Compugen Ltd (CGEN) 2008 Q4 法說會逐字稿

Welcome to the Compugen Limited fourth quarter 2008 financial results conference call. All participants are at present in a listen-only mode. Following management's formal presentation, instructions will be give for the question-and-answer session.

(Operator Instructions)

This conference is being recorded February 11th, 2009. With us on the line today are Mr. Martin Gerstel, CEO; Mr. Dov Hershberg, Chairman of the Board; and Mrs. Dikla Czaczkes Axselbard, CFO.

I would like to remind everyone that the Safe Harbor language contained in today's press release also pertains to all content for this conference call. If you have not received a copy of today's release and would like to do so, please contact Dikla Czaczkes Axselbard at telephone number 972-3-765-8595. Mr. Gerstel, would you like to begin?

Yes, thank you. Greetings and thank all of you for joining our call today.

As was just mentioned, the three of us who were introduced will be giving some prepared remarks, Including Dov Hershberg, who I am pleased is with us today. Dov has joined us as our Chairman of the Board, and as you will hear in this phone call is already participating fully in the Company's activities, and is having the very positive impact that I had expected him to. I have also -- in view of the fact that this is our first quarterly call with our new management structure, I have also asked Compugen's Anat Cohen-Dayag, who is our Vice President of R&D, and Yossi Cohen, who is our Chief Technology Officer, to participate, and they will be available with the rest of us to answer any questions you may have following our remarks.

I became Chairman of Compugen almost 12 years ago, and since that time our sole focus has been an attempt to bring more predictability into the life science product discovery and development process. Unfortunately, there is very little that is predictable in traditional drug discovery and development; with the result that the vast majority of the many billions of dollars spent each year on pharmaceutical research and development yields little, if any, value. A number -- this is due to the fact that a number of the key steps in this process rely almost entirely on various forms of high throughput and usually largely random experimentation. This includes the attempt to first discover, and almost always to discover one at a time, a new molecule of interest, and then to try to determine what that molecule might be useful for, then whether or not it works; and if it works, why does it work, which is referred to in our industry as determining the mechanism of action; and lastly, if it meets all of these tests, whether it has any other actions that you might not want or side effects.

Compare this with the high-tech and telecommunications world, where the answers to all of these questions are 100% predictable. I assume you would be astonished if you heard someone in high-tech R&D talk about discovering by accident a new computer or other high-tech product, and not knowing whether it will work, how it works or even what it does.

Initially, we directed our efforts towards all forms of life science. However, for financial reasons our ag bio was spun out to a new company, Evogene, in 2002, and we thereafter focused solely on human pharmaceuticals and diagnostics. Evogene is now publicly traded on the Tel Aviv stock exchange, and recently entered into a substantial multi-year strategic collaboration with Monsanto. With an investment of more than $100 million during this 12-year period, we have successfully established a unique infrastructure in the form of our multidisciplinary scientific team, world-leading computational biology platforms, algorithms and other tools, and predictive models of key mechanisms of life at the molecular level. More specifically, these models relate it to how genes express transcripts, how transcripts become proteins, how proteins cleve to form peptides, et cetera, which I like to refer to as the electricity of life. More recently, we have begun to use this knowledge to build a series of powerful in silico discovery platforms. The result is that we are now able to demonstrate the ability to systematically predict and navigate novel molecules of exactly the type the industry is attempting to find in many different drug and diagnostic areas of interest.

On the other hand, Compugen today, with this unique discovery capability, and after the expenditure of this over $100 million to establish it, we have a total market cap of about $20 million. Based on my conversations with shareholders and prospective shareholders, I'm certain that this low market cap relates largely to two questions, both very legitimate, about Compugen as an investment. These two questions are, first, why hasn't Compugen received any substantial front-end or other cash payments as part of the agreements it has been signing? And second, considering the terrible state of the financial markets, how will Compugen meet its short-term cash requirements?

In my remaining remarks today, I would like to address these two questions. First, the issue of why no substantial front-end or other cash payments. To date, Compugen has focused almost entirely on early-stage product candidate discovery, and industry history has clearly shown that the probability is extremely low for any specific product candidate at this early stage to ultimately be successfully developed, approved and to enter the market. Therefore, in our initial agreements covering one or a few specific early-stage product candidate discoveries, it would not have been reasonable for Compugen to ask for, nor for our partner to pay, substantial front-end fees, unless Compugen was willing to develop that product candidate further at our risk before licensing it out. But in comparison to the many other organizations that are also attempting to license product candidates to the industry, rather than having one or at most a few interesting discoveries to focus on at any point in time, which is almost always the case with these other organizations, Compugen already has many hundreds, and we believe it would not be a reasonable use of our resources to select one or two of them to further develop, with the hope that it will be successful and therefore provide significant upfront payments at the time of licensing. Of course, all of our agreements provide for meaningful milestone payments during development, and royalties on sales of successfully-developed products.

At this point, I probably have confused a number of you. However, the key to understanding our business model is to recognize that although our mission is to maximize the number of product candidates being developed under royalty-bearing licenses in the pipelines of other companies, the traditional licensing of individual product candidates that we are discovering is likely to be a very small component of this. And, much more importantly, it does not at all value our significant competitive advantage. If I -- as I have stated many times, our competitive advantage is having the unique ability to utilize computational biology-based prediction and selection methodologies to systematically discover multiple product candidates of interest in an increasing number of important drug and diagnostic fields.

In order to fully leverage this unique capability, which we refer to as discovery on demand, the next and perhaps most important stage of our commercial development will be to enter into broader, more strategic types of collaborations such as the Evogene/Monsanto agreement, in comparison to the largely product candidate-specific agreements we have signed to date. This is now a high priority for our Company, and should in the future provide the vast majority of our milestone and royalty opportunities. In his remarks today, Dov will say a little more about the process we are following in this effort.

One barrier for us as we move more aggressively in this direction, and the reason why we did not attempt to pursue this opportunity much earlier, is that there exists a great deal of skepticism in the industry about the value of predictive modeling in life science discovery, and for good reason. During the past 20 years or so, many companies with far greater resources than Compugen attempted to create more systematic drug discovery with all kinds of approaches, platforms and technologies, but with very little impact. After receiving many hundreds of millions of dollars from the industry based on these claims, essentially all of these companies ended up either failing as companies or converting themselves to more traditional pharma companies, usually by licensing in early stage products from others. And in this environment, now along comes Compugen making very similar claims.

However, there is a difference. During the past few years, Compugen has provided strong validation of its predictive discovery capabilities in the form of a rapidly growing -- I'm sorry, in the form of rapidly growing numbers of validated platforms and initial product discoveries in many areas of significant research interest in the industry. Now with this proof in hand, we are being provided the opportunity to seriously explore with a number of leading companies these types of broader collaborations. And, of course, these types of collaborations often involve significant upfront fees and other financial commitments.

Before moving to the second question, just one cautionary note. As most of you are aware, it would not be appropriate for us, for many reasons, to answer any questions about the stage of these various discussions, the companies involved, the scope of the discussions and so forth. If and when any such agreements are signed, they will be publicly announced.

I would now like to move to the second question, how will Compugen meet its short-term cash requirements? Here, again, there are many restrictions with respect to what I can say about expected or potential events, but I would like to try and provide you with some insight into how we see our current financial situation. Our nea-term projected burn rate is approximately $8 million per year, and therefore assuming we were to sell our Evogene shares at the current market value, which, to make it clear, I am not in favor of doing unless absolutely necessary, we would have about one and-a-half years of available cash, which would take us well into the second half of 2010. In today's world, having capital for a year and-a-half is better than many, perhaps most, pre-revenue companies in our industry. However, it's clearly an issue that must be dealt with by us during 2009.

In this regard, we presently see three potential sources of additional capital beyond the Evogene shares during this time period. First, we see the potential for revenues in the form of fees and milestones from existing agreements. Although this is not something that can be counted on, and there really is no way we can determine even the probability of it occurring, there are a few potential opportunities in this category and during this time frame that could positively impact our short-term financial situation. On the other hand, we do not see any reasonable possibility of meaningful royalties in this timeframe. Second, our payments of various types associated with one or more broader, more strategic agreements of the type I spoke about earlier, and which Dov will comment further on in his remarks. The third potential source for additional capital is, of course, various financial mechanisms and structures. However, selling Compugen equity at current market value is not considered a very attractive alternative for us, nor do I see it as an immediate necessity.

As mentioned earlier, I firmly believe that these two remaining questions about Compugen are key to the financial world's current world of our Company. Therefore, I hope my comments, even though by necessity being quite general, have provided some insight in understanding how we are planning to address these important issues.

In closing, for those of you who, assuming there are any, would like to watch a 20-minute web interview -- television interview with me speaking about Compugen, its history, capabilities, business strategy, et cetera, such an interview recently took place in San Francisco with Pharma Television, and we were recently informed that it will be posted on their website at www.pharmatelevision.com on March 24. At such time, we will also have a link to my interview on our website.

Thank you. I will now turn the call over to Dikla.

Thank you, Martin.

As usual, our financial results are very straightforward and in line with previous guidance. So I will -- I would like today to make only a few comments. First, as you will note, R&D expense remains our largest category of expense, representing more than 65% of total operating expenses for both 2007 and 2008. However, a larger portion of such R&D expenses is now being committed to extract the maximum values from our existing potential and initial product validation, while reducing our efforts in basic research and new platforms. Under our business model, our primary source of anticipated future revenues will be milestone and revenue-sharing payments from licensing and other arrangements, covering the development and marketing of diagnostic and therapeutic products based on our discoveries.

To date, and as expected, our revenues, due primarily to early milestones and fees, have not been significant. The potential for meaningful milestone payments and fees during 2009 exist, but we are not including any such amounts in our financial planning.

With respect to liquidity, we ended the fourth quarter of 2008 with $7.2 million in cash and cash-related accounts, representing a decrease of approximately $10 million for the year, consistent with our expectation. Our cash and cash-related accounts do not include the market value of the 2.2 million Evogene shares held by the Company, worth in today's market price approximately $5 million. [Here to] today to year end 2008, we took the action required to reduce our budgeted total cash requirements for 2009 to less than $8 million. This means that, as Martin stated, cash on hand plus the current market value of the Evogene shares provide us with significant -- sufficient cash at our budgeted rate -- burn rate for about 1 and-a-half years, or into the second half of 2010.

And with this, I will turn the call over to Dov.

Thank you, Dikla.

This is my first Compugen quarterly teleconference, and with your permission I would like to introduce myself. Currently I am an Executive Director and Board member of Powermat, a wireless electric power company that I cofounded in 2006. Prior to that I managed the BIRD Foundation for nine years until May 2006. BIRD is a joint American-Israeli foundation involved in the matching and financing of advanced technology projects of Israeli and American companies.

Earlier in my career, I held various senior management positions in product development, marketing and sales, including 11 years with Digital Equipment Corporation. I also founded, along with colleagues from Stanford University, the Molecular Applications Group, a biomedical research software company, where I served as CEO. I hold graduate degrees in mathematics from the Hebrew University in Jerusalem, Israel, and in Applied Mathematics and Operations Research from Columbia University in New York City.

During my tenure at the BIRD Foundation, I was very interested in and closely followed the progress of Compugen, and during the past few months while serving as an adviser to the Company, I have been even more deeply exposed to Compugen's outstanding R&D team and to the Company's powerful discovery capabilities. This exposure led to a strong belief on my part that these capabilities are the best available to broadly meet the critical need of pharmaceutical and diagnostic companies for product candidates to feed their development pipelines. Therefore, I'm delighted to join Compugen, and hope that I can make a meaningful contribution to realizing its full potential.

As Martin mentioned, Compugen has reached the stage where it's broadly applicable capabilities are validated sufficiently to have major industry leaders consider entering into strategic collaborations on a corporate-wide basis. Our broadly applicable capability has already been validated through the discovery of attractive product candidates in an increasing and wide variety of applications in therapeutics, biomarkers and targets, making us a very unique company in our industry.

A major corporate-wide effort that Martin mentioned that I am leading is the ongoing identification of potential strategic alliances. These are companies with well-identified needs that could be answered by either Compugen's current platforms or underlying computational biological capabilities through a broad collaboration. In identifying and prioritizing potential partners, Compugen product candidates, platforms, and overall expertise are taken into account, together with the level of existing [go-future] ties and the size and strategic importance of the potential partner.

Before providing some insight into how we are moving forward with this effort, I want to emphasize that our key business objectives for these collaborations is to achieve business agreements that may have a positive impact on our financial status, and will also allow us to maximize the number of drug and diagnostic products moving forward in the pipelines of our partners, and their milestones and revenue-sharing agreements.

This effort is moving forward in a very systematic manner, beginning with the classification of potential partners into three groups of the companies. Group one are companies where there is an obvious synergy between our existing capabilities, platforms or product candidates, and specific areas of interest of the potential partners, such as companies with strong interest in monoclonal antibodies or cancer biomarkers. Group two are, in general, the largest of the biopharma companies, such as Merck, Novartis, GSK and others, where we are -- where we see the potential for a complete company collaboration. Such collaboration would be much broader, and it would probably also involve development by us of a new discovery platform. Group three is more focused approach on companies with certain specialties in areas where our capabilities complement their strategy, such as companies with a major focus in the area of therapeutic peptides. As many of you know, a number of our existing platforms such as GPCR Ligand platform, the DAC Blocker platform, and the Viral Peptide platform, among others, are focused on the discovery of therapeutic peptides, and we intend to develop additional platforms in this area. Thus, peptide therapeutics is an obvious area for strategic collaboration.

At present, we are beginning the process of meeting with a few companies to explore these types of opportunities. We are continuing the process of contacting additional companies that we have identified as high priority in each of the three groups. As Martin mentioned, it will be -- it would not be appropriate for us, for many reasons, to answer any questions as this process moves forward, either regarding which companies we are talking with, the scope of the discussions and so forth. If and when any such agreements are signed, they will of course be publicly announced.

Thank you for listening, and I would like -- now like to open the call for any questions you might have.

Thank you.

(Operator Instructions)

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

Good morning. I guess the first question is tied into -- to your remarks that so far between the good reputation of Martin Gerstel, plus favorable references in reputable scientific journals, Compugen has not able to overcome the skepticism of the pharma community about moving toward computational biology. Is that the key reason that Mr. Hershberg has come to the Company? That with his contacts and sterling resume, that the log jam is finally on the cusp of being broken?

Let me answer a part of that. I can't really answer why Dov came, I'm just glad he did, so I will let him respond to that part of it. But the skepticism is out there, and I don't think -- you know, hopefully I have a decent reputation in the industry. But believe me, there are people with far better reputations, particularly in the scientific, area that ran companies in the past that said the same thing that I said, and they had many times more resources than we have, and they failed. And as I said, they failed after collecting enormous amounts of money from the industry. So the skepticism is there.

But keep in mind that this is skepticism in the minds of scientists, which means that it's not a subjective issue. Initially they bought the story of these other companies and were prepared to invest, because it sounded rational. You know, with the Human Genome Project, with an understanding of genes and how pathways perhaps worked, that with this understanding you ought to be able to really improve their research develop process. Everyone believed that. They weren't trying to mislead people, everyone believed that.

If you remember when the Human Genome Project was first announced, every article about it said the world of pharmaceuticals is now going to be totally different. We are going to cure diseases, and there are going to be so many new medicines coming Well, it never happened. As a matter of fact, it's more difficult now to develop -- to discover and develop a new drug than it was before the Human Genome Project was out there. So th skepticism is out there, and it has good value -- I mean, i t has real reason for it being there.

However, the key is this is skepticism in the minds of scientists. There is only one way you deal with that, and you can deal very effectively with that, and that is with scientific evidence that their skepticism, at least in so far as it is regarding Compugen, is wrong. When we now have approached and gotten in front of senior people in a few of the big pharma companies, they really are quite astonished by the types of predictive capabilities that we have created here, and by the efficiency and accuracy of the models that we've found, and in so many different areas. I think the most surprising thing is that we jump from one area to another, because the basis is this understanding of life at the molecular level, which is at the core of all of our platforms.

So I think we could -- I mean, I'm very glad that Dov has joined us, as I said. Had we brought in here the former CEOs of the ten top pharmaceutical companies, and had all of them write a document to their peers who are out there today saying that Compugen is for real, you really ought to do it, you know what? It probably wouldn't matter. Because again this is skepticism where people have been burned very badly, and the only way that you get around this with scientists is to show them evidence. We now believe that we have an enormous amount and a sufficient amount of evidence that we can meet the claims that we are making, and that's why we are now approaching the industry. Dov, I don't know if you want to say a few words. Why did you join? You love me, right?

Had to convince me. Martin convinced me. Seriously, skepticism aside, if you can put it aside, I think that we have a tremendous opportunity. Our predictive tools are as well, if not better, than others, and given the right opportunity to introduce it to those companies that we identified, or will identify in the future, are in need of a target discovery, product candidates and tools, then whatever we have we can achieve a lot. I'm not sure that we need to address the skepticism, if it exists or if it doesn't exist. We will just deal with it in a so-called quote/unquote normal business way. We will gather our arsenal of platforms, of candidates, and we will approach companies that we identify are in great need for those, and we are confident that with the quality of people and products that we have, we can achieve success.

Mr. Hershberg, how much time do you plan to be devoting to these efforts over the next year or so?

As much as needed. A lot, a lot. Most of the time -- of my time will be spent on that.

If I could just have one more question. I know you really don't want to answer questions in this area, but if you assigned a probability, a number, of coming to some sort of new strategic collaboration within the next year that will result in some real cash coming into Compugen, could you give us an opinion on that kind of number?

I can give you an opinion, but you are right, I don't want to put in a number. But we are in the effort. This is exactly what I was trying to describe in the second part of my presentation. We are in the middle of a very efficient effort to identify those companies that will be hopefully candidates for such a meaningful strategic collaboration, and we identified many with the potential of being such because they have -- either have an interest or we have something to offer to them, and we are in the process of approaching several of them. The reactions so far, I can disclose that it is positive. And we were very confident that we can reach such an agreement with even more than one.

Do you think that because of the network of contacts you have built up over the nine years being with the BIRD Foundation that doors that -- will be open to you that might not have been open to Compugen before you came on board?

I think that will be -- exaggerated, having Martin here, I don't think that I can make more contacts than Martin already has. There are a few here and there that will be a little bit helpful, but I would say that I'm just joining the capabilities the Company already has. I don't think that my connections will be -- will create a new direction, but they will hopefully help a little.

I can say -- I mean, you have already identified two people that we now have had direct contact with that I did not know of, and who are proving very useful in this process. So it clearly is a major advantage. But I don't want to make it sound like the -- that the most important thing is access. Between Dov and myself and other people on our Board, I don't think too many companies would hang up the phone on us. They will listen. We can get -- you know, we can get the phone call, and get their attention.

The point is, what are we going to show them, what are we going to show their senior scientists after we get -- after we get their attention. That's the critical point. I have to say when I first -- when I first joined Compugen, and as I said it was like 12 years ago, I had hoped at that time that -- it was the beginning of the Human Genome Project, and what I saw here was quickly we developed with our alternative splicing an insight into how -- what I call life working at the molecular level, genes expressing transcripts becoming proteins, we developed an understanding here which was far beyond anything that existed, more accurate -- it only became public after the Human Genome Project was finished, and the headlines were everybody was shocked at how few genes there were and how many proteins. Well, four years earlier this is what we had discovered in our early efforts here.

So the -- I think -- I have to admit, I just lost my chain of what I was talking about. This is not a good sign at my age. This is not a good sign. (Laughter)

Maybe I'll have to make more contacts than I -- (Laughter)

A lot more contacts than I said. The bottom line is that we can get in the door. We have the scientific expertise. I believe now we -- I'm sorry. I remember what I was saying, was in the beginning when I joined here and I saw what this Company had to offer from the standpoint of the scientific understanding, I used my contacts to get us in front of a number of pharmaceutical companies. What I found out was that although they were quite impressed with the scientific capabilities we had, in view of their past history, they were -- they weren't willing to do anything with us in a broad sense, at least on a product development stand -- from a product development standpoint, without seeing clear evidence that our scientific understanding could be used in order to make discoveries of interest.

So many organizations, scientists, whatever, made great breakthroughs in understanding science. But the end of the day was that they weren't useful in making the discovery process more predictable, which is sort of the name of the game here. So that's why we stopped our efforts at trying to do broad arrangements, and went more into a research phase for almost a decade to create the capability and the discovery platforms that we now have.

Thank you for answering my questions. I'll get back into queue. Welcome to Compugen, Mr. Hershberg.

Thank you very much.

Thank you. The next question comes from Jeffrey [Grossman] of [Bear & Bird]. Please go ahead.

Good afternoon. Welcome Mr. Hershberg to Compugen. Martin, as disclosed in a recently filed 13-G, your Compugen holdings recently grew. I would just like to ask, was this the result of an open market purchase or purchases?

It was open market, yes. I think almost at this point the vast majority of my holdings have been purchased in the open market, with a significant investment on my part. And although the market price right now doesn't support this statement, I believe it's the best investment I've ever made, and will prove to be the best investment I've ever made.

Thank you. Okay. The Company has -- I would like to focus on the little picture now, as opposed to the bigger picture. The Company has ongoing collaborations with Meterex, Merck, Biosite and Roche. Is there any way of providing shareholders with a very general characterization of the state of these collaborations? Are you satisfied with the progress being made on these collaborations?

I will let Anat respond to that. Anat, as I mentioned, is our Vice President for Research and Development.

Hi. First of all, I would like to say that we are happy with these collaborations and with the progress of these collaboration. Of course, we cannot disclose the details of what's going on in these collaborations, but just to let you know that these are moving forward.

I think that's very important, to let us know that these are going forward. Because there is -- Compugen is not to blame, but there is a certain lack of transparency here. Meaning that shareholders, particularly shareholders outside of Israel, have really very little way of knowing whether these are ongoing collaborations, and it is very important to keep us apprised of this fact.

Another question. Could you give us any background or indication concerning progress involving the marketing of the toxicity markers? How soon might we see an initial agreement?

Basically, it seems that this year we will -- you will be able to see -- will be able to disclose something about it. But just to let you know that what we have done until a few months ago, where it was actually the discovery of this specific biomarker signature that we disclosed, and in order to be able for pharma R&D to work with this specific signature, it requires from us also building an accurate and quantitative assay that could be delivered for these pharma companies, and this is one of the things that we are now doing.

Is there interest in these toxicity markers, and could they result in royalties this year?

There is an interest, yes.

Okay. In terms of potential royalties.

As of now, most likely it will be just revenues and not royalties.

Revenues. Okay. But that also I think is important for shareholders to know, that this does exist.

Yes.

Okay. Concerning your c-Met receptor splice variant therapeutic candidate. I have done a little research on the web, and it would seem to me that this has enormous potential. I'm wondering whether or not you see -- share my opinion?

What I can say about this is molecule is that it is pursued. So we are working on this molecule, but I cannot disclose more than that about the progress that --

Jeffrey, you are right that this is a molecule of great interest.

Okay. Would it be correct to say -- let me put it this way. I view your GPCR peptide Ligand platform and your DAC Blocker platform as revolutionary. I don't want to -- let me first ask, does the industry at large also view these platforms in the same way that I do?

Fortunately, we have our Chief Technology Officer with us today, Yossi Cohen, so Yossi how about responding?

Thank you. Well, I think that these two platforms generate lots of interest in companies that we meet. And not just interest, I mean, with two companies you know we have achieve a collaboration regarding the GPCR platform, or a product that emerged from the GPCR platform. And the DAC Blocker, I think it's equally -- is found equally intriguing for companies out there. And I believe that this platform product emerging -- for the candidates emerging from it will be the basis of future collaborations for Compugen.

Great. Thank you very much.

(Operator Instructions)

We have a question from [Bari Zozoika] from [Zozoika Capital Group. Please go ahead.

Hello, Martin.

Hi, how are you?

Well, thank you.

Good, nice to hear from you.

Thank you. Can you give us some color on -- you have been doing a lot of work over the last several years. We are getting a lot of very good notices put out by the Company on new discoveries. To what extent does a make you feel that you can -- that you might be more successful now? You and your new Chairman, I'm sorry, I don't have his name right here with me, I apologize. To what extent does that give you greater confidence that you might be closer to some collaborations? I must admit I agreed with you when you said that you probably have as good a role as that of your new Chairman. We've always thought very highly of your role. But maybe the times are better, even though the economic times in the world are not? Can you give us any color on how -- the volume of what you produce, does that help? Or is it --

Actually, you've touched on a number of different things. One, just to clarify that -- with respect to this process, I think the role of Dov and myself is largely one of door-opening and administration. Largely, the selling is being done by the two people -- two senior scientists who are in the room with us today, Anat and Yossi, and by our Head of Business Development, who is actually out there selling today, Eli Zangvil. So I don't want you to think that obviously -- and we'll be involved in structuring the deals, hopefully, as we get to that point or whatever. But this is almost 100% a scientific sale or -- it's based on science, not on a relationships or whatever.

One - a point you made which we really should -- probably should have said something about in our remarks, because it really is a fundamental change that is happening now in the industry, is that -- I'm going to overstate it. The industry is largely giving up on internal research. Now that, clearly, is an overstatement. But as you read every day, you are reading about another big pharma that is getting rid of 1,000 whatever chemists or research people, et cetera. The record is very clear that there is no way to justify the types of investments and research that have been made within the industry. They just aren't paying off. And almost every one of the big majors has said, "We are going to do more with the outside world," and particularly in the world of biotech. I think when you start to look in that direction, we become a major player or potential player. So clearly that is perhaps from an environmental, or sort of an over -- sort of the world which we operate, that probably is the most important change factor that has happened with respect to the outside world.

With respect to your comment about are these discoveries and whatever helpful, we say that it goes far beyond helpful. Without these discoveries, there would be no way in the world that we would get anything out of these meetings other than perhaps a pleasant lunch in the executive dining rooms, if pharma companies still have them from the old days. The only thing -- the only reason that I believe that we have -- that we are going to be successful in what we are doing, is because we now have evidence, clear evidence, that we can do things that make discoveries others cannot make. We can make discoveries more efficiently than anyone else. We can do what I call discovery on demand. We have the underlying capability that if someone has a particular product -- project or concern, we can target our capabilities towards it. And not then do a million experiments, and see if we are lucky, but actually utilize our understanding of this term I use, life at the molecular level, to try to identify potential answers to their problems, to whatever the issue is.

Keep in mind that -- I often compare what we do and contrast it with high-tech. I do not want you to in anyway to get the impression that we now can or probably ever will be able to do what high-tech can do, based on physics. That -- every high-tech product is completely designed, all specifications, everything, on a computer before anyone goes to the lab, does anything, and you design the final product and you know it will work. We are nowhere near that. But what we can do with the -- our proprietary understandings of this life -- you know, the genes expressing transcripts, transcripts proteins, et cetera, what we can do is we can utilize this knowledge to predict a large number of possible answers. What we believe and what we try to do is to predict every possible answer to whatever the issue is.

For example, if you are looking for a peptide Ligand for a GPCR, what we predict in our computers is possible human peptide, and we know that within there somewhere, if we are correct with our in silico predictions of all of the human peptides, we know that within there somewhere are the peptides that will modulate GPCRs. So now you have the prediction, and then you go to the selection capabilities, and that's where we use the enormous and unbelievably creative computational biology skills that the Company has created over the past decade, to come up with mechanisms, fishing hooks, where you can go into that group of all the peptides and pull out those that look like they possibly will solve whatever it is -- you know, be an answer to whatever problem that you are looking for.

And this is -- I think a couple of times we referred to a lot of this takes the format of what is called machine learning systems, where very often in these kinds of situations what you will have are a subset of molecules of the type you were looking for that are already known, and what you can do is you can use a machine learning system to try to identify the characteristics that are sort of -- that you see generally in these -- in this subclass, subset of the molecules that are known to be the type that you are looking for, but they are already known, identify those characteristics, and then utilize those characteristics to fish out others in your complete set that also have those characteristics. This are very, very sophisticated types of analysis, but it is what our team is superb at.

It's interesting to note that at the end of this process is not, as I said in the high-tech world, the end of the process of sort of product specification, product design, is there you have in your computer the product that is going to work. The way we do our capability -- what we do is at the end of our process we have 10, 20, 30, maybe 50 possible answers, but based on our understanding -- based on the way we've created these things, it's not just that there is -- we believe that there is some chance, we have a very high degree of confidence that within those 10, 20, 30, 50 are -- 20%, 30%, 40% of them are going to be prove to be exactly what you are looking for. And that is in fact what we -- I think on all of the ten platforms that we've developed to date, I think we have those kinds of -- is that right? Those kinds of -- some it's more, some it's less. But you end up with a number of alternatives.

I'm sorry to be going on and on, but one thing that -- I get so many questions from shareholders saying how come -- Evogene did this big deal last year, and they got formed after you people did, and they use the same technology as you people do, and how did they move so much faster than you are moving, Compugen? And the answer is just what I was saying, that the end of their process, like ours, is a group of answers, 10, 20, 30, 40 different potential answers, all right? The difference is that in our world, in the human world, we must take those 30 or 40 and do all kinds of testing, in vitro, in vivo, and if it a therapeutic a whole bunch of other safety and other things, before you actually can move forward with clinical trials and move on.

In the ag world, when Evogene gets to that point where they have their 20, 30, 40 possible answers, they just throw them all into plants. You don't care if the plants are going to die. Plants generally don't know lawyers, so you don't worry about any of this stuff. You throw them into plants and then one year, one growing season, you see the results. You know which of your predicted answers actually worked. So you see final proof.

Now this is -- as I was saying before, the skepticism, there was more skepticism in the ag world about predictive life science than there was even in the human field. In the beginning at Evogene we couldn't get any big ag biocompany to even essentially answer the phone and talk to us. They had been so burned by other companies that had been claiming to be able to do predictive biology in the ag world. Everything changed when the Evogene team was able to show results in the final product, results in the plant, in the corn, or in whatever they were showing, tomatoes. Once that happened, all skepticism went right out -- you can't be a skeptic. If you are a scientist, you can no longer be skeptical if somebody shows you that it works, shows you the final proof.

Now coming back to Compugen, unfortunately it will be a long time before we have that level of proof on the therapeutic side. That level of proof only will come when we actually have create a therapeutic product that has been approved or is in phase three studies or something, and you actually see that it works, you know, in the real world. I am confident though that based on what we have been able to show so far in vitro, in vivo, animal studies, that there is no question that our predictive biology works and can provide early-stage compounds to the industry for their pipelines, which is something on a systematic and almost on a demand basis. And I'm convinced that there isn't -- I'm convinced that that capability is going to allow us now to move forward with these strategic types of arrangements.

Thank you.

We may be the only company, I guess, where my answers to questions are three times as long as my prepared remarks. That's got to be some type of world record, I guess.

Thank you, sir.

Just say yes or no, and then turn it over to somebody else.

Thank you. We have a follow up question from Jeffrey Grossman from Bear & Bird. Please go ahead.

Perhaps you can answer this one. Perhaps you can describe to us the progress that is being made with respect to the Company's immunoassay diagnostic candidates?

I'll try to do it without disclosing any details that are -- that we cannot of course disclose without the consent of the company. We started the discovery of -- in the United States a few years ago with first run of our entrants to discover secreted transcripts that are coating for secreted proteins that may be found in serum. These were part of the few collaborations that we have in the diagnostic field. And since then, we have made our engines more and more efficient, both in identifying the transcript that could predict this specific -- could give products that are proteins found -- that are found in serum samples, which is a huge jump from transcripts to proteins in serum. And we could better predict what is the type of indication that we direct this protein to be biomarkers to.

I cannot disclose the details of where does each and every marker stand, but what I can tell you is that a few of these biomarkers are currently found under the collaborations for evaluation. So this is the only thing I can say. What I can relate in more detail is that how we improved this specific platform to become -- to have a higher probability of success in translating these specific predictions into proteins that are available in serum samples, and show a different pattern of expression between healthy and diseased populations .

Okay. But perhaps you can describe the ongoing level of interest from your current partners?

What I can say is -- since I can say that there are molecules that are under evaluation, I think this is -- exactly means that partners are still interested in this capability of Compugen.

Am I correct that -- I believe we recently sent some new additional biomarkers to one of our clients? Is that correct?

Yes. And this was published -- publicly disclosed. So you can realize by us closing information molecules were submitted to partners for evaluation, that there is an interest in this capability of Compugen.

Would it be fair to say that the molecules under evaluation by these various companies are at different levels? I know there is no Phase I, Phase II or Phase III with respect to diagnostics. Nevertheless, would it be fair to say that they are at different levels?

Yes, exactly.

Also, though, I want to make it clear that the -- our emphasis now in the Company has been largely in the therapeutic area. It's not that we have given up by any means, we have a tremendous capability in diagnostics, but most of our new effort over the last couple of years has been on the therapeutic side, and most of that effort has been in the area of peptides. So we are sort of --

I would just more say that just in continuation towards what Martin said, is that the effort that we invest in specifically in the United States diagnostics is upon partners' requests. So this is something that we are doing. Part of the other platforms are continuously improved and modified, even if we don't have a specific partner that has a request in order to create additional products and capabilities and unmet needs. But specifically for immunoassay, it is true to say that we are doing this effort specifically as a -- in continuation to partners' requests.

Okay. Yossi, the last time you participated in a conference call, I remember vaguely that you ranked the Company's discovery platforms according to your perception of their importance. Perhaps you can do that again for us?

Oh, I need to remember what I said then. (Laughing)

It would stay what you tell him now. Keep in mind that what you ask for is Yossi's personal opinion, which has to carry a lot of weight. But I don't want this in any way to be seen or be reflected as this is the Company's position. It may very well be, you know, but this is the type of thing that if we were going to state something like that, we would want to do quite a bit of research before ranking them. But with that constraint, all yours, Yossi.

(inaudible) to say anything. So I think that, I mean, instead of ranking one, two, three, four, five, maybe it's better to say -- because, you know, this is not an exact science, this ranking. I think it's fair to say the two main areas that we work on, in my point of view, are -- and also not just -- I think is what we decided to put our emphasis on as a Company, are in two major fields. One is the monoclonal antibody targets, and the second is therapeutic peptides. And in therapeutic peptides, we have more than one way of discovering this. So to us, it was no question, I think that platforms that relate to therapeutic peptides, and the monoclonal antibody targets, peptides, in my point of view, are the high priority platform for Compugen.

And naturally, within the therapeutic peptides discovery platforms, those that are more validated and also are the basis of active agreements and collaborations, are of higher priority than the younger ones, but we do have younger ones, younger platforms in the field of peptides, such that were announced, such that are under development, and I believe that these two areas of monoclonal antibody targets and therapeutic peptides will be the base for further collaborations for Compugen in the future.

Not only on a product by product basis, but as Dov was describing, these two areas are very key areas with respect to the strategic project that's going on now.

Okay. Martin, short term, what milestone should shareholders be looking for?

Well, hopefully, we will be in a position where we can announce new deals, hopefully deals that -- new agreements that really focus on our competitive advantage, which as I said is the discovery on demand concept, where we -- where there is a specific need by our partner company, and they believe that we have the capabilities to actually address that need, and hopefully that these agreements will be broader than individual ones that we sign today.

Because really when we -- when somebody licenses an individual product candidate from us, and we're just one of many people, organizations, academic centers, whatever, that are offering interesting things that they happen to have found -- now we didn't happen to find these things. These were in most cases the result of the validation runs of our platforms, proving that our platforms work. But now the name of the game is to take these validated platforms and target them to the real needs of not just the industry, but of specific companies in the industry. So in answer to your question, I would hope that we will be in a position to announce collaborations that kind of fit that model.

Great. In terms of scientific discovery, new platforms, should we be awaiting something?

As was mentioned by Dikla, this year we are spending much more -- I guess Dikla, did you mention it or did -- oh, okay. That the focus this year is much more of getting value out of the capabilities and the platforms that already exist, and there is less of -- a smaller percentage of our resources is targeted towards either more basic research or new platforms. With one exception, we are proceeding with at least one additional platform in the peptide area.

Thank you very much.

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 a replay of this call is scheduled to begin in two hours, for a period of 72 hours. In the U.S., please call 1 (800) 406-7325 and internationally call 1 (303) 590-3030.

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

Yes, just quickly. I noticed that there are -- a number of our most loyal shareholders are on the line with us today. Thank you very much, not just for participating today, but for your long -- long and greatly appreciated support of our efforts here. I know we are an unusual company, and in today's world it's getting more and more unusual to be going for the long term as we have been doing for the long term.

I'm glad today that we had an opportunity to bring most of our senior management together to respond to you because we -- as we have announced, we did have somewhat of a new structure put in place. So I am glad you had an opportunity to have -- some of our loyal shareholders an opportunity to meet some of the people who now are making it happen -- making it happen here.

I very enthusiastically am looking forward to 2008 -- I'm sorry, 2009, with respect to Compugen. The rest of the world seems to be going down the tubes, but I think this is going to be a year where we really can begin to show the value of what has been created here, and I'm really looking forward to it, and I appreciate the fact that some of you on the line are the people who have helped make this happen, and I appreciate it. Thank you very much, and look forward to speaking with you next quarter.

Thank you. This concludes the Compugen Limited fourth quarter 2008 financial results conference call. Thank you for your participation. You may now go ahead and disconnect.