Compugen Ltd (CGEN) 2007 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Compugen Ltd. first-quarter 2007 financial results conference call. All participants are 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 May 1, 2007.

With us online today are Martin Gerstel, Chairman; Alex Kotzer, President and CEO; 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 content 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 972-3-765-8525.

Mr. Kotzer, would you like to begin?

Greetings and thank you all for joining our first-quarter 2007 conference call today. In the last few months, we have announced four new agreements and two new discovery engines. In my talk today, I would like to elaborate on these announcements and what each one of them represents in terms of expansion of our discovery capabilities and commercial potential and to emphasize their growing cumulative importance.

After my remarks, I will turn the call over to Nurit Benjamini, our CFO, who will follow with an overview of our financial results and status. Martin Gerstel, our Chairman, will then provide closing remarks. After which, we will all be available to answer any questions you may have. Also with us today is Ronit Lerner, who has just joined us and will shortly be replacing Nurit as CFO of the Company.

We ended 2006 with three partners for our immunoassay biomarkers discovery. They are Siemens Medical Solutions Diagnostics; Ortho-Clinical Diagnostics, a Johnson & Johnson company; and Biosite. Our collaborations with them are targeting discoveries, developments, and commercializations of biomarkers primarily in the area of oncology and cardiovascular diseases.

In January 2007, we announced two new collaborations. The agreement with Medarex from a discovery point of view represents our entry into the field of [blood] targets and specifically in this collaboration antibody therapeutics. From a commercial point of view, this represents an expansion of our revenue-sharing business model into a 50/50 sharing arrangement for both development and commercialization of the products deriving out of this collaboration.

The agreement with Teva represents our entry into the field of biotoxicity biomarkers, utilizing our growing capacity in nucleic acid testing technology. From a commercial aspect, it addresses a clear, unmet need for any company to develop drugs. While leaving Teva the rights to all fruits of this collaboration internally, it gives us the commercialization rights to all other companies.

In March, we announced a new agreement with our already existing partner, Biosite. This new agreement enables selection of many candidates in similar areas of immunoassays. From a commercial view, it represents a strong vote of confidence and trust of an existing partner that is a leading player in the diagnostics business.

Yesterday, we announced a new collaboration with the Mayo Clinic to find and develop diagnostic biomarkers for unstable atherosclerotic plaque. Unstable plaque is regarded as the most common cause of complications from atherosclerosis that can lead to increased incidence of heart attacks and stroke. Under this collaboration, we intend to first employ our nucleic acid testing and genetic variation technologies as the key discovery tools. Finding biomarkers of unstable atherosclerotic plaque is early detection of stroke and heart failure, represents a top, unmet medical need and scientific challenge.

During the last few months in addition to the announcement of these four new agreements, we also disclosed the development of two new discovery engines. The first, an engine to discover GPCR peptide ligands, has already led to the discovery of eight novel peptides that activate GPCR.

The second, an engine to discover medium-and-large-scale genetic variations, enable us to create a wide and comprehensive database of such variation. And we are now in the process of identifying specific genetic markers that might be useful in various diagnostics and disease predisposition situations.

In both of these areas, we see a significant amount of interest for potential pharma partners. Discussions for possible collaboration have already been initiated. We are looking forward for a positive outcome of such discussions.

The six partners we already have for development of product based on our existing discovery engines, the exciting new discovery engines already announced and new engines under development are bringing Compugen into a new face, in which we are clearly demonstrating our capabilities field after field and expanding rapidly the number of discoveries and collaborations. Martin will discuss it further in his closing remarks before our question-and-answer session.

Yesterday, we also announced that Nurit has decided to resign from the position as CFO of Compugen. And therefore, before I turn today's call over to her, I would like to take this opportunity to acknowledge and thank her publicly for her seven years of excellent contribution to the growth and development of our Company. Nurit has been Compugen's CFO since our IPO in August 2000 and since that time has played a key role in many activities of the Company in addition to her duties as CFO. We all wish her success in her future endeavors.

And now, I would like to turn the call to Nurit.

As we have presented a number of times in the past, our anticipated primary sources of future revenues are milestone and revenue-sharing payment from licensing and other arrangements, covering the development and marketing of diagnostic and therapeutic products based on our discoveries accordingly. And as previously projected, we had no revenues for the first quarter of this year.

Total operating expenses for the first quarter of this year were $3.4 million including a non-cash expense of approximately $820,000 related to stock-based compensation, the same as for the first quarter of last year, including a non-cash expense of approximately $550,000 related to stock-based compensation.

Research and development expenses of $2.5 million for the most recent quarter compared to $2.7 million for the first quarter of 2006 remain our largest expense, representing over 60% of total operating expenses for both quarters. These amounts are before the deduction of governmental and other grants, which totaled approximately $300,000 for the first quarter ended March 31, 2007 compared with approximately $420,000 for the corresponding quarter in 2006.

Our most important financial consideration is to ensure the availability of the financial resources necessary for us to continue to develop until we obtain positive cash flow from operations. We ended the first quarter with approximately $23.5 million in cash and cash-related accounts, representing a decrease of $2.9 million from the end of last year consistent with our previous guidance.

Before I turn the call over to Martin, I would like to thank the entire Compugen family and our investors for a very interesting, challenging, and rewarding experience with the Company over the past seven years. Compugen has made great progress during my tenure here, and it has been a pleasure to be part of the development process. I'm confident that Compugen will continue to move forward, and I wish the Company success in the future.

And now, I will turn the call over to Martin.

Before I start in my remarks, I would also like to thank Nurit both personally on behalf of the Board of Directors for her many contributions as our CFO.

In Alex's remarks today, he described six recent announcements by the Company. The fields these announcements related to are immunoassay diagnostics, primarily for cardiovascular and oncology; antibody therapeutics; drug toxicity biomarkers; biomarkers for unstable plaque in cardiovascular and cerebrovascular disease; potential peptide therapeutics targeting GPCRs; and medium-and-large-scale genetic variations.

In addition, late last year, we disclosed the status of our pipeline of potential therapeutic proteins. I am certain that those familiar with the pharmaceutical and diagnostic industries find both our productivity and the diversity of the fields that we are involved with -- and this of course is only the beginning -- to be very surprising. And although our efforts in each of these areas represents both impressive capabilities and significant commercial opportunities, when viewed as a package, they begin to validate something of much greater importance.

In addition, perhaps the most surprising thing that can be said about Compugen's extremely broad discovery capabilities is that they result from an extremely-focused research effort. This surprising result is because we are not focused on one or a few of the specific disease areas or physiological systems or chemical classes or technology platforms, etc., as is common in the drug and diagnostic industries.

Instead, our focus is and has been for the past decade on understanding important aspects of life in a predictive manner at the molecular level, such as how do genes express transcripts? How do transcripts become proteins? And how are proteins cleaved to create peptides?

These understandings, partially documented by the more than 50 papers by Compugen scientists and peer review journals during the past five years, are not field-specific. When now combined with our experienced and highly-talented, multi-disciplinary research team are exceptional computational biology platforms and are continuing -- to continuously improving predictive models.

The result is that we already have in-hand probably 80 to 90% of the proprietary knowledge and capabilities required to create each new field-specific discovery engine before we even begin to work on it. This is the secret behind our exceptional productivity and diversity of results, while at the same time maintaining extreme focus in our efforts.

It is also important to note that as we continue to demonstrate the value of our existing capability, the existing capability itself continues to get better and better every day. This results from our iterative approach to research, where each hypothesis-driven experiment yields valuable results, whether the specific experiment succeeds or fails. If it succeeds, it may both produce intellectual property in the form of new discoveries and also adds to the validity of the model. If it fails, the experimental results will likely provide insights into how to improve the predictive model.

In the past as we were creating this unique and powerful capability for Compugen and for me personally, trying to convince potential investors of the value of our efforts was very difficult. Pretty much the only proof that we had of our continuing success were our scientific breakthroughs, which for good reason, financial people had a very hard time placing a commercial value on. Or in the extreme case, suggested that these scientific breakthroughs demonstrated that Compugen management had more of a university mentality than a corporate mentality.

By the way, this is exactly the same criticism I received during the first decade or so of my prior company, ALZA. I assume though that some of these individuals had second thoughts about this concept after ALZA was sold to J&J for $12 billion. In any event, in view of the difficulty in explaining the rationale behind Compugen, for a number of years, we have not been very proactive in trying to attract new investors, which a few of you on today's call have complained about in the past.

However, in late March, I had a few meetings with potential institutional investors in the U.S., a few of whom I also note are participating in today's call, and again, not surprisingly, found that with the help of the product and collaboration focus announcements of the past few months, Compugen is now a much easier and much more understandable story and also one that provides much greater confidence. This is because we are now beginning to provide validation that our efforts of the past decade have in fact created a unique, powerful, and broadly-applicable capability for drug and diagnostic discovery.

Having reached this point in our development, we now intend to become much more proactive in our Investor Relations activities. Those of you who have known me for a while know that I love analogies. So I will close my remarks today with one, which I feel is very relevant to understanding Compugen.

Although most in our industry do not want to admit it, without any doubt, current approaches to discovering drugs and diagnostics are much closer in concept to the exploration and mining industries than to product creation in the high-tech industries. Therefore, let's assume that you hear about an interesting geology-based company and you're wondering whether or not to make an investment in it. While considering a possible investment, the Company announces that although it is not experienced in gold mining, it has discovered some gold deposits and discovered them in an area where a number of experienced gold mining companies tried and failed.

Obviously, you would then want to understand how much gold there was, how much it would cost to mine it, etc., before deciding on whether to invest in the company. But suppose while you're trying to analyze the value of the gold, the company announces that it has discovered diamonds. Now you need to know what the diamonds are worth in addition to the gold. But suppose the next week, the same company announces it has discovered oil and the week or month after that, uranium, etc. And furthermore, all of these discoveries were made in locations where much larger companies experienced in that particular type of exploration had tried and failed.

At some point, you will probably and suddenly realize that it almost does not matter what the gold that has been discovered so far is worth for the diamonds or the oil. The real value of the company is that they obviously have a deeper understanding on a predictive basis of geology and related sciences than anyone else. And by definition, once you have this type of understanding, it can only get better and better as it is utilized over time compared to the largely experimentally-based hit or miss exploration attempts of others.

My bottom-line message to you today is that Compugen has invested the last decade in creating the core capabilities to be that company, not in mining and exploration but instead in the drug and diagnostic industries. And we are now in a position to demonstrate to both potential partners in those industries and to the financial community the uniquenesses and enormous commercial value that this capability represents as we continue to successfully focus our predictive discovery capabilities field after field.

This is what I meant when I began my remarks today with the statement that when viewed as a package, our recent announcements begin to validate something of much greater importance than the sum of each of these individual announcements. And with that, we look forward to any questions you might have.

(OPERATOR INSTRUCTIONS). [Jeffrey Grosans], Private Investor.

Martin, several weeks ago, there was an article in Globes in Hebrew, entitled "It Would Not Hurt Israeli Entrepreneurs to Take a Little More Risk." Let me go to the bottom of that article; I don't think it was printed in English. And I am translating from the Hebrew -- or no doubt they translated their English into the Hebrew and I'm translating it now back into English.

You are quoted as saying, "Within a year, we will reach the stage where the market will have an answer to the question of whether we really can do what we have declared." Perhaps you could elaborate a bit and tell us what we might want to expect from Compugen over the course of the next 12 months.

Well, I attempted to address that in my remarks. First, I do believe that it is a correct statement. And I think that the first few months of this year have begun to show that this could very well be the case. We are now suffering from the fact that either people out there don't know us or they think they know us and therefore they kind of ignore our announcements.

In my recent -- the trip at the end of March that I referred to in my remarks was a very interesting one, because I met both with some new investors and some new potential investors and some who I had met with a long time ago. And it was very clear that they were quite -- all of them were quite surprised at the [pace] of progress we've made. But more than the progress, at the fact that these announcements are showing that we really do have a new approach to drug and diagnostic discovery that is confirming what I had tried to sell in the past on a theoretical basis.

I think that if we had a lot of interests already in our Company and forgetting about the stock price -- stock price could be as low as it or even lower -- but if we had a lot of people who understood what we were trying to do and were watching our Company and they saw the series of announcements that came out over the last three or four months, I think we would have a very, very strong, positive reaction with respect to our equities.

That has not been the case. Although, there has been obviously some level of interests. But I think -- assuming we can continue the progress, I think more and more people will start to notice us and begin to ask the right questions. And those questions are not -- tell me about protein x or diagnostic product y or this or that. Those are really relatively unimportant questions with respect to Compugen.

The key here is, are we really going to be able to get to the point where in the not-too-distant future, a fairly significant percentage of all the therapeutic products in the world and all the diagnostic products in the world that some reasonable percentage of them will be proceeding through the pipelines of the major companies in the industry based on discoveries initially made by Compugen under milestone and royalty-bearing agreements.

I assume it's not going to be that far in the future where we will be able to say that this year x billion dollars will be spent by the pharmaceutical and diagnostic industries, developing products for which we will get royalties on the successful ones. Most will fail. That is just the nature of the business that we are in. Hopefully, our predictive way of making discoveries will over time show that our discoveries actually have a higher probability of success than do others.

But the reality is that most will fail. But when you have hundreds of them in the pipelines of multiple companies around the world, suddenly it becomes a very, very low-risk situation.

Without a doubt, the announcements were very, very impressive. But the question is, should we be expecting more such announcements over the short-term?

I can answer the first part. Let me separate your question into two pieces. Can we expect more such announcements? The answer is absolutely yes.

Second part of the question over the short-term. There is no way to ever predict in advance when agreements are going to be concluded. I have said before and it's true there's no such thing as an agreement with another company that is 90% completed. It is either not done or done. Until their board approves it and you're notified that it is a signed agreement, it is still a work in process. And so there is just no way to estimate what is going to happen in the short run.

If you remember correctly, sort of the end of last year, people have asked us the same question. And we did not say well, you can expect half a dozen announcements over the next three months. But that is in fact what happened.

We did not know that that was what was going to happen. There is no way of knowing. I've said that until the agreement is done, it is not done. So yes, we are in discussions with many companies as Alex mentioned. In particular, the GPCRs and the large-scale genetic variations have created a lot of excitement with potential partners -- many, many discussions ongoing. I assume a reasonable percentage of them will end being successfully with nice arrangements. But there is no way to project the timing.

When we are talking about the GPCRs, are we talking about specific novel ligands, or are we talking about the engine itself?

Both. We are in discussions with companies regarding the ligands that we have already identified. And we are also in discussions with respect to the use of our engine for GPCRs of interest to that company.

1 last question. Again, referring back to the article that appeared in Globes, I am going to quote you again. "This new model will enable us to reach the point where we can say, 'You could not do it without us,' and thereby engage in the field where we provide the most added value. I believe that the potential of the market according to this model is $1 billion of agreements prior to royalties. When might we begin to see some of these $1 billion of agreements, the cash flowing (multiple speakers) agreements?

I have no idea what that quote means. I'm sorry; I just don't understand it. So it is hard for me to respond to it.

No. As I say, it's certainly -- I am sure it went from English into Hebrew and now back into English.

Actually, I did the interview in Greek.

[George Karutz], [Karutz Capital].

Wondered if you could tell us what the progress is on the 10-plus molecules that you have with the three diagnostic agreements, where they are? Because I noticed there wasn't any revenue in the first quarter, so obviously there wasn't a milestone paid. Can you shed some light on where those have gone and how far have gone further?

This is Alex that is answering. Unfortunately, we gave already this answer in previous calls. We cannot disclose any information about the progress of these molecules until the time that our partners will agree that we disclose. So we said in the past we are expecting some milestone payment -- Mayo, the first milestone [enclosed] agreement to be reflected in 2007, which is still the case. But unfortunately, we will not be able to give any specific information on each one of these molecules. I hope it answers the question.

Could you answer -- on your collaboration with the Mayo Clinic -- just so I can understand -- who pays for the work that is done? You've got a collaboration. There's no licensing fee. There's no money that changed hands apparently. Who pays for the work that is being done?

We each pay our own expenses. There is no money going back and forth. There'll not be any payments back and forth until -- Compugen has the right to commercialize the biomarkers coming out of this. And we have an obligation to the Mayo to pay royalties out of our revenues. But during the discovery and development process, each of us are paying our own expenses.

The most valuable piece of this of course from our standpoint is the enormous and very, very good data that we will be receiving from the Mayo Clinic, clearly, one of the world's great medical centers. If you think about what we have as a company -- what are the real assets that we have? You realize that there is one piece that in general is missing and will remain missing. And that is the appropriate data for the various fields that we go after.

In some cases, there is enough in the public domain to allow us to do our work. In other cases, such as like with Teva and now with Mayo, we will need a source of the data that we will then incorporate in our discovery engines. You remember, a discovery engine is built on our LEADS platform. The LEADS platform has the capability of taking in multiple types of data, all different kinds of clinical and genomic, etc., for [kinds/types] of data and analyzing it and coming up with information.

So a discovery engine in general has that as its core. Then, we add to each specific discovery engine the predictive models and the understanding of the science that we have, both of which are proprietary, that are relevant to that specific field. Once the engine has that -- those components, the piece that is missing is the field-specific information. And that is what we are obtaining from Mayo, and that is what we obtained from Teva.

And in some cases, we can find enough in the literature to -- for example, with the GPCR work, we did not need to find a partner to do that work. But I think in general what we will probably do is for most engines, we will end up one way or another collaborating.

Martin, I am a large stockholder, so I am on your side. I think the frustration with people out there is they don't really understand exactly -- they know what you are doing, and they know you are a leader. But they wonder if there's ever going to be any economics to it.

No one has put up licensing fees and that is what they are used to, someone licensing a deal or technology or whatever and money changing hands. I know they are spending money. I know these diagnostic companies are spending money, but it is not coming to you all.

And I think that is one of the things that investors -- if there was ever a deal where they could really get their arms around it and say -- okay, now, somebody is willing to pay for this -- and that makes it more valuable. Not that that does, but that is in their minds psychologically. And I think that is one of the frustrations and why people aren't running after it more. They wonder --

I fully agree. What is interesting is that that frustration in large part arises from a lack of understanding of what our corporate goals are all right? As I said to you, we are in a very different situation than most biotech companies. Most biotech companies have one or two product opportunities that they must get the most money -- that is their future. Those products must give rise to -- and if they fail, they fail. If those products succeed, they succeed.

So therefore of course, when they license them out, they are going to go to the various companies and they are going to try to get the most upfront money they can get, the biggest milestones, etc., etc. Because this is it. These are their two babies they have got to -- their company is going to be created around.

We are a different company in a very different strategic situation with a very different goal. My goal is to maximize the number of products in the development pipelines of the industry based on our discoveries. That is what my goal is and that is what our corporate goal is.

Therefore, it would be absurd for us to ask for upfront monies. I don't want any, any -- I want every one of our discoveries when the other companies look at them to look at them on an equal basis to the things that they are seeing from other companies to their own discoveries in-house. I don't want a single discovery of ours to be turned down because we wanted $0.5 million upfront fee and they've decided that having one that was almost as good, so why pay the $0.5 million. Because in the end, no one knows which drugs are going to be successful or which early discoveries are going to be successful.

We have all seen in the industry a situation for people that have paid tens of millions of dollars upfront and the product has failed. But from the standpoint of a company licensing out one or two products, if it gets $10 million upfront, it has done pretty well. Again, this is not in our strategy. It is not in our financial model. It is actually -- it would hurt us. It would interfere with us meeting our corporate goals if we attempted to get front-end payments.

Could we? Probably yes. They would be modest because of the early stage. The agreements would probably be more limited in the number of targets or drugs that people take because of the front-end payments. It just goes against our philosophy.

I understand that this is difficult for the financial community to understand because there hasn't been another company like this. I believe the last company really like this was my prior company, ALZA. I had exactly the same [strict] policy there. I never accepted front-end monies. I looked for milestones and royalties. And my goal was to get as many products out there as possible.

Looking back on it, the top maybe ten products that we ended up at ALZA developing from the standpoint of actual ultimate sales, when we started those programs, no one probably guessed more than two or three of them. And if people had guessed which would be the top 10, most of the ones that people had guessed never made it. This is the story of our industry.

So again, our goal is not to maximize the amount of money that we get from our three or four products. Our goal is to maximize the number of products in the development pipelines of the industry that are proceeding with them spending the unbelievably large amounts of monies to get them developed and to introduce them. And then, we will get our reasonable share of their profits -- of their revenues from the successful products.

And so as I said, I understand the frustration that is out there. But as I said, it doesn't match our business model.

Right. And I am not disagreeing with you. I just brought it up as a fact that is one of the reasons that people aren't grabbing onto this thing is because they don't understand the model. Maybe when we get a little further along and we see more success in economic terms --

I understand. I hate to mention ALZA again, but I will because there was a point in time when you could have bought all of ALZA -- 100% of it for $10 to $15 million. That was the whole market value of the company. A few years later, you could become a very significant shareholder if you were willing to invest $1 billion or so.

Now the amazing thing about that is that when people justified the buyers at the $1 billion stage, when they were buying the company, if you asked them why they were buying the company, everything that they said existed when we were a $10 million company. There was nothing new of value that had been created from the time that we were a $10 million company until the time we were a multibillion dollar company -- zero.

The only difference was that the financial community began to understand that the value of ALZA was not product a or product b, but it was that it created engines, machines that where they could turn the crank and products would just come out one after another. And some would be successful; some would not. But you would have a continuing flow of products being developed by other people on which the company was going to get royalties.

I am absolutely convinced that that is what we have done here and the same thing is going to happen. This is going to probably sound like the most absurd statement you've ever heard, but I am going to say it anyway. Let's assume that our stock value today was $1 billion rather than $70 million. We are a $1 billion company market value.

It would be very easy to go to the institutional investors and justify that $1 billion based on what we have today. It actually would be easier to justify it than it is today trying to argue -- convince people why they should buy a $60 million market cap rate or $80 million or whatever it is.

Because if we were a $1 billion company, people would ask the question -- you don't have any profits or any products; why are you worth $1 billion? Once they ask that question and we say, you know what? Look at the discovery capability that we have. Look at the ability to create new products that feed the pipelines of the industry. And look at all the record of success we have on the scientific basis, which proves that we can do things that other people cannot do.

I am certain that I could convince the vast majority of institutional investors that we were in fact worth the $1 billion market cap that we had. How you get from where we are now to that point is very difficult.

Right, I totally agree with you. You are right. It would be easier to convince them if you were $1 billion than where you are now. But anyway, thank you, Martin.

And Nurit, the best of luck to you in all your endeavors. And it has been great working with you. You're a very fine person with integrity and I have enjoyed it. I know that the other people that have been involved feel the same way.

Thank you, George.

Well, in spite of the integrity, she really had some good parts too.

Ronald Oveter, Capital Partners.

Martin, just as a follow-up to the previous discussion, and this is maybe another way of getting at the same question as to the undiscovered value of the Company. Can you share at all to the extent that you're able to, what direct committed resources are being applied by your various partners, J&J, Biosite, Teva, etc.? Tell me within your own programs -- I think first of all, that represents essentially an off balance sheet kind of financing.

And number two, to the extent that you would disclose something like that, it would give an order of magnitude as to how much money is being invested in this process by your partners, even though you don't benefit from it directly or immediately. But if you can give us an order of magnitude, I think that would be very helpful in terms of what is really being invested directly by your partners for your programs.

First, let me say that I think that that is really a critical question and one that really gets to the heart of the value of our Company. Because if what we're saying is true, then at some point in time, the numbers should be quite large. And as you said, it really is zero cost off balance sheet financing to our Company. You really have hit the nail on the head with respect to the core of our business strategy. And that goes back to how we negotiate and the kinds of deals that we have (inaudible).

At this point in time, I don't have an answer for you even in an order of magnitude. I can assure you that it is a reasonable amount that would -- when you look at -- that highly leverages the amount of money that we're spending on these programs. But it is a number which I hope to be able to in the not-too-distant future, at least order of magnitude, that I hope to be able in the near future to start to talk about. But as of now, we really don't have that information. But --

Is it that you don't -- that you can't disclose it or is it that (multiple speakers)?

No, we really don't have it. We just don't have it.

But let me -- just to drill down a little bit more, when you're actually in discussions with these various groups, do you ask them -- if it is fair for me to ask that of you -- what kind of money? Because it seems to me from your point of view, if in fact you are making sort of this investment and your partners so to speak, you wouldn't want to know to what degree they are going to invest their own money because it's to your benefit to decide who is the best partner to take the technology further along.

We don't typically -- we don't do it in terms of dollars. Typically, we do it in terms of milestones and diligence procedures that they have to report to us at various times with respect to how the project is moving forward. And if they are not meeting reasonable milestones -- and these milestones can be either dollar associated or not. By milestones now, I'm talking about actually the project moving forward. Then, we have the right to cancel it to take it back.

The industry is starving for products. So if we have a good discovery that goes to somebody else and they start to work on it, in general the fear isn't -- or the risk isn't that they will just not put the money behind it. The risk is that for whatever reason they decide it's not what they thought it was going to be. And maybe they're right; maybe they're wrong.

But in any case if a company decides -- nobody is going to take our product in the beginning and start to invest in it unless they believe that there is some real value there. And as long as they continue to believe it, they will spend the money. Spending money isn't the problem in general for our industry.

But once they reach the stage -- the risk for us is that for whatever reason on a specific discovery, they reach a stage in their opinion, they were probably wrong, it doesn't have the potential that they thought it did. And what our agreements need to do is to make sure that we get that discovery back if that happens. Because maybe somebody else will feel differently or at least we can take another look at it.

Just a suggestion, I think going forward, I think it would be very helpful in material if you could provide some guidance as to the collective dollars being spent by your partners. Because that will really give a lot more hard data on the implicit value of the Company. It's just a suggestion.

It is a great suggestion. And it's not -- it is one -- I am not taking away from your suggestion, but this is high on our list and we fully agree.

Thanks and good luck, Nurit. Thank you very much, Marty.

Jim Smith, [T2].

Martin, I believe what you're saying is true. But if it is true, I have a hard time believing that you haven't had either in-house discussions, discussions with let's say the ALZA fan club, the Martin Gerstel fan club, private equity groups or your industry partners about why don't we just bid let's say $100 million for the enterprise value of Compugen and buy you guys?

And if any of those conversations have taken place, would you give us just a general feel for -- without disclosing confidential discussions, how they have characterized themselves and what the parameters of the discussions have been?

Since it is now in the past, I can tell you that we have been approached a couple of times by organizations that were interested in talking about taking the company private. There are no such discussions ongoing now. And I can say that personally I don't have any interest or belief that that is in the best interest of our shareholders at this point in time to proceed on that basis.

I think we are just now at the stage where -- those of you who have participated in these calls for a while know that we have had some pretty loyal shareholders. And hopefully, we are going to get some new shareholders.

But an awful lot of the shareholders we've had, we have had for quite some time. They have been patient. And they have hung in there. Keep in mind all of the agreements that we're talking about now have all been announced over the last three or four months. We have now reached, as Alex mentioned, a totally new stage in our operations. Under Alex's guidance, we have now focused a substantial portion of our R&D capabilities on these field-by-field discovery engines projects. And you see the results. And it is quite amazing when you see the productivity and the diversity of what we're doing.

I hope and expect the market will begin -- as people begin to recognize this -- it's interesting as these different -- what happened when these announcements came out -- think about it -- somebody who really was following our Company and knew what was going on had to be very impressed when they saw the series of announcements. You had to be. It is unheard of that one company would have this type of diversity and productivity in such a short period of time.

On the other hand, suppose you're someone who like 99% of the people out there that knows nothing about Compugen. I heard about it, but you don't really understand the philosophy or what we're trying to do. You would look at each one of these individual announcements and say you know, this is interesting. This is something that maybe I ought to look into it, maybe not. But it is not the type of thing each individual would want; it probably is not the type of thing that a person would look at say -- oh my god, I have got to look into this company. This is something that is mind-boggling that a company could do this when you look at them individually.

It's only when you look at the series and you begin to understand as I said, this sort of -- the message that should be coming through that we're like that geology company. We have a deeper understanding that we now can go and focus field by field. So I have totally forgot the question that I'm answering.

Well, I think the answer is you're going to stay public.

First of all, I don't own the Company. Fortunately, as you know, I bought a lot of stock in the open market so I am a very significant shareholder. Speaking as a shareholder, I don't want to see this Company go private, even if I am a part of the group that is participating in it.

And I think that in any event, this is absolutely the wrong time to be looking at it and would be somewhat improper to our shareholders or inappropriate for the long-term shareholders for us to be looking at it now.

A year from now, the situation may be very different. If we have made the progress that I believe that we should make, we have announced to the world all the kinds of things that we're doing, it is very clear now what kind of a company we are and the potential value here. And our stock is still $5 or $6 a share or whatever; all bets are off. Because ultimately, we want to have a successful company. Right now, my goal though is to do it in a way that is best for our current shareholders.

(OPERATOR INSTRUCTIONS). There are no further questions at this time. Before 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 in two hours for a period of 48 hours. In Israel, please call 03-925-5901. Internationally, call 972-3-925-5901. In the U.S., please call 1-888-782-4291.

Mr. Gerstel, would you like to make your concluding statement?

Let me just add I think all of you have heard probably as much from me as you want in one hour. So let me just thank everybody for participating. I hope you share our excitement with respect to what is now happening in the Company. And we look forward to talking with you again next quarter. Thank you.

Thank you. This concludes the Compugen Ltd. first-quarter 2007 financial results conference call. Thank you for your participation. You may go ahead and disconnect.