Compugen Ltd (CGEN) 2007 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Compugen Limited second quarter 2007 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 August 2, 2007.

With us on the line today are Mr. Martin Gerstel, Chairman; Alex Kotzer, President and CEO; and Ronit Lerner, CFO. I would like to remind everyone that the Safe Harbor language contained in today's press release also pertains to all content in this conference call. If you have not received a copy of today's release and would like to do so, please contact Ronit Lerner at telephone number 972-3765-8560.

Mr. Kotzer, would you like to begin?

Greetings and thank you all for joining our second quarter 2007 conference call today. In our press release issued today I'm quoted saying that during the first quarter we saw significant progress particularly in the areas of product candidate development, negotiations for new licensing agreement, new engine creation, and discovery validation. In my talk today, I would like to upgrade you on these four grades after which I will turn the call over to Ronit Lerner, our CFO, who will follow with an overview of our financial results and status. Martin Gerstel, our Chairman will then elaborate on the new indication discovery engine that was announced this week and will provide closing remarks after which we will all be available to answer any questions you may have.

The first collaboration we have signed about [two] years ago where with three leading diagnostic companies. Siemens Medical Solutions Diagnostics, Diagnostic Product Corporation at the time, Ortho-Clinical Diagnostics, a Johnson & Johnson company; and Biosite. All these collaborations are targeting discovery development and commercialization immunoassay biomarkers primarily in the areas of oncology and cardiovascular diseases. Compugen's discovery of immunoassay diagnostic candidate is based on identifying the RNAs that are differently expressed between disease and normal tissues. RNA(x) is the messenger between the DNA of the gene and the protein, which is the basis of the immunoassay testing. As we explained in the past and in line with the each specific agreement either us or our partner has to externally validate the discovery, which means a two-stage analysis. This validation is [set] to demonstrate that a specific RNA discovered by us is actually translated into a protein which is then secreted in measurable levels through the blood. We then have to verify whether this protein is present to a higher extent in blood samples of patients suffering from the specific disease as opposed to healthy individuals.

If both of these conditions are found to be statistically significant and clinically relevant then our findings should be translated into a commercial diagnostic test for this type of patients. As of today, we have completed validation of seven candidates out of all those selected under the above mentioned agreement. In four of them validation successfully detected a protein in the blood samples. Which is a very encouraging result and another strong proof of the quality of our discoveries. Next step for these four candidates is that our partners who have the know-how and expertise with the -- [thanks to the] final commercial assays are evaluating if our results could be translated into a commercial product.

While it is clear they will move to the development of the diagnostic test and hopefully registration of the final commercial product. Based on the success we expect that before year-end, we will begin to receive our first milestone payments from these agreements. In addition, we expect additional candidates will have been selected by our partners for validation. We mentioned in the past that we have discovered also diagnostic candidates suitable for MAP assay technology. This relatively new technology is detecting the RNA directly. So there is no need to validate that the protein is really produced and secreted to the blood. Our collaborations with Teva for drug toxicity markers in which the Mayo Clinic for Unstable plaque markers are most utilizing this technology. (inaudible) activities our new discovery engines are generating many new therapeutic candidates. We therefore have what one might call the luxury of being able to select from among many opportunities those that should be taken forward. From those selected, we start with individual assays to demonstrate the biological activity of the candidate and then proceed to suitable disease models to in vivo studies. This was the case with our candidates from the alternative splicing discovery engine. This is the case these two candidates selected so far from the peptide ligand through GPCR discovery engine and we have seen already selected candidates that were tested in vitro and are now moving to individual assays from the new indication discovery engine. Whilst we have a positive in vivo disease model with us for the (inaudible) product candidates, these molecules should be attractive candidates for licensing agreements and we expect to begin to sign such agreements before year-end.

Early in 2006, we asked our R&D team to focus on generating new discovery engines to broaden the variety of therapeutic and diagnostic candidates. At this time most of our product candidates were discovered with the engine based on our leadership position in understanding alternative splicing. Since then one year and a half later we have disclosed the development and initial discoveries from three engine based on different scientific understandings; genetic variation, peptide ligand or GPCRs and new indications. All of these new engines are now serving as the basis for negotiations for additional collaboration and the licensing. As a result we expect to begin signing agreements based on these new engines before year-end. Martin in his talk will explain the great potential of the latest disclosed discovery engine and the new indications. One aspect, the ability to reach Phase II studies in a relatively very short time has already encouraged us to start looking for potential partners even before the final candidates have been selected.

I might have burdened you with too many technical details but I feel that they were needed to provide you with the understanding of the activities that support my statement in our press release. During the first quarter we saw significant progress particular in the areas of product candidate development, negotiation for new licensing agreements, new engine creation and discovery validations. And now I would like to turn the call to Ronit.

Thank you, Alex. In view of the fact that our operating financial results for the quarter and six months period are fully in line with our previous guidance, I would like to focus my remarks today on a few special items and on some of the financial aspects of our Company's business model. Sales, as we have stated this many times in the past, our anticipated primary sources of revenue are future milestones and revenue sharing payments. These will come from licensing and other arrangements covering the development and marketing of the diagnostics and therapeutic products. Also amounts that we received from governmental and otherwise are reported as a deduction from R&D expenses and not as revenue. Therefore, as previously projected, revenues at this stage continue to be insignificant. With no revenues reported for the second quarter of 2007 or for the six months ended June 30, 2007, compared to very minor amount during the same periods last year.

Looking to the future with respect to milestones and royalties, as mentioned by Alex, we anticipate beginning to receive milestone payments under our initial diagnostic product agreement by the end of this year. The other aspects of our financial results that I would like to emphasize again consistent with our business model is that research and development expenses are by far our largest expense, representing approximately 80% of total operating expenses for the first six months of the year. Total operating expenses for the first six months of the year were $6.1 million including non-cash items compared with $6.5 million of the comparable period in 2006. We ended the second quarter with $20.8 million in cash and cash related accounts, a usage of $5.6 million for the first half of this year and consistent with our projection. Net cash usage for the remainder of 2007 is projected to be less than $5 million, which would result in an estimated $16 million in cash, cash equivalent and related account as of the end of 2007.

With respect to special items on our financial statement as previously disclosed company's -- Compugen's policies for a number of years has been to not make significant cash investments in its affiliated companies. During the past quarter, Evogene, an agricultural biotechnology company which Compugen established in 2002, completed an initial public offering on the Tel Aviv Stock Exchange. In addition, Keddem, a small molecule drug discovery company, which Compugen established in 2004, has limit -- has limited its operations to corporate development and intellectual property protection until third-party funding, currently under discussion with various potential sources, is achieved.

Pursuant to relevant accounting rules and regulations, each of these two actions by our affiliate is reflected in our quarterly financial statements for the most recent quarter. Prior to Evogene's IPO, Compugen's investment in Evogene was accounted for under the Cost Method of Accounting. Following the IPO, as of the end of each reporting period, those Evogene shares owned by Compugen, which are either unrestricted or will become unrestricted within one year of such date are recorded on the Company's balance sheet as an asset based on the market price of such shares at such time. With respect to Keddem, in view of the fact that there can be no assurance that additional financing will be achieved, Keddem's assets are presented on our balance sheet as a one line item "Assets related to discontinued operation" and Keddem's expenses are shown on our statement of operation as a one line item "Loss from discontinued operation."

And now with this I'll turn over the call to Martin.

Thanks, Ronit. For years, actually for some of you it may feel like decades, I have been talking, and some of you would refer to it as lecturing, about how Compugen's breakthroughs and deeper understanding of life at the molecular level are leading to predictive models of the underlying biological phenomena and then to the creation of discovery engines based on these deeper understandings and models.

In today's call I would like to take advantage of the fact that we are now beginning to harvest the benefits of this long and unique investment, in particular, how the most recent three engines that we have disclosed provide a very good indication of the substantial value that has been established at Compugen. These three recent announcements described discovery engines targeted at large scale genetic variations, ligands for GPCRs, and new indications for existing drugs. In each of these areas the pharma world fully appreciates the medical importance and tremendous commercial potential from new discoveries. Therefore, you will find numerous teams of scientists around the world at pharmaceutical companies and elsewhere attempting to identify new genetic variations or a novel ligand for a given GPCR or a new indication for a drug of interest. These, one discovery at a time high-risk efforts, are typically based on high throughput and often random experiments where if you see something interesting in the experiments, great. But if not, which unfortunately is the great majority of cases the research efforts will largely have been a waste of time and money.

In comparison, in each of these three areas, Compugen has used its exceptional computational biology skills and platforms to develop engines that not only are now systematically discovering multiple attractive candidates for experimental validation but also continuing to improve with both time and with each use. Thus in a relatively short period of time and with very modest expenses Compugen did not discover one or a few genetic variations, we found 200,000. We did not find one GPCR ligand, we found eight. And we did not find one indication for an existing drug, we found nine. And of course, as of now, these very impressive results are only from the initial use of each engine and each engine has already been improved since this first use.

Alex mentioned that we are already in discussions with various companies regarding collaborations based on both existing discoveries from these engines and the further use of the engines. In view of their demonstrative power and efficiency and the importance of the areas to which they relate the high level of interest in the industry that we are now seeing should not be surprising. Our most recent engine disclosure, made earlier this week, was for new -- was our new indications engine. In that press release we described in silico discovery followed by experimental validation capability that has been designed to lead to the selection of drugs predicted to have new indications from amongst all available drugs either in commercial use or undergoing clinical trials. This capability results from the integrated analysis of vast amounts of information utilizing one comprehensive computational biology platform, thus allowing the linking of experimental results in other data and knowledge from a great many disease areas.

From a commercial standpoint, the new indications approach to drug discovery is extremely and uniquely attractive. If you are successful in identifying a use for a drug that was in fact previously unknown, this provides a basis for a totally new patent position called the use patent. This is the reason why Compugen does its very comprehensive intellectual property search on each of our new indication predictions before moving to any experimental validation.

On the other hand, since the chemical itself is already used as an existing drug its known safety profile could under certain circumstances, as Alex mentioned, allow you to advance directly from demonstration of efficacy in vivo to Phase II clinical trials saving many years and large expenditures in the development process. Thus it is not surprising that many companies are interested in this field nor that we are extremely optimistic regarding our comprehensive and systematic approach to this very attractive opportunity.

In many, if not most of our previous quarterly calls, I'd complained about the financial community not understanding or appreciating the value of Compugen. However, based on our short-term expectations now regarding initial milestone payments and other indications of progress under our current agreements, additional licensing agreements, additional engines and even proprietary Compugen drugs in Phase II studies, I expect that I soon will need to find something else to complain about in our future calls.

Now, before moving to the Q&A portion of the call I would like to bring your attention to yesterday's announcement regarding the addition of four very accomplished professionals in business and science to our Board of Directors. Three elected by the shareholders earlier this week and one appointed to fill an existing vacancy a few months ago. There is no question in my mind that these new directors will provide excellent guidance as we now accelerate the commercialization phase of our Company. And on behalf of all our shareholders I want to take this opportunity to publicly thank both our prior directors that have completed their terms of service for their substantial contributions and our new directors for agreeing to join the team. And with that we look forward to any questions you might have.

Thank you. Ladies and gentlemen, at this time we will begin the question-and-answer session. (OPERATOR INSTRUCTIONS).

The first question is from Brett Rice from Janney Montgomery Scott. Please go ahead, sir.

Good morning, everybody. Hello.

Yes, good morning, how are you?

Yes, hi. Not really a question but just a comment. I noted with great joy from your comments at -- we're finally on the brink of milestone payments, and I just want to relate to you, I'm a retail broker, and I've owned this stocks for people since 2001, and I've been able to hold everybody in on the -- basically stay in confidence in Martin Gerstel, and I have been getting a lot of calls impatient with these milestone payments because there have been prior comments that we would see these milestones at the end of '06 and '07 to diagnose the test license with J&J in diagnostics products and I just hope we'll finally end the cusp because I kind of feel like the Earl of Kent coming here, I've been loyal and I just -- I don't want to be out there alone, so can you just address that?

(inaudible) first let me just thank you for your long-term commitment and patience. We may have -- I don't recall -- Alex do you recall -- did we ever comment that we expected milestones last year. I'm not --

No, actually I gave this long speech today which is not typical for me to explain why it takes so much time. It's a long process. We use several times to explain the process.

Yes. So let me -- first let me say I realized that wasn't the substance of your point, but I just -- I don't believe that we have ever stated what we've stated today that we expect to begin receiving milestones prior to -- as of a certain date. If we have, I think we've used the '07 (inaudible) the '08 timeframe. But in any event, as we stated, they are moving forward, we do expect to get milestone -- our initial milestones and then we would hope and expect to see these increase over time, both from these agreements and from other agreements. It has been a long wait, but as I've tried to explain in my remarks, unfortunately if you want to play the game differently than it is played in the industry and the way the game -- I don't mean to call it a game, but the way pharmaceutical research is pursued by essentially everybody is let's see if we can find something interesting -- some -- interesting product to discover that was either serendipitously or someway somebody has a product idea and they go ahead and they develop it. And if they succeed it's phenomenal and they can -- everybody can be very happy, and you make a contribution to medicine and everything else. Unfortunately, most of those ultimately end up failing, and it was my view that the time was right to try a totally new approach to pharmaceutical and therapeutic development given what's going on in the world of genomics and whatever. And so we started now in this path more than a decade ago of trying to understand the science and all of this stuff. I'm not going to repeat it because I'm sure a number of people on the call are already saying, "Oh, my God, he is off again." So I'm not going to do it but -- unfortunately, it takes times. It just takes time, as from my prior career I learned though. But if you have good people and you go after things of importance in the end it really payoff and payoff in a very big way.

All right. I appreciate all of that, and my comments are meant to be constructive, but I do talk to flesh and blood investors and then we face grumbling in the ranks and I just, for what it's worth point that out to you.

Well, you must be a good broker if you still have them with you so thank you.

Okay. Thanks a lot.

Thank you. (OPERATOR INSTRUCTIONS) The next question is from [Jeffrey Grossman] a private investor. Please go ahead, sir.

Hi, Alex and Martin. Quick question. What sort of upfronts might the Company expect from Phase II molecules resulting from the new indications engine, and does this affect in any way the Company's cash flow expectations in the coming years?

This is Alex. Do you really expect an answer for this question?

Absolutely, absolutely, yes.

Well, if you look at the -- let me just talk in general about the kinds of agreements that are made in the industry. Phase II compounds can receive very -- can receive very substantial upfront payments and large milestones. So, of course, it depends on where in phase II, what the indication is, what the -- it is a thousand different parameters. But clearly it's a very different ballgame than trying to market things with -- very early in their validation or development. I also want to make it clear though that I don't want anyone to take from this even if they might see it as positive, I don't want anybody to take from this necessarily that we are moving into the drug development. Our strength as a company is drug discovery, that's what we are, we're a discovery company. And for the -- for products from our new indications engine we will be attempting to license them out, and they will hopefully, be licensed out at about the same timeframe as those from all of our other engines. Within a year to two years from the time we make the initial discovery we would hope that the thing would be licensed out. The difference is that because of the unique characteristics of the new indications for those product candidates they could well be in Phase II at that point in time where obviously, new -- the therapeutic proteins and whatever the newly -- new ones are -- would never be at that very advanced stage after one to two years.

I would like to add, Jeffrey, I mentioned in my talk, that we are starting to talk even before we really selected the molecules. But knowing this type of activity if you have some molecules for oncology at Phase IIA or Phase II proof of concept it's relative small, affordable in cost and we might consider a [collaborant] like Medarex rather than licensing because it helps us to give more value to the molecule at an affordable price [to us], so any information that you would like to get on such agreement we will not be able to even to give after we sign those agreements, but definitely not at this stage.

Can you tell us about the indications though, for these molecules, are the indications significant?

The indication are significant but usually we don't use to disclose any information about the molecules before they successfully finish the in-vivo, animal ovarian studies and we probably would (inaudible).

No one will be unhappy with respect to the potential market size or whatever for the things that we are looking at. The issue is, are they going to be successfully developed. And so far at this stage we're -- we're very pleased with the progress that we're making, but they are still at a very -- at a very early age, at a very early stage, but everything has to begin.

Okay. Nucleic acid diagnostics, we haven't heard much about a new agreement. Is there anything cooking here? Is there anything on the way? Are you still in negotiations? Are you still hopeful?

I mentioned in my talk before the two agreements that we have signed early this year with Teva or a Drug Toxicity molecules and these -- and with the Mayo Clinic for unstable plaque molecules. It is really utilizing and will be based on these in NAT technology.

I think the difference here, I think the miscommunication may be that the Alex used the shorthand NAT technology, that the nucleic acid technology when he was talking.

No, that's understood. But the question here is whether we might also see companies like Abbott or whatever else entering into an agreement where they can select from your 20 candidates.

In the immunoassay we have more than 20 candidates and we are working with the Company gradually. We are still -- I cannot exclude this opportunity, but I've nothing to add at this point of time.

As I understand it Jeffrey, this is a relatively new technology. I don't mean our -- at Compugen, I mean the use of this technology for diagnostics. And there are actually are some issues that are being dealt with, that have little -- that have nothing to do with the discovery process that we're involved with. We are still -- I mean seems to be -- every -- all indications are that this is going to be a very, very major diagnostic area in the future, and there is no reason to believe that we are not going to play a significant role in it from a discovery standpoint. However, we really mis-forecasted how quickly that was -- that the industry was going to be able to absorb our discoveries.

Okay. Next question Medarex, Teva and the Mayo Clinic, is there progress being made with respect to these organizations, the agreements involving these organizations?

Of course. The answer is, of course.

Okay. The last question concerning the immunoassay diagnostics, you said that validation was completed with respect to seven of them and that four were found in the blood. What is the likelihood, is there some statistical indication concerning the likelihood of a product resulting from this four found in the blood?

I don't know, and what we said in the past -- we mentioned that there are more than ten selected by our partners and we say that if one of those will reach the market, we'll be very happy. I can repeat it now, if one of these four will reach the market I will be very happy.

It's -- this is an area where its -- statistics are almost meaningless. I mean the question is some make it, some don't make it. The -- we have some very attractive molecules there, our partners are very interested in them, so far they -- these four look very promising. And now we just have to move to the next stage. As Alex mentioned though, it's the fact that our discovery engines predicted that the transcripts I mean we -- and then the RNA -- at the RNA level, and then when we went to the wet lab and actually did further testing we actually found that these predictions are -- were -- did result actually in proteins. So it's a very -- another very, very strong validation of the predictive capabilities that has been created here.

I would like to add Jeffrey that -- as I mentioned before that our partners are evaluating the results, and they should come to us very quickly, it should be in few weeks. But I would guess that they will not let us say anything because they don't want their competitors to know in which areas they are, what are their progression zones, So I believe that we will not be able to say anything about any strategic candidate before they are really actually file a request for approval.

Which -- bottom line means that we just have to look to see whether or not you have income resulting from milestones, that is the progress.

It could be one way.

Yes.

Okay, thank you. I'll turn the call over to someone else now, thank you very much.

Thank you.

Thanks, Jeff.

Thank you. The next question is from [Bill Chatman] of Morgan Stanley, please go ahead sir?

Yes, good afternoon everyone. Concerning the diagnostic molecules and back to the four that you had validation in the blood. I know you can't speak for your partners, but developmentally, is this possible if something did go all the way, is it -- it seems possible you can have a product on the market therefore getting royalty by 2009, possibly 2010? Would you agree to that, theoretically speaking?

I don't really know the exact timing, I would doubt if it could be 2009 or 2010 might look more feasible, or more realistic, it depends on how quick they react.

Yes.

Depends on how complicated, the proof of concept, that they really have to run before they apply. Depends on the time to get the approval of the FDA and the other regulatory affairs. It will be just a guess to give any exact number.

If you're asking, theoretically, if everything went well, could -- is it possible? And the answer is, probably as I understand it, probably not for 2009, but definitely for 2010.

Okay, thank you. And one further question, are you in dialog with any Wall Street analyst for possible coverage?

I don't know Ronit, I mean I'm talking with a number of them about the Company and there seems to be a lot of interest in us, sort of theoretically, but when it -- so far at least when it comes right down to picking up coverage we're still -- we are still too small. I mean one of the very strange things about the financial community is it's amazing how many analysts have told me, well, we'll pick you up when you have 4 or $500 million market cap. We'll wait, we'll be glad to do it. We'll be very happy to do it then. And even institutions that I talked to said that they're just waiting for our stock to hit 7, or 8, or 10 and they will be buyers. It's -- you guys live in a strange world, I thought the goal was to buy low and not wait for it to be higher. But --

I agree. After 26 years of doing this I am amazed myself. It amazes me. That's why I own shares and I'm willing to wait -- wait on things. I rather buy when things are -- the risk awarded is very compelling, but that's just not how the world works now.

I know, it's strange to meet with a major fund that has a significant influence -- interest in the whole pharma world, and have a very, very positive discussion. And it's obvious that they sort of buy into our concept, they like what we're doing, they get very enthusiastic, and then the bottom line is, call us when you stock is $10 a share. I said why do you want to wait? But it's a strange game out there.

I would like to add this, we do understand the importance of getting the cover and when we meet these companies and banks who have this service we are trying to get it. Usually the answer they say they will either what Martin just said, sometimes we also -- the life science companies they start covering when there is a molecule in Phase II and we are early stage significance but if you can help us on this issue it will -- we really appreciate it.

Yes, just one footnote. The prior caller, Janney Montgomery mentioned at the end of 2006 on some progress on your -- on the diagnostic products and your annual report did allude to possibly having results by the year-end 2006, if I recall. But is it relevant now?

Yes, well --

Thanks for your time and that is just how it goes and I'm not upset about it.

Well, I appreciate what you just said. But I mean it is relevant from the standpoint of just -- I mean we have done our utmost sometimes --

Well, you're trying to predict what other people are going to do as they move slow -- they move slower than you --

Well, I also -- people who have followed me or followed this company know that we attempt to -- I think my belief is that the only -- the major thing that a company has with the financial community is its credibility. And so when you say that it doesn't, I mean it does matter, actually, I will go back and check it out. We have tried to be very cautious about promising things or projecting things, and we've got -- actually our shareholders have been quite upset about our reluctance to project, but I think we should -- as you could tell from this phone call, enough things are happening now that we just feel more comfortable --

Well, before we disconnect, the scientific community have given you guys constant kudos for your discoveries, and Wall Street just seems to be yawning, and so there is this disconnect, that's why I was asking about an analyst trying to clarify the possible significance of --

It would be -- it would be really of great help. We don't have this.

Okay. Well, thank you very much.

Thank you.

Thank you.

Thank you. The next question is from George Karutz of Karutz Capital, please go ahead sir.

Good afternoon Martin and Alex. Couple of questions, or maybe statements. One, it seem like the market is totally overlooking your interest Evogene which in the future we were it looks like to be worth as much as, but the Company (inaudible) for success there. And second, it seems to me a year from now projections are that you probably round about $10 million or something in the next (inaudible) to raise you wait till you're almost out of money. You know, with big pharma having research and development for $2 and $3 billion, and spending several hundred million developing that one product, which you're not even sure is going to work, here is Compugen with a $120 million market capitalization, it seems like the people would want to take you out are at least joint venture with you are license an entire platform, because you have so much information that they can use and it would take them forever and as you've said for -- billions of dollars to develop. Can you just, pardon, would you just kind of tell me if I'm way off base?

Well, first let me say that unless our stock has really jumped today, you'll just see that our market cap. I think we -- the market cap was --

It was around 80.

It was around 80, it was about $80 million.

That's right, thank you. So and then with respect -- I mean, I share your -- I don't have any problem with the logic of what you are saying. Because I think everything that you said is factual. Of course, in big industry and whatever things don't always go as you would logically assume that they would. I mean, and I am not making any specific comments about our industry or whatever, but I mean, there are many books written that state that it's almost never does a really a transformational type of an approach to products or change, a new approach ever come from within the major companies from within that -- within an industry. And there are all kinds of text books out there now trying to explain why is that the case?

You know, so and also the pressure is on big pharma at this point in time, are sort -- are pushing them really to look at their pipelines and look at product opportunities. And so that, I think that, I think it's more likely that we will continue at least for the short-term entering into arrangements that are more individual product oriented rather than any substantial. Well, we're talking with a few companies about some broader type of arrangement, but and I, the bottom line is that it is very big, very profitable industry with lots of problems that are facing it. But nevertheless, it is an industry which is perhaps the only industry where you know that its revenues as an industry, the revenues 10 years from now are going to be far higher than they are today.

This is a, more and more medicines are going to be used worldwide, and so it's a growth industry, there are big challenges there, and it's my belief that we represent one of the most exciting, new entries into this whole area. How we end up fitting in with the other players, only time will tell.

Great and can you -- the financing portion or -- what you would like to do or what you would like to -- I am sure you would like (inaudible)?

Yes, that's interesting you mentioned 10 because I am not concerned about the stock getting to 10, as a matter of fact all of the compensation I earn in the Company is subject to the Stock B 10. So, but the, -- with, -- I think in some sense I would just turn the question back to you. Because I think without us answering it, you can probably answer the question for yourself. I mean, just assume that we're the Company that we have described. And you were a company with about two years of cash, we have money through about mid June of '09. We're now in discussions, we have been mainly in a research stage for a decade building a capability, we've now begun to build -- to sign agreements and to get products in motion. We're going to get our first milestones by the end of this year. We're going to be signing, hopefully, our first therapeutic, well not our first but some of the -- from these latest engines and therapeutic products by the end of the year. And we're, as we said, we're in negotiations with lots of different companies.

So, I mean, you were running the Company or you are the financial person of an organization like that, what would you do and we [have got a lot of] money in two years? Would you (inaudible) and do something?

Yes, I would want to bring in at least one partner that would bring some capital --

Okay, but let me just say that, my guess is that I am not going to comment on your answers, but my guess is that you'll come up with the answers that we're looking at. Because it to me it is pretty straight forward, what's the reasonable thing to do at this point in time?

Right, but you've always said that you didn't want -- money, you wanted (inaudible) so you felt good about what you're doing and said if -- hope to get the money -- and you didn't want to give up a lot. But as you thought there was a lot more potential on the back. So that's why I am bringing that up, it is that I, in the past years, but I am not (inaudible).

Yes, no and I still believe that also when you take upfront money there are two issues involved, or two factors involved with that. One of course, no one is giving you upfront money without sort of it's a balance of taking it from the back end. I mean because everybody will do their analysis as to what they think the program or the product or whatever is worth and then they kind of, then it is divided up one way or another. So if you take money upfront particularly for earlier stage things it's going to have a major, major impact long term.

That for us, is it, I mean, that is -- it is a consideration, but it in some sense it is not the major consideration. Because we're going to have so many products out there in the hands of other people that if we don't maximize the profit on every single one of them that's probably okay. I think that the more difficult issue for us to deal with is that our corporate strategy, the whole -- the foundation of this company is based -- is that we will maximize -- our goal is to maximize the number of products in the development pipelines of other companies. So that products are moving forward at their risk, at their expense, but with us having some percentage of the future revenues for those that are successful.

Given that, that is our philosophy, we don't want to put any barriers in the way of companies, looking at our product candidates versus their own. Obviously, all the big companies we are talking about it is not, they've got many product opportunities on the table. We don't want them to turn down one of ours, because there's an upfront payment versus they can take one of, they can do their own. Our issue is to get the products in development. I wish I could say that we're very confident that a much higher percentage of our drugs, we're going to be successful than the rest of this industry and hopefully that will play out. We have no, absolutely zero evidence that that's going to be the case and we can believe it because of the way that we do our research. But in the name of the -- our most drugs fail, 9 out of 10 drugs fail after they reach the clinic, that people don't want to recognize and it's probably -- the numbers are against you.

And so if you want to build a high profitability but yet low risk company in the pharma industry, there is an opportunity to do it and that is to create what -- engines for discovery of products that the industry finds attractive and is willing to invest its own money. And that's exactly what we did at Alza, find a way to get as many products as possible in the hands of other people to develop and then you get your piece of the action. Such a long answer to your question, but I think there has been a lot of misunderstanding on that because its and we -- to date we're trying as a -- I think as a new company, relatively new company establishing itself on the commercial side, we're trying to set certain parameters and live up to a certain philosophy that we carry from company -- client company to client company. So as of now we're moving with this approach.

Okay. Well, thank you for your answer. Congratulations on the progress, that's all from me.

Thank you.

Thank you. We have a follow question from Jeffrey Grossman a private investor. Please go ahead sir.

I'm -- again quick question. What is the level of interest of big pharma and the GPCR ligand engine, the large scale genetic engine, would you say that big pharma is suddenly waking up to Compugen?

Well, I mean, I think that's kind of an overstatement. I mean, we're still unfortunately, a relatively minor player out there. But as we go as our people go from company to company, when we meet with individual companies, I think it's fair to say that there -- that we leave them somewhat surprised, impressed and most first meetings end up with five-hour long meetings and in that, so -- I hate to make statements about the industry, because my guess is that at this point in time we probably actually had meetings with less than 10% of the really big companies out there.

Okay, thanks very much.

Thank you. The next question is from [William Highman of High Bar]. Please go ahead.

Yes, hi Martin, hi Alex.

Hello.

Bill, how are you?

Very well, thank you. Question raised regarding the discovery engine that you announced the other day, are any of the existing drugs that you are examining are patents, and if so who would own the intellectual property for the new indication?

Yes, you are raising what one of the areas with respect to new indications has to be studied very, very carefully. I mean, the faster product that you could ever get for kind of for in the new indications area would probably be the one that was marketed not in the United States, but overseas, in Europe or Japan for a completely different indication. So that the safety, efficacy and whatever was well -- I'm sorry, the safety was well established, but that there was no ability -- for any thing to be substituted in the United States.

The issue really isn't so much the issue of who would own the intellectual property rights or whatever because with the new indication, if it is new indication you are going to be able to get a patent on the drug for that indication. The real issue is going to be will there be an opportunity for what's called off-label use, will there be -- of other, even though if it's sort of to some degree against the law, will there -- will the situation be such that the compound will be out there in some other -- for some other purpose or whatever that can be used in substitution of yours.

Let me just say that this is something though that can be dealt with in many, many different ways. For example, you use an unique dosage for most likely the actual dosage that you'll use for the new indication will probably be different than the one that is used for the other indication because we are looking, I mean, we are not looking at minor differences when we talk about new indications. We are talking about things were there is -- it will be a -- it's a surprise to think that that drug would be useful in this other area.

So yes, you are raising a commercial concern, but it is one that you go into with your eyes open, and you can therefore you choose the products that you are going to develop based on whether or not you are confident that you can establish a substantial proprietary position. You will most likely have a patent because the question is will you be able to protect the market place. And you -- also you go into it with your eyes open, and it is something you can analyze, and fortunately for us we have a lot of choices, and we'll pick those that are the best to go after.

I would like to add the a little small bit about intellectual focus and naturally when you go for these type of discoveries you know that the chemical entity by itself is either on the -- either owned by somebody or already expired or it is a public knowledge. What we are looking and it is done automatically as part of our discover engine they are moving that the new indication we have discovered is not covered by any patent. And of course we take forward or we start, or we go to biological validation only for those that the new indication could be covered by the patent and make sure we apply for the patent before we start these type of activities.

Okay, thank you.

Thank you. 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 the replay of this call is scheduled to begin in two hours for a period of 96 hours. In the US please call 1-888-7882-4291, in Israel please call 03-925-5901. Internationally call 972-3925 5901. Mr. Gerstel, would you like to make a concluding statement.

Yes, well thank you. I just like to say first from the names of people who were asking the questions. It's obvious that we have a number of long-term shareholders with us, and just thank you for your patience. I hope you have the feeling as I do from the things that we are talking about today that we are the time when the patience will pay off, that we are -- things are -- we are now focusing on the commercialization side where the values are more obvious than what we were doing earlier. I am not saying that what we are doing earlier was less valuable as a matter of fact it might in some cases be more valuable, but it was from the stand point of the outside world it's hidden value, it's the value that's impossible to judge. The kinds of things that we are doing now, and we are hopefully will be happening over the next six to nine months are things that the outside world will be able to value. And I think that it is going to lead to a very different perception of our company. So thanks for hanging in there over the years.

Thank you. This concludes the Compugen Limited second quarter 2007 conference call. Thank you for your participation, you may go ahead and disconnect.