, the people in this room are going to make obsolete a generation or two of people trained in classical biology. Dean Bartino (ph.), Novartis Institute for Biomedical Research stated "it's driving a cultural change. Mathematical modeling isn’t something you do once you've figured out all the biology. But, rather it's a tool to help you organize your thoughts and to organize your next experiment if you guide exploration". And again, from Dr. Califano, it is extraordinarily difficult to find biologist who do not in fact feel threatened by the computational scientist.

Let me comment here that this is true, but that Compugen now has a team of such biologists who are in fact working in this field with computational scientists. However in most cases, it took several years, even in the Compugen environment to allow this to happen. Back to Dr. Califano, until there is a more leveled field where there will be a true appreciation of the different components of the life sciences it is going to be a problem. And lastly, again from Dr. Bartino (ph.), I have seen this happen with [drugs] which are coming up and evolving and having a certain life cycle, can we as a community be a little bit more careful about how we apply the term Systems Biology. Right now it's getting sprinkled in like a magical pixie dust, to improve the chance of publication or funding.

Well, with respect to this last comment I guess we will have to wait and see if our sprinkling this magical pixie dust does anything for Compugen in the financial world. However with respect to all of the other quotes we totally agree with these four leading experts. But this should not be surprising since these concepts are precisely the fundamental reasoning underlying our Company. More importantly unlike the futuristic aspect of most of these comments, Compugen has been putting this into practice now for almost a decade. It is important to note that the primary goal of systems biology, no matter how it is defined is to understand more deeply how life works and how the various components interrelate in order to allow quantitative predictions.

Again, those of you familiar with Compugen’s development know that this, that is the deeper understandings are important aspects of life at the molecular level has been the major accomplishment of our efforts today and has provided the foundation on which we have established our discovery capability. In fact as we approach the next two years the most exciting thing for us as a discovery company is that we have now reached the point where our past efforts and investments have successfully generated a critical mass of unique capabilities and proprietary knowledge, including literally 100’s of 1000’s of discoveries at the molecular level.

As discussed in our call last quarter these capabilities and discoveries in turn are now allowing the development of unique discovery engines. The growing inventory of not only powerful but continuously improving discovery engines is the key to both our own pipeline and for potential royalty and milestone bearing product, collaborations with other diagnostic, biotech and pharma companies. Mor will now provide you with some additional information regarding the Novartis collaboration and our work in systems biology in general. Mor.

Thank you Martin. As Martin mentioned, our long term efforts in creating a predictive biological ability and our success in achieving this understanding of life at the molecular level now provide us with important advantages in many aspects of what is being referred to as systems biology. In my talk today, I would briefly describe Compugen's current joint project, pilot with Novartis. As well as our general efforts in this field including the Genome project, we successfully completed in the past with Millennium.

Let me start with Millennium, this project which began in early 2002, was our first collaborative activity in systems biology, and involved the prediction of activity of pathways for use into our discovery and development. A specific goal of the project was to analyze microarray data combined with known pathway information to better understand the biological relevance of a given biological process. In this eight month collaboration, Millennium provided the data and biological know-how and we supplied our expertise in computational biology and algorithm design and development.

A team combining molecular biologists, mathematicians and computer scientists, from both companies were formed. The team was given the objective of advancing the technology to discover which pathways are active in given processes, so the high throughput analysis of the results of selected Millennium DNA chip data. Usually, the sum of output of DNA chip analysis is a list of genes that are differentially expressed. The new method we developed together with Millennium identified activated pathways and provided the biological reasoning behind these findings. This is an example of the kind of research where computational biology and predictive modeling leverage high throughput data creation methods. This results in better understand -- this results in better understanding of the molecular basis of disease and the potential [personal] development of nucleic activities. In addition various aspects of our learning from this collaboration have been very useful in a number of our subsequent research efforts. The Pilot Systems Biology project with Novartis, announced yesterday is based on our past efforts and serves as development of our capabilities during the past few years. As a part of this collaboration once again we will be conducting high support analysis of our partners DNA Chip Data, but now with more and very different data and with even more challenging goal. This new joint activity builds on our successful three year genomic collaboration with Novartis that began in 2001. With Novartis licensing of our LEADS computational biology platform for the identification, prioritization, and validation of new drug targets. Novartis twice extended the original licensing agreement, heading in 2002, recent collaboration in the field of RNAi. More recently Novartis also licensed Compugen’s Genecarta's annotated genome, transcriptome and proteome database. The specific goal of our new resource project with Norvatis is to predict transitional network based on microarray and other biological data provided by Novartis. We will develop a proprietary platform for performing [in silico] predictions of passing information so the combination of different types of data.

The expected outcome of our mathematical model is a list of some [fiction] factors that regulate expressions of books of genes. Under terms of the pilot project agreement, Novartis will obtain sole rights to the specific results of the projects and we will be with them always to do research and discovery systems developed through the collaboration.

We are of course delighted that Novartis has once again selected Compugen for it's state-of-the-art scientific and technological project. In summary and as pointed out by Martin, the type of core competency which was created over the past year is a mathematical modeling of biology, is a foundation on which Systems Biology, no matter one chooses to define it is a base. Therefore, this will represent an exciting opportunity for our Company and an expected source for both industrial collaborations and future break-through product opportunities. And now I would like to turn the call over to Nurit.

Thank you Mor. As previously stated since in 2002, in order to focus our efforts on in-house discovery and the development and commercialization of therapeutic and diagnostic products, Compugen has been discontinuing and are substantially de-emphasizing the licensing of platform and tools, incorporating our technologies. This transition is now largely completed and is reflected by the decrease in product revenues from the same quarter of last year. The very minor cost of goods reported for the most recent quarter, is attributed to the fact that the substantial percentage of current quarter revenues relates to ongoing services and license agreements. Consistent with these transitions of those sales and marketing expenses for the most recent quarter was $459,000 compared to $682,000 for the same quarter of last year. Most of these activities are now related to business and corporate development. Research and development expenses remained our largest category of expenditure as we pursue the development and dues of our discovery engines and add new molecules to our list of therapeutic proteins and diagnostic biomarker for the candidate. In addition during 2005, we will initiate preclinical studies for a number of proteins in our discovery pipelines.

Last year research and development expenses increased significantly from $2.9 million for the first quarter to $3.5 million for the fourth quarter, approximately the same level as the $3.5 million now being reported for the first quarter of 2005 and we expect to remain at approximately this level through the remainder of this year. Approximately 15% of our cash is invested in high quality financial instruments where the principal amount is secure but the final interest received at maturity will either be higher or lower than market rates depending on future interest rates.

Generally accepted accounting principals require this non-cash interest income be recognized on a current basis on these types of instruments based on estimated future interest rates which can result in reported financial income and expenses that may factorize significantly from quarter-to-quarter. During the first quarter of 2005, this resulted in a very small net financial expense of $5000.

As we have stated many times in the past, we mange our company financially on a cash-flow basis. We ended the first quarter of this year with $43.5 million in cash and cash related accounts, a decrease of approximately $5 million from December of 2004 and higher than the average net cash flow for recent quarters. This increase is due to the timing of proceeds and expenditures. The cash flow for the quarter is consistent with our previously stated outlook for the year of a net cash decrease of $14 million -$16 million.

And, with this we conclude our formal presentations and open the call to any questions you might have about the presentations today, the financial statements, and press release for Q1 ’05 or any other aspect of our company.

Thank you ma’am. Ladies and gentlemen, at this time we'll begin the question-and-answer session. If you have a question please press the “*” followed by the “1” on your touchtone phone. If you wish to decline from the polling process, please press the “*” followed by “2”. Your questions will be polled in the order they are received. One moment please. I will repeat the instructions. If you have a question please press the “*” followed by the “1” on your touchtone phone. Our first question comes from Ronald Allweather (phonetic) of Capital Partners. Please go ahead.

Yes, good afternoon everybody and thank you. Your last comment about providing a little more clarification of the Novartis announcement which is fascinating. I really have two questions, one which pertains to that and then something which you have talked about in the past. It's a little difficult to -- at a distance to understand exactly what; I'm trying to get to the cog of -- the notion of cog I hear from Compugen. You indicate this is a Pilot Program so, presumably this is the beginning of your efforts in enhancing your knowledge of systems biology with Novartis. You've indicated that they retained sole exclusive rights to the results which I presume are hits or perhaps something more than hits. So, what remains for Compugen, this is what I'm trying to get an understanding of, is you mentioned before these transcriptional factors which are connected with some genes, what does Compugen do with what is left away from the results that go to Novartis, given the fact that your balance sheet is a little bit more modest than it used to be and presumably you are going to want to do something with those results as well. It is just a little hard to understand what the real net benefit to Compugen is in this process. I can see it's to Novartis, but perhaps you can explain it a little bit more?

What we gain in is the ability to substantially improve our capabilities in this field and so the use of data from Novartis that is out-- Novartis we do not have access to and also, so walking together with the scientists and experts from Novartis. We-- it is systems biology is a new field and I've no doubt that what we and maybe all the other organization involved, have achieved so far in this field is a very, very little fraction of what can be and will be achieved in the future. So our key goal in this area is not to and leverage our current capabilities in Systems Biology, we shall note this and in order to develop drugs or diagnostics but to increase and probably develop these capabilities as quickly as we can and you know that we'll do it. And, we need access to resources, data, and capabilities that we left in other companies. I believe that what we gained in this agreement is at least as much as Novartis gained.

Well just a try, just to take that further, what if you -- I understand you are elucidating the Systems Biology knowledge base and you could retain that knowledge, but what do you then do with that knowledge, given the fact that Novartis has sole rights to the products of this agreement? What is the reason -- commercial value that comes outstanding of that?

Ron, this Martin. First let me say there seems to be a little bit of a confusion in answering from our side, I mean from our standpoint – I’m physically at a different location than the rest of the team is, so if we speak at the same time or whatever that’s the reason. Let me just make it very clear that this is a new area not just -- specifically the project that we are working on with them, this is something that hasn’t been done before by us or as far, you know, by anybody else and so it is a question of learning how to do this developing systems, tools, platforms as you wish and out of that - yes, there will be some results discovered and the results themselves will belong to Novartis, but the platforms, the tools, the systems, the ability will be ours to license or to use for our own purposes or to work with other companies. I mean if nobody has ever built a house before and we’ve worked with somebody else and figured out how to build the house and they own the house but we had the rights to not to build for anybody else. You know, that’s a positive outcome and that’s basically what we are doing here.

We will just use the last analogy about your house there, I am still not quite clear. So if Novartis owns the house or Novartis is helping to build the house and they move in to their house would you build the second house next to it or …?

Keep in mind, I started by saying suppose no one in the world could ever build the house before, there were no houses.

Okay.

Alright. And so we got together with somebody else and we said lets pioneer this. Let's figure out how to build the house which everybody wants because a lot of people want a place to live. So we work together, the one house that comes out of that project belongs to our partner but now with respect to all the other people who need houses to live in, we are, you know, we own this knowledge and have the right to work with that.

You are the architect for the other houses?

Yeah, well yes. I mean, again though you have to-- it's probably a bad analogy because when you think about houses, you think well anybody can build a house. Though when you use this analogy, I figured that, you know realize as the base, that you know, that'll make sense only if you are in a world where no one knows how to build houses. You know, and that's what we are hopefully going to learn here is, we are going to learn, and then…

And does Novartis give you enough -- does Novartis give you enough cash to keep going further along so that you can really drive this knowledge because you mentioned this is a pilot, so will you have enough results -- financial results to see it through with this Novartis?

Well of course, I mean we've, as Nurit mentioned, I mean, we run our Company on a cash flow basis and this isn't going to, this fits within, you know, this fits within the financial planning of the company that we've set forth. This doesn't add any extra, you know, cash out flow, you know because this is a pilot.

Alright just one other quick question on…

Also it's not only that it's a pilot, but it's something that we would have done ourselves in any event. And, you know, if you are working with them, it's much better because we have access to a little of their capabilities and data.

Sure enough. Just quickly, I don’t want to take up all the time, the fixed compounds you talked about last year, your therapeutic proteins and all that, Nurit mentioned a couple of minutes ago that you are going start some animal model in 2005. Can you talk about those fixed compounds, essentially where they are in the process if you can, which ones are you partnering, or do you plan to partner them, or do you still need further pre-clinical work or -- because you'd refer to that in a couple of conference calls as a goal and it hasn’t been referred to since then, how you measured proteins and that stuff?

Before answering this question just to clarify one thing about the collaboration with Novartis, and Novartis gets all rights to the results of this specific pilot, and these results are just the results of analyzing certain portion of Novartis data with certain tools that we develop and this is very-very far and not just from another deal for I’ll say of – or I’ll say that we can deal for other people, this is also very far from what systems biology can do on Novartis data for Novartis. Really we are talking about a very small part of the potential and future results of using systems biology and even for Novartis. And with respect to the pipeline and our policy is to announce what is happening with specific molecules only on certain occasions when the partnership is – that I am certain to stay with a partner and it really is a very substantial internal math from that is met or not and we haven’t announced in the last few months any specific announcement about any of these molecules and we are currently moving forward into phases I and we are discovering additional working candidate, and we plan to wipe away and advance and also there would be successful therapeutics--and in addition we are working on several kind of that you see -- over the amount that we are working on them and further developing them in biological validation followed by clinical trial.

Okay, thank you. I just want to – I’ll step aside for other questions. I may come back later. Thank you.

Thank you. Moving on to our next question, Adam Goldman, Merrill Lynch. Please go ahead.

Yeah. I am just reading from your press release, during the past quarter we saw important accomplishments in each of the 2 components of our business model. Expanding and deepening our unique discovery capabilities in terms of scientific understanding, specific discovery's, platforms and people. Can you elaborate on what exactly that means? There is really no more detail in the press release.

Nor, are you waiting for me or --

No just I thought, or I was assuming that you will start talking.

Go ahead.

I'll be the later one to answer this. And with -- may be we just go over this one-by-one.

What's the business model? What are the two components of the business model for the layman?

Oh yeah, see, I mean, we obviously are taking steps now with respect to our discoveries and our capabilities to build a revenue stream, and you know, in a business that hopefully will be very profitable and you know, sustain that on a long-term basis. And that's true, we've discussed this in the past and in our annual report, this involves primarily our own pipeline but for the short term, more importantly either they are in the collaborations with other companies, either on a specific discovery of ours or what we call our pipeline deals, which we’ve discussed in past calls. And so no, I won’t go through them now but our main focus now is in the area of pipeline arrangements and as we mentioned also in the past, right now though long term we expect therapeutics to be probably the primary area that the early ones that we, one that we have announced and others, that we were talking with companies about fallen to largely with the diagnostic area. So this is sort of the business side of short term creating a financial stability in the company and the growing revenue stream. It is our view that the real value of the company though is in our leadership position and in understanding the molecular -- certain aspects of the molecular basis of life are working in alternative spicing antigens, post transcription editing, all of this is a scientific leadership that we’ve documented and we believe now with what we’re doing with Novartis and with other things that we are continuing to build on this foundation and really developing a unique, I believe world leading capability in certain of these areas. So I suppose the two components are; one harvesting revenues out of what we have accomplished to date, both our capabilities and the discoveries that we have made and can make, but secondly making sure that we continue to maintain our leadership position you know moving forward, I mean sometimes I think of ourselves more like a, you know, like a [Bell Labs] that's come out with its first model telephone that’s fine, but, you know, maybe we’re the only ones with the first model telephone but there’s a lot more to understanding, you know, electricity and it's applications than just your first model of telephone. And I think that with our leadership position, we can be a major player moving forward in this whole field

And what are the specific discoveries that you have referenced in the press release?

We’ve, again, we've discussed this in the past and then we’ve got in the area of therapeutic proteins, we’ve discussed a number of them specifically. We’ve mentioned that we’ve discovered a thousand….

Hold on hold on, during the past quarter didn’t it doesn't say in the past? It is during the past quarter.

Right.

What in the past quarter are the specific…

We added, -- Mor, you may want to correct me on this, but I would with our work, I would doubt if the months goes by where we do not have what we believe to be important new discoveries. I mean, we now have discovery engines in place and we have an on going capability.

Basically we are working discoveries are of 2 types; one, in the area of therapeutic proteins, it's a potential equity content that we discovered in our internal research and we are underway through the validations and in the future we expect to license them to other companies and in diagnostics it's mainly what we are doing under the collaboration with a diagnostic product corporation and discovery of potential and diagnostic markets mainly in the fields of concerns because of [inaudible].

And there have been factors of the specific discoveries in both of those areas during this quarter plus other areas.

Okay, you know, if there is any reason to elaborate on a specific discovery?

The problem is that, you know, that -- I'm sorry, go ahead Mor.

We are in the process of filing patents on these discoveries and I believe that it’s too early to discuss them because of competitive reasons and also because many of them are on early stages and, you know, quite too much long.

Thank you.

Thank you, if there are any additional questions, please press the "*" followed by the "1" on your touchtone phone. We have a follow on question from Ronald Allweather (phonetic) from Capital Partners. Please go ahead.

Yes, I just wanted to be sure everybody had a chance to ask questions. I just wanted to come back to one main thing which is puzzling and then you can help us with this. The science keeps moving along in a way and I think you've demonstrated this over the last two or three or four years, really several discoveries you've made, it's very, very exciting. One would think however, as you move along this process that intermittently there will be ways, systematic ways of capturing some significant economic value from that. I am not exactly sure how that works, I mean you have all the knowledge so I can't comment and yet I was getting the sense and I may be wrong here that if I had this sort of list of priorities of a company, elucidating the science and doing a break through science, seems to come before how to commercialize it. Now you may say well the commercialization process is a consequence of the breakthrough science but it sounds as if the first priority is advancing the science and whatever you have to do commercially to sustain that falls into place. As opposed to how do we monetize along the way in a more dramatic way the fruits of our scientific progress. Can you comment on that?

I think you’ve just done a good job again talking about the two components of our business. I personally believe that they’re of equal value and that we must not sacrifice one or, you know, one for the other. The aspect of you know, continuing the science, I also want to -- when we talk about continuing the science, I’m sure that to a lot of people in the financial world that hear those words and they say why is a company doing science, and should be joining a university? Again, this is life science which is very different than high-tech. When you do -- important products in life science in pharmaceuticals and diagnostics, the really important products, come directly out of breakthroughs in the science. You know, we made a good break through on alternate displacing, we turned to it despite product, so I mean, so yes, but you know, we are in this for the long-term and we have built up, as I said, we need to build up a critical mass. We now have begun this process of licensing out of specific discoveries and entering into pipeline agreement, so and that we have some significant effort going on in that way now of talking with the industry about various types of pipeline agreements where we can, where other companies can use our capabilities in a focused area, in a specific area, in a way that we will have right to either partially commercialize with them or more likely to get milestones or royalties on anything that comes out of the arrangement, such as with the diagnostic products. And so, this is a major focus now, but we couldn’t do these pipeline deals without the discovery engines. We couldn’t do the discovery engines without the knowledge that we developed of deeper understandings of the science; we could not have had a deeper understanding of the science without having created the computational biology capability that we have, that’s unique in the world. We could not have that computational biology capability had we not put together a very neat group of scientists, mathematicians and biologists. There is no way to jump in to this from Day 1. It goes through stages and if you look at our annual reports for the last, since we have been a public company you will see in each year I was talking about going though the next stage. I am very confident now that we have finally reached the stage where we are in a position now to harvest commercial agreements revenues whatever, from what we have now put in place. As I said you can't, the engine I am not going to go through it again but one thing comes from another, and each of the things that I just mentioned in passing take years to put together.

Understood. So what if we say,--, what if we were to say in respect to what you just said in terms of modeling this, is this what the financial community is really trying to get a grasp on because you are so weighted towards the sciences. There is probably a 2 or 3 year lag between the time you come out with a seminal discovery, lets say alternate splicing and capturing that value which presumably we should see sometime this year relative of those discoveries of 2 or 3 years ago that every time you have a 2 or 3 year lag which is another major discovery event in capturing that value, that presumably still.

First I think conceptually I would agree with you whether it is 2 or 3 or whatever. In most cases it may even be more, you know I'm very familiar with this because some of you know that I was very involved with ALZA Corporation, the drug delivery company for many, many years, and I remember when ALZA would was at the stage that essentially, that Compugen is now, where we had developed the transdermal technology, the oral technology, the intravenous technology. We had developed all of this, you know new technology but we had no products that were in the market and everybody was screaming at us, you know, what are you going to do, what are you going do. But, and then once we started, once we had the critical mass, then we started turning the crank. And suddenly, unlike, other companies that maybe they will make a discovery, maybe they won't; they make one this year, they make another one ten years from today. We have put in place, at ALZA we did it and I believe we have done it here, put in place a capability where we can now start turning the crank and capturing the revenue from this stuff. The next year or so will tell the tale. I mean, it's not, you know, people have been with us for a while, I am sure are frustrated. But as I said, the next year is going to tell the tale. If we are not able to, you know to capture value from what we’ve put in place today then we’re going to have problems with the company.

Thank you and we look forward to it.

So do I, as one of the largest buyers in the open market of our stocks, so do I.

Okay, thank you Martin.

Nice, thank you.

Thank you. Our next question Raymond Walsh (phonetic) from UBS. Please go ahead.

Martin, a comment was made several months ago about the fact that the biology expertise was virtually complete or was complete and that it would be another 12 to may be 18 months to have the chemistry expertise in the same position and an analogy was made that that would not be like the icing on the cake, but would be like may be 10 new cakes. Is that a fair recollection?

Well, maybe Mor would want to comment after I do, but let me clarify, I mean the biology is not complete from the standpoint that, you know, neither for us nor for the world a 100 years from now will the biology be complete I mean its - what I said was that we had a proven and what I said and I know what your referring to what I’ve said about a year ago that we had reached the point where we believe that we had created a capability in biology that was sort of at the critical mass where we actually could and I think we have proven it, begin now to predict and prove that we can make discoveries that other people cannot make out of our knowledge of the biology but that was a theory until a couple of years ago but now I think the evidence is very clear that we can predict things and the predictions are correct, they exist, and things that other people do traditional way, methods cannot -- I think that the question that the whole world, however those who have followed us are asking is okay so you can do that, now how are you going to make money out of it. I think that's the next thing that we have to prove and I believe the last thing that we have to prove.

Now with respect to the chemistry we have as you know we have an ongoing chemistry program which we have now setup as a wholly owned subsidiary Keddem which we've tended not to talk about it in great detail because it is a very, very high risk program and also an incredibly high reward. I mean if this project, program Keddem is successful and what they are attempting to do that is to be able to create a consistent platform to create small molecule drugs for any protein target without the need for any knowledge of the structure and no rational drug designer whatever, so it is a very unique approach. If this can now be fully reduced to practice I think it will be an enormous contribution to the pharmaceutical world and an unbelievable opportunity to make an enormous amount of money. But again, it is still a very, very high risk program and that could completely fail. Our biology cannot completely fail now, it works, all right.

That's it.

And hopefully we will continue to get better. Mor, I don't know if you want to add or subtract or whatever.

No, I think I have nothing to address right now.

Thank you.

Thank you, our next question comes from Joe Aguiler (phonetic), please go ahead.

Hi, Martin how are you?

Good, thank you.

Good, you've done a great job Mor and Nurit. Just had a question on the one-time payment from Novartis, will that be released or can you tell us a little about that? What kind of size payment?

Let me say it's a modest payment. This is not, I mean, what we are mainly getting out of this is the, you know, is getting access to the whatever the platforms of science and technology comes out of this, which will be far, far greater than whatever has been the case had we done this on our own. And believe me we would have done this on our own, had we not had this opportunity with Novartis.

Right, and next question is on the Systems Biology, the new hot area that you say it's a really the -- who are the main players would you say in that area in terms of biotech, younger companies or...

I don’t think we are in a -- you know, first it's a field that is, as I mentioned, is defined in so many different ways. You know, I would hate to put, try and label any of those companies but you are going to be hearing more and more companies, you know, beginning to speak of themselves as a Systems Biology companies, you know, it's because it is going to be the thing that’s going to, I think, capture the imagination of the public in the whole new world of life science.

Currently, there are significant efforts in several academic institutions, some small companies, and also in the discovery operations of the several big pharmaceutical companies.

Martin can you -- the first the further little of product you now give a start Phase I, which areas are you attacking?

No, we’re not, no, we’re starting animal studies not Phase I. We have no clinical, okay yes.

On the animal studies what area of disease you’d be attacking on that.

Mor, I don’t know what you want, Mor can you…

What I will say is that the two main areas that we are walking on internally are cancer and immunology.

Can you say that again?

Cancer and immunology.

And what specific targets on cancer are you going after?

I don’t think we can -- well, go ahead Mor whatever you like to comment.

I think we cannot comment more than that the names of certain molecule of proteins and talked about in the past and very [marginal] areas. We will do it in the future but not now.

Okay, thank you Martin and thank you Mor and Nurit.

Yeah, thanks.

Thank you. With that there is no other question at this time, therefore I ask Mr. Gerstel to go ahead with his closing statement. I would like to remind participants that a replay of this call is scheduled to begin two hours for a period 48 hours. In the U.S. please call 1-866-276-1485. In Israel please call 039-255-901; internationally call 9-723-925-5901. Mr. Gerstel, would like to make a concluding statement?

Just would like to file from the names on the call these are the people who I know have been associated with us for sometime and we really appreciate those of you have continuing belief in our company and for participating in the call today. So thank you very much.

Thank you this concludes the Compugen Ltd's First Quarter 2005 Conference Call. Thank you for your participation. You may go ahead and disconnect.