Compugen Ltd (CGEN) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Compugen Ltd. second-quarter 2009 financial results conference call. All participants are present in listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded July 28, 2009.

With us online today are Dov Hershberg, Chairman of the Company; Ms. Anat Cohen-Dayag, President and co-CEO; Mr. Martin Gerstel, co-CEO; and Ms. Dikla Czaczkes Axselbrad, CFO.

I would like to remind everyone that the Safe Harbor language contained in today's press release also pertains to all content of this conference call. If you have not received a copy of today's release and would like to do so, please contact Dikla Czaczkes Axselbrad at telephone number 9723-765-8595.

Mr. Gerstel, would you like to begin?

Yes. Thank you very much. Welcome, everyone, to Compugen's second-quarter 2009 conference call. I will begin with some comments about our overall company status and strategy. Then Dikla will review the second-quarter results. The remainder of our prepared remarks today will cover our activities in the important and rapidly growing field of antibody therapeutics, which will include a short introduction by me and then with Anat providing the substance.

Compugen's corporate progress and our current status and future challenges can perhaps be most easily understood and measured by focusing on the requirements for success that directly result from our selection of a mission to be the world leader in drug and diagnostic discovery. The first requirement for a company with this mission is, of course, to establish a unique and proprietary underlying capability broadly relevant to drug and diagnostic discovery.

In this regard, it's hard to imagine anyone knowledgeable about our field who after reviewing our capabilities and computation of biology would not agree that this has been superbly accomplished at Compugen over the past 12 years.

This first requirement might be enough for an academic center. However, as a for-profit company, the next required step is to demonstrate that this proprietary capability has the basis to create one or more discovery platforms that can yield cost-effective product candidate discoveries, and do so on a continuous and continually improving basis.

Compugen with 10 discovery platforms developed and validated in key and very diverse drug and diagnostic areas during the past three years and others under development has, without doubt, also met this requirement.

The third requirement is to show that our discovery platforms can, in fact, result in product candidates that not only are novel but also are both important and in areas where attempts by others have failed. With respect to this requirement, last week we disclosed the positive results achieved for CGEN-25017, in a retinopathy disease model. This announcement was only the latest in a series of recent announcements documenting Compugen's successful development of new platforms, discovery of new product candidates, and broader and deeper in vivo validations of a rapidly growing inventory of attractive product candidates; thus, clearly meeting this third requirement.

Although meeting this requirement has resulted in a number of product specific agreements, with others now in various stages of discussion, it is highly unlikely that this alone will lead to the full potential use of our capabilities and the level of success that potentially I believe we should be able to achieve.

This leads to the fourth requirement. Industry recognition of the uniqueness, power, diversity and validity of our underlying capabilities, and not just evaluating the individual products that have been discovered to date. Therefore, although we are very proud of the impressive series of discovery and validation disclosures that we have recently made, by far our most important recent achievement was not described in any press release, but in large part has occurred as a result of them.

This is the substantial change that has occurred with respect to the prior strong skepticism of industry leaders at Compugen or, for that matter, any organization, could actually use computer models to successfully predict totally in silico novel molecules and their anticipated in vivo activities.

However, in recent months, it is obvious to us that we have taken a giant leap forward with respect to the acceptance by the industry of the value of our predictive discovery capabilities. This allows us to now move to the next stage in our corporate development, which is to identify working with leading pharma and diagnostic companies, areas of mutual interest for our very unique discovery on demand capabilities.

As mentioned in the past, these broader discovery on demand arrangements will be critical if we are to fully leverage our discovery capabilities. We will, of course, continue to license specific discoveries on a case-by-case basis as we now move forward with this process.

And with this, I would ask Dikla to review the second-quarter results.

Thank you, Martin. As usual, our financial results are very straightforward and in line with previous guidance with one significant exception, the impact of the sale of 1 million of the 2.15 million Evogene shares previously held by us for net proceeds of $3.6 million.

First, as previously projected, revenues at this stage continue to be insignificant with $225,000 for the six months ending June 30, 2009, compared to $321,000 for the same period in 2008. Due to the Evogene shares sale, we reported other income of $3.6 million for the second quarter of 2009, compared with $11,000 for the second quarter of 2008.

Again, reflecting the sale of the Evogene shares, our net income for the same -- for the most recent quarter was $2.4 million compared with net loss of $3 million for the corresponding quarter of 2008. The net income for the first six months of 2009 was $63,000 compared with net loss of $5.5 million for the same period in 2008.

As you will note, research and development expense remains our largest expense, representing more than 70% of total operating expenses for both quarters. With respect to liquidity, we ended the second quarter of 2009 with $6.5 million in cash and cash-related accounts, representing an increase of approximately $2.2 million since March 31, 2009. This increase was the net result of the Evogene shares sale less $1.6 million for other net cash expenditures for the quarter.

The $6.5 million of cash and cash-related accounts at the end of the most recent quarter do not include the approximate $4.1 million in current market value of the remaining 1.15 million Evogene shares held by the Company. Total resources currently available to the Company, including the value of these shares, would be sufficient throughout the beginning of 2011, assuming no significant milestone upfront fees or additional capital from any other source was obtained prior to such time.

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

I'm going -- I'll be introducing -- I didn't mention this to you, Dikla, sorry. I'll introduce -- I've got to talk more on this call than I was given credit for anyway. Thank you, Dikla.

In our call last quarter, we reviewed in somewhat more depth 3 of Compugen's 10 discovery platforms. The platforms reviewed last quarter were, first, our platform for the prediction and selection of peptide ligands for GPCR targets, the family of targets which are by far the most important family for current therapies.

The second platform reviewed was our DAC Blockers platform, which has been designed to computationally predict and select novel molecules that will block proteins from folding into disease associated confirmations. It's interesting to note that our initial validation run for the DAC Blockers platform was the most successful validation run we had for any of our platforms in that we found -- we successfully predicted and selected ligand peptides for 11 of the 12 targets that we selected to evaluate.

The third platform reviewed last quarter was our drug-induced toxicity platform, the first application of which was the successful prediction and selection of a panel of biomarkers for early preclinical assessment of kidney toxicity.

After last quarter's call, we received a number of very positive responses from some of you regarding -- including this more substantive information about our capabilities here. And so we've decided to continue this process in some of our future calls. For this call, we decided to focus on our platform for predicting and selecting targets from monoclonal antibody therapeutics.

Monoclonal antibodies are one of the fastest-growing areas of therapeutics. And not surprisingly, in our ongoing discussions with various pharma and biotech companies, our platform in this field is a primary area of interest.

In addition, we have an ongoing collaboration with Medarex, a leading company in the development of monoclonal antibody drugs, which was in the news recently since it was announced last week that Bristol-Myers Squibb will be acquiring the company.

Anat, now for the substance.

Thanks, Martin. As Martin mentioned, during the past two decades monoclonal antibodies have emerged as an important and rapidly growing new drug class. Although significant progress has been made in recent years, one of the key challenges in the antibody therapeutics field remains the identification and validation of novel targets.

Compugen's monoclonal antibodies therapeutics target discovery platform relies on our LEADS and MED capabilities. LEADS and MED are two key infrastructure platforms, meaning they are not product candidate discovery platforms themselves, but rather co-components utilized in combination or alone in many of our discovery platforms.

I think one can gain an appreciation for the computation and biology capabilities of our team through a very brief introduction to the MED platform. The MED platform uses micro-array based experiments, an important tool for biological research worldwide. A micro-array allows the experimenter to gain information about the expression patterns of many different genes under specific conditions; for example, which genes appear to be active in cancerous tissues but not in healthy tissues.

Over 40,000 micro-array experiments are available in the public domain. Compugen's scientists took over 40,000 public and proprietary micro-array experiments, normalized them and integrated them into a virtual chip. In this virtual chip, the expression of genes and pathways can be examined across 1400 conditions and tissues simultaneously.

The wealth of information allows the identification and elimination of inconsistent data results obtained from various sources, resulting in an accurate system with an improved signal to noise ratio.

The MED platform is also a key component of additional discovery platforms we have developed, such as the new indications platform, the diabetic proteins platform, and the disease biomarkers platform.

In addition to MED and LEADS, our monoclonal antibody target platform uses proprietary and public algorithms for the predictions of novel membrane proteins that can serve as targets for antibody therapeutics, such as for various cancer and autoimmune diseases.

The selection of appropriate candidates from this large body of predictive membrane proteins is accomplished using submodules of algorithms and other computational tools developed specifically for a disease state or a protein family. We then transfer the selected candidates for experimental validation.

So far, we announced more than 10 candidate novel targets for antibody therapy for various types of solid and hematopoietic cancer, serving both our internal pipeline as well as our collaboration. All of the new targets are membrane-bound molecules which have been shown to display differential RNA expression in various tumors as compared to healthy samples.

A number of them are splice variant transcripts. This class of molecules would be particularly difficult to find utilizing traditional discovery methodologies, but were easy to find using the Company's LEADS platform. These targets offer the opportunity for advancing the development of antibody biotherapeutics for a wide range of oncologic diseases such as ovarian cancer, lung cancer, colon cancer, multiple myeloma, acute and chronic leukemia, and non-Hodgkin's lymphoma.

Further experimental validation of the therapeutic potential has been initiated for a few of these targets. We see our unique monoclonal antibody target platform as an extremely valuable asset of the Company. The fact that identifying the appropriate target is the key discovery aspect for developing antibody therapeutics and the higher probability of success in development from the first use in humans to receiving regulatory approval adds to our enthusiasm and expectations for our unique discovery platform.

We look forward to the continuing use of these platforms both in our own discovery activities and in collaboration with partners. With this, we will open the call to any questions that you might have.

Thank you. Ladies and gentlemen, at this time we will begin the question-and-answer session. (Operator Instructions) Jeffrey Grossman.

I went over the press release, of course, that was issued today, and perhaps I am prejudiced, but in my humble opinion I would like to believe that the press release is perhaps too modest, that the Company understated its achievements.

In recent months, the Company has announced in vivo validations performed by the leading experts in their fields for three therapeutic candidates for pulmonary fibrosis, IBD and retinopathy, yielding what can only be described as remarkable outstanding results. And in my opinion, the Company has amply demonstrated the power of its platforms by providing product candidates for unmet medical needs affecting millions of persons.

Questions. First, short-term is the Company continuing to advance these specific candidates, negotiating the license of these specific candidates, or bundling them together into packages for purposes of strategic agreements?

All of the above. I mean it -- we're actually in that process now of kind of deciding are there specific things that we should sort of slow down the individual licensing of until we are more -- at a better feeling for the types of strategic deals we've had, or should we just continue to move forward as rapidly as possible on all fronts. And it's a judgment call where we just decided that we're not going to make any general decision and we're going to look at it case-by-case.

Okay, but could you characterize the response in general of big pharma to these announcements? Has there been excitement?

We're not there. I would say that -- I don't know about talking about the response to announcements. I know that when we are now meeting with them and just reviewing our discoveries and the validation experiments that we do, they are very impressed, extremely impressed. Because as I said, they go across so many different fields.

They are in some of the hottest areas of research. They've been achieved on an unbelievably modest budget and in very, very rapid timeframe. And the validations have been done by world leaders using the same models that they rely on, disease animal models. So it's kind of tough for them not to be impressed.

I agree. I think big pharma can ignore Compugen today only at its own pair. Given these successes, Martin --.

Excuse me. While you're on the phone, you have to remind me. I think we have the wrong address to send you your monthly check, so just -- go ahead, continue.

Okay. Given these successes, Martin, are you at all concerned that a hostile tender offer providing a slight premium over current market value could rob the Company and its shareholders of the value which has been so painstakingly created over the course of the past decade of R&D?

Well, it would obviously be up to the shareholders to make a decision. Keep in mind that the industry that we are in is one that, in general, isn't -- doesn't acquire companies like Compugen unless the Company puts itself up for sale. If the Company doesn't put itself up for sale, then you have to ask yourself why would a big company buy it. If they're products that they're interested in, we're going to come to them and they can license them and pay us a royalty. Why should they acquire us?

And if they did acquire us, then they're going to have to make a decision as to whether or not they continue to allow us to work with other companies. If they continue to allow us to work with other companies, why did they buy us? If they don't allow us to continue to work with other companies, there is a strong chance that over time, the Company will be destroyed. Because our power and our capabilities here come out of the type of team we have that approach so many different areas and build up this very, very broad capability.

I mean this has been -- if you look back at it, this has been the history of early really first-class "platform" companies that when they are acquired by big pharma that within a couple of years, the platform capabilities typically are gone, and whatever products are there remain.

And the only time that they're bought really is when the Company makes it available -- they're for sale. I can speak from personal experience here because in all my years at ALZA, no one ever came to our company no matter how -- we were unbelievably successful. No one ever came to our company and said, we'd be interested in buying you.

The minute we said we might be interested in acquiring, the phone started ringing because no one wanted to see us go to a competitor. And I think that as the industry begins to more fully appreciate the kinds of capability we have, we're going to kind of be in the same situation.

Okay. I'm certainly hoping that the Company will be able to retain its independence. Next question. Concerning toxicity markers, are we still on target to see an agreement in the first half of 2009?

The first half of 2009, I think we're going to --.

I'm sorry, the second half of 2009.

We're cutting your check this month in half. All right, that's it. I assume the answer is yes.

We are hoping it's yes.

Yes, I mean it's a reasonable expectation. I have to say that our focus here over the last six months as the press releases will probably point out have taken some of the -- we've had to pick and choose as to where we emphasize our business development. And from what you've seen, I think you could understand that with our limited business development, we are not doing an enormous amount of pushing in that way.

I think it will happen, but this is a continuing problem for us to some degree. We've just got perhaps too many things to follow up on here.

Okay. What sort of announcement should we be expecting over the next six months? Should we be expecting the same torrid rate of announcements as in the first half here -- I've got it right this time -- of 2009?

Most of our announcements will probably be about two pages long. We may get to a three-pager. I guess that's about all I can say about making -- being more specific about announcements.

Let me try to be provocative and you just tell me to shut up. Should we be expecting additional validations? Should we be expecting --?

Let me say -- we are a discovery company and, fortunately, we have a pretty high batting average now with respect to the discovery and it does get better over time. But these are the kinds of things that you can't -- you just can't predict. There are --.

Coming from a predictive company, okay.

There are many, many things in motion now that if successfully -- that could be successfully concluded during the second half of this year, and if successfully concluded would clearly justify a press release. But if, when things happen, sometimes earlier fortunately, sometimes earlier than you expect, more likely in our industry happens later than you expect; but predicting either the timing or the result for a discovery company is very difficult.

Okay. Last question. You've indicated that for 11 of 12 targets for which you used the DAC Blockers platform, you were able to find appropriate peptides. Are you continuing in that vein with respect to all of these peptides?

We've selected a few of them to move forward for testing them in animal models, not all of them.

Okay, thanks. Let me move over and move aside for the next question.

Thank you, Jeff.

(Operator Instructions) [George Karud].

Martin, could you address the cash situation? I know you all have six-point something million in cash, and you always include your averaging of shares, which that's fine but that is a market price that can change overnight. And you get another downdraft in the market and that $4 million may be $1 million. It looks like without the Evogene shares, you've got about three-quarters, and that pushes right up to the edge.

And we're not going to see, from what you are talking about, any big money, big joint ventures. We're not going to have any products. So I mean, cash is a meaningful thing. This is a great company, and if we had another $15 million in cash you'd have all the time that you'd need to prove up a lot more things and all the things you're working on.

The cash situation bothers me because we -- 6 months pass and all of a sudden, now we are bumping up against the wall again. Can you address that? I mean, could you do a 5 million share deal? One thing about a biotech company, a predictive company, a company like this, it doesn't matter if it's 30 million or 35 million shares. It doesn't matter if it's 30 million or 40 million. It might matter if it's 30 million or 60 million, but 5 million or 10 million more shares, it's dilutive but hey, people don't care because the opportunities are so great that it doesn't really matter.

If you are as successful as the possibilities are and that you feel that this company has those possibilities, it's not going to matter for a few million more shares, but it sure could matter now to have another $10 million in the till. Would you comment on that?

Well, first let me say just specifically that the cash we have now would take us through the middle of next year, so just to be clear about that. It would take us -- is this right -- at least through the second quarter of --?

Yes, exactly.

Through the second quarter of next year, so --.

Based upon a $1.6 million burn per quarter? Is that what you're basing it on?

Well, we're basing it on our -- just let me tell you that that doesn't -- what I just said does not assume that we're going to get any payments, milestones, other things that could happen, or any upfront fees or -- it assumes nothing other than what's budgeted or essentially committed at this point in time. So that when -- and I think you're one of the people who have followed us for a while.

A long time.

There's probably a number of things that you can say about us in a positive and negative way. But one thing I think is very certain and very clear from since we've been a public company is that we have been extremely accurate with respect to our stated expenditures, amount of cash, whatever. You can look back all the way from the time that we became public, and what you'll find is that there was never a situation where we surprised the market with respect to the amount of cash we had on hand or the amount of cash that we burned relative to what was expected.

So I think with that aspect, you can just pretty much be comfortable that if we say we have cash through the middle of next year, you should take it seriously that that's where we're at.

I can't say too much about Evogene because, as you know, I'm also the Chairman there. So the only thing I can say is what we say publicly, and that is that Evogene is a phenomenal company. They have -- there all kinds of things happening there. You see the press releases. They have enough money forever, basically, at this point in time.

So I think it's a pretty secure, pretty safe investment, and it may -- you're right, it could go up or down a little bit. But given our annual burn rate here currently of about $8 million, which I would like to increase and we will hopefully very soon, but we won't do it until we're sure of the cash availability.

But given our burn rate of $8 million and the current market price of the shares we hold at Evogene being more than $4 million, that provides some level of insurance policy no matter what happened. And we're not -- the other thing is we're not going to run the cash down to nothing.

With respect to your comments on liquidity, I absolutely 100% agree with you. And that if it came down to the point where we had to make a judgment here as to whether or not we will put the Company at risk or add 5 million or 10 million shares even to our base, if it was -- if that was the question, the answer is immediate.

We go and we do what needs to be done to raise the money. But if we are looking at a situation where we see four or five pathways which we are proceeding on, where there really isn't this concern, I just -- I think we need to protect the shareholders' interests, even if it's only a few million shares.

Right. Well, let me say this. I have been following it a long time, and the only criticism I have of anything that you all have done has been the fact that when you had an opportunity to raise money, and many times you said you could pick up the phone and raise it next week, we didn't do it. You know, I'm just being straight up and honest. We all have to do different things --.

I understand, yes, and who knows, looking back historically we probably should have when we went public; we should have had a secondary right away. It was a different world then.

Right, but even a year and a half ago, and everybody has got -- I'm not looking in the rearview mirror because I felt that -- you know, there were several of us that always felt we ought to raise some money. Because like I said, with 5 million more shares --.

Let me say that -- there is no question -- I think you probably can assume that we're getting phone calls here, what, once a week or whatever from investment bankers that want to guarantee us this amount of money or that amount of money or whatever. So the comment that I made in the past that we could raise money by just picking up the phone, now we don't have to pick up the phone. Well, we do, but they are calling us rather than us calling them.

So I don't know. Maybe we should hear from somebody else on the line. Let me just say, okay, based -- you've convinced me. Next week we're going to sell 5 million shares at $2 a share.

I do that -- you know what, Martin? I'm not an expert that's been around a long time, but if tomorrow -- if 10 minutes from now, somebody said we'll take 5 million at $2, I would say done.

Okay.

You know, that's just the difference --.

Let's see, I am assuming that if no one on this call says anything other than -- if no one else says I would not do that, I will assume that all the people on the call agree with that and we will seriously think about that situation. Because if that's the way our shareholder base feels, it's obvious we could do that.

Yes, Martin, I'm not arguing. I'm not trying to be argumentative at all.

No, I know you're not, and I'm not either.

We're just talking.

I understand your position and it would be interesting. And we'll see whether anybody on the line who is a shareholder of our company just comes in and says, I think that's outrageous.

That was just a couple -- two or three guys. Why don't somebody speak up and say what you think either way. I would like to just hear it. Anyway, thank you, Martin.

I'm really glad you raised the subject, because it's an awkward one for me to just ask the question. But since you asked it, let's hear from the shareholders.

And I think you all are doing a great job. I'm excited. I love the Company. I would love to have another $10 million in cash --.

Listen, we're not going to send you a check too, so you're wasting your time. We've got one guy we're paying off. How many people do you want us to pay off?

Okay, Martin. Thank you.

[Bill Chapman].

Yes, Martin. Hello, everyone. Martin, on the new indications, where are we at on the progress on that?

You mean with respect to the --?

Advancing any of your predictive discoveries on that?

Well, first let me just say in general, we are continuing to evaluate the first run of that and trying to identify interesting areas. Anat, do you want to say something more specific?

We've decided that the next round will be directed only by a partner, so we do some internal work, but we are expecting an additional work only with partner.

I think with respect to -- the new indications, it's another area of great interest in the industry. The nature of it, though, is such that the commercial aspect is extremely important; how you position it in the clinical trials, whether or not you use a different dosage form, all kinds of questions that you don't have to get into with a new chemical.

But here, since by definition as a new indication, it means that the compound is out there and may very well be a generic compound or about to go generic or will become generic by the time our new indication got approved, what that means is that the commercial aspects of how you develop it, and it's a dosage formula. How do you distinguish it from the initial indication? How do you deal with off-label use?

All of these things are so important that we decided that we really -- this is a program that we definitely should partner from the standpoint that it also -- there is a leapfrog there. With most of our programs, you can take it a little bit further in development. You know, you do a little bit here and then a little bit more, a little bit more, and you're just kind of slicing the baloney and you just decide how far you're going to go.

New indications is very different. If it looks good, you can go from the computer essentially into a Phase II study. So it's kind of -- we've come to the conclusion that as of now, most likely we will not on our own do that. We will, because of all these commercial issues, we will find partners for these things.

Are you in discussions with people right now?

You know, we're in discussions with people -- with companies about everything.

Well, could you answer yes or no on that, please? Could you answer just yes or no on that, please?

Are we in discussions now on -- anything new on indications?

As part for our capabilities (inaudible).

I don't think at the present time we have any specific discussions going on with respect to a product -- a new indication for a product that we have discovered. We are discussing the new indications concept with a number of companies. And as I mentioned in my initial remarks, really the key focus right now in our business development interactions and meetings with the industry are much more broad. And yes, new indications -- a platform, of course, is a part of these discussions, but it's a much -- these are much broader discussions.

And I would have to say that as of now, if I was to say which are the things that -- when you discuss all of the stuff -- but the things that the industry seems to be most interested in right now I would put in the -- let's stay on the therapeutic side -- are clearly the monoclonal antibodies. That's a very hot area. And then the various therapeutic peptides for different -- and in particular, the therapeutic peptides coming from our DAC Blockers platform and from our GPCR platform, but we also have other platforms for therapeutic peptides.

Okay. Well, the reason I asked that is a year ago we were going to, of course, do two tests that the Company was going to fund that had huge possibilities. And due to management's inability or decision to go into a capital constrained mode it's really disheartening that we have to shelf these kind of things.

It had high potential a year ago and now we don't have the capital to move it forward. We are not in discussions with someone else. And the prior caller, I wholeheartedly endorse what he was saying. It's incomprehensible how a firm with all of your technology you can come forward with has to operate on a shoestring and not try to advance more things faster. It's incomprehensible to me.

But let me ask you on the toxicity marker, do you anticipate going with a testing service or doing it one pharma at a time?

As of now it would be one pharma at a time.

Do you have the staff to really --?

I also want to comment -- excuse me. Let me comment on your earlier statement. I agree with you. It is a shame that we -- I wouldn't say we are operating on a shoestring. I think we are --

Well, you downsized the firm's R&D. That is not good.

Yes, but we downsized last year in a way where we did not sacrifice any capability in the Company. The way it was done was that we did sacrifice some capacity where -- in certain areas where we could do three programs at one time, now we can only do two, but we did not sacrifice any capability within the organization. That was the decision. So we have the complete Compugen is still here.

Now I don't want to make this sound like I am disagreeing with you, because I agree with you. As I mentioned in my initial comments, I think it's a shame that we are running the company on an $8 million budget. Fortunately, our work is so cost-effective that to go to $12 million or $13 million might be the -- I am not sure we would need to go beyond that.

And as a matter of fact, given the type of stuff we do to some degree the bigger we get the less we are going to be able to produce. I mean, it's the small, very closely knit team of people here.

And there are clearly things -- and you have mentioned one here and a couple of them, there are clearly things that are now on a shelf that if we had more capital we would be pursuing them. It's absolutely true. It's a judgment call as to how you draw the line and only time will tell. I don't know whether we are acting too tight or whatever. I am sorry, I interrupted you so continue.

Okay, well, thank you. With the toxicity marker you answered you are going to do it individually. Do you have enough staff to really go pharma to pharma to try to get someone to align using this toxicity marker for the kidney?

No. I mean we don't, but this is the type of thing that you don't really need to go there and sell it kind of a thing. You bring it to their attention and you have got lots of data information. So we don't have any marketing staff that would be out there marketing this product.

Okay, but you have one person in charge that is communicating with numerous pharmas about embracing this?

That one -- I guess that one person, though, is doing 100 other things.

Yes, that is my concern. We have something that could be very useful and once again capital constrained the Company is being impeded dramatically. Let me ask you, any analysts talking to you guys?

Yes. I really can't say much.

Okay. Well, that is enough. Okay, thank you very much.

Thank you.

[Ken Fava].

Yes, I just had a quick question as to how many in vivo validation studies are ongoing or planned over the next six months?

Do you know, Anat? Can you --?

I know, but this is something that -- I have a rough number but this is something that may keep changing because our decision to move forward with the molecule and pursue a second disease model or either a third one is dramatically affected by firstly the success and second by the budget that we have for that.

So, in general, we expect to have additional -- I think about five disease models, but not sure that all of them will be on new molecules. Part of them maybe just extensions of what we have, additional disease models for specific molecules that were disclosed already.

Thank you.

Ronald Urvater.

Good. I really want to focus my questions -- you have sort of talked about this a little bit, but the nature -- and it's not completely clear to me -- the nature of the dialogue that you are having or you are contemplating having with the corporate partners?

Let me be specific. First of all, to what degree -- since you alluded to the generics that are out, there I am curious whether the partners you are talking to are more interested in new molecules per se or in reducing the rate of clinical failure? I was really struck by your toxicity developments being these biomarkers for toxicity which to me seems incredibly important. And I don't know whether one has greater sway than the other in terms of your talks. That is the first question I have.

The second question I have is have you -- do you perceive leverage that the Company has developed in accelerating the rate of talks with these partners and what is it, in fact, are they looking for that would trigger really significant corporate developments? The science has been advancing so dramatically for so long it seems to me, and I can't document this, that the dialogue process you allude to has been underway for a long period of time.

So I am trying to get a sense from the other side of the table what are the triggers, what are the real inflection points that the partners are looking for for them to really step up to the plate here? I know it's kind of a general question. Anything you say would be helpful. I think, by the way, that will go towards answering the other person's call about capital.

You have to really ask yourself what is the rate really in step here in the progress of the Company? To me it seems more corporate partnering validation than anything else at this point because the progress of the science has been so substantial.

Of course, they go together because with significant corporate partnership the capital issue goes out the window. It no longer is an issue.

Right. It begs the question.

Yes. Your question gets to some very, very fundamental issues about who we are, what we are doing, the state of the industry that it is I am not sure -- I hope this doesn't drive people crazy. But let me just suggest an analogy for how to think about the issues that we are dealing with.

Let's suppose that you are -- that you have an airport near the Mexican border and you are responsible for determining which Mexicans -- and I don't mean this in a negative way -- or you can say which Frenchmen or whatever, which foreigners are going to be allowed into the United States and which are going to be turned back at the border. And looking at it -- you are looking back at how you have done so far what you find out is that you have let an awful lot of foreigners in who you never should have let in because all kinds of bad things happened afterwards.

That essentially is the way the discovery section in a pharmaceutical company is at the present time. They are sitting there and their role is to feed the pipeline of the pharma company with product candidates to move forward and hopefully to get out the door. But the reality is that almost all of them fail in the end. So whatever you are doing you are not doing it very well. Very few products are actually moving forward.

Let's further assume that you have built your airport at a time when the only aircraft available were like two-seaters or three-seaters or four-seaters so that all of your processes of determining whether to allow -- a plane lands and all of your systems are set up to take the two or three people in that plane and try and have them go through your system to decide whether or not they should stay in the United States. Then along comes somebody who says we want you to sponsor a 747 that can bring in 1,000 people at a time.

The question is is that good -- what do you say? And that is really -- we are that organization. We are creating here 747s for a drug -- product candidates. But now you are the guy who is sitting there with an airport that only handle two or three people at a time, plus for whatever reason you are finding out looking at the history of how you have done that you are letting in the wrong people. So what do you do in this situation?

Now I know what you do long term, because it has already happened once. What I have described is the situation now in the pharmaceutical industry and it was the situation in the Ag Bio industry up until relatively recently. But first Monsanto and then everyone else changed their systems so that now Monsanto doesn't have somebody looking to see which two or three things do we sort of -- or 10 or whatever.

They make no decisions up front. They take hundreds and hundreds of, in their case genes, into their pipeline and proceed from very, very early stage in parallel and then at the end of the day out come 10, 15, 20 interesting things. What we need is for the pharmaceutical industry to move in that direction. They have to, they know they have to.

But this is a challenge now because, if you remember my analogy, if you ask the person who is sitting there with processes to only deal with a few people at a time and he isn't doing very well, and you say do you want to have 1,000 people at a time showing up here. On the one hand, from a corporate standpoint you could say that would be great if we could have 500 times the opportunity. But then you get down in a realistic standpoint and you say, well, how the hell are we going to handle that.

What the industry is now doing is they are saying we want stuff to be further developed. We want somebody -- we want this person -- before we choose whether or not we are going to allow them to stay in the United States, we want them to stay in some interim period where it's somebody else's problem. Put them in France for a year and if he still looks okay, we will let him into the United States.

I don't know maybe I have confused you more than I have helped in this but --.

But I think what you are suggesting is there is a discrete process here. It's not a -- in a way you are answering the question because, in my mind at least, I thought there was a gradual process of elimination and dialogue and gradual convergence. So what you are suggesting is that airplane has got to be perfect before it's tested, that's one, which is a discrete jump. Unless I am misunderstanding you.

What the industry would like right now and they would -- immediately, they would sign billion-dollar deals with if we could take the discoveries that we are now making and move them forward rather than trying to license them out at the stage that we are licensing these individual things. If we could take them and continue internally for two or three years or whatever on all of them, which -- even Merck couldn't do that though we have got so many discoveries. That if we were to do that they would love to be able to then look at all of these more advanced product candidates.

But, Marty, but don't you have a system of triage? Isn't part of your technology to be able to prioritize and create hierarchies and probabilities of success?

If people could do, that how do you explain Merck and Pfizer --?

No, but you. Not Merck.

Yes, but keep in mind that the earlier the product is the more unsure you are about it. Now our view is that the very process that we use to make discoveries should over time prove to have much higher probability of success than the traditional experimental-based discovery. But we don't have any -- there is no evidence that anyone can have and will not have until a number of years ago by and you have the experience to show that this happens.

I want to go back though to specifically telling you about the interactions that we are having. Because the first problem that we had -- and I have been mentioning this a few times but I don't think people have perhaps really understood the significance of it -- every time we met with a big pharmaceutical company relatively, up until about a year or so ago we would give them our whole story about how great we are and all this kind of stuff.

We were always received with the same answer and that was, well, it sounds great. When you have some interesting product candidates, show them to us. Underneath that kind of a comment was the fact that they just never believed that so much money was wasted and problems with all of these different -- over the last 20 years the number of people who have solved the problem of drug discovery and then they all failed after having 20 billion-dollar market caps that people just don't want to even hear about it anymore. So the only thing they wanted to say is show us the discoveries.

Now we have -- it's a strange thing to say -- but looking at an individual product discovery, we have no competitive advantage. That is like going back to my airport analogy kind of. When you look at a person on the ground, whether that person have come off of a two-seater or come off of a 747, when you look at that person the person who provided the 747 has no -- there is no competitive advantage. You are looking at that person and that is the situation.

So our competitive advantage is not at the specific product level. What it is at is at the area of basic capabilities, but no one because of the history of companies failing in doing this basic discovery capability, because of that history, no one would believe us. So we got caught in this loop. That is why I said that the most important thing that has happened over the last few months -- and it's not just with one company, it's with essentially every company we have met with.

They now accept we can do things they cannot in the area of discovery. That our predictive capabilities are valid, they are powerful, they are cost effective. We are over that hurdle. We don't have -- and I when I say over, we have got a couple that we are still working on. But the process is unstoppable now, because the amount of evidence we have -- when you look at all of these discoveries we have made now and all of the validation no scientists can look at that now and say that the predictive capabilities aren't valid.

Keep in mind every product candidate we have was 100% predicted by a computer and then -- these are all totally novel compounds. No one has ever seen them before. We predict them in the computer and we predict what we think they are going to do in a living system, in the human. Then we go, we make them, and guess what they really do what we said. And not just in the one field.

We are not experts with GPCR-ligands or experts with how proteins fold or experts with regard to biomarkers for cancer or etc., etc., etc. This is at a fundamental level of how life works at the molecular level where we do our predictive biology and where these predictive molecules come out of. So no scientists at this point in time could look at the evidence that we now have, experimental evidence, and not agree that there is something that we can here.

So now we have -- and as I said, now we have moved to the next step. The next step is to find areas where -- of mutual interest, substantial areas where they can see how our capabilities and their needs will come together in a way that will create products that they will be able to market and that we will get royalties out of.

Now this is now leading to the next problem we have to sort of deal with is that they don't -- in general they don't have systems set up internally to take large number of candidates at very, very early stages and move them forward. They are targeted today much more, as I said, the same way the Ag Bio world was. To look at things -- a few candidates and decide whether or not to put them into the pipeline.

It's unfortunate you have to do this step by step. You can't do them in parallel. You have got to do it sequentially. Those of you who know how old I am, you can imagine how frustrated I am.

But I knew it getting into this that we had to first develop the science. From the science we had to develop the platforms, from the platforms we had to create products, from the products we had to prove that they really did what we said they were going to do. Once we did that then we had to convince people, to remind them of all these products and use the products as a way to get them to understand the underlying capabilities.

So that then we could reach the point where we are at now where a whole bunch of major pharma companies understand that we have discovery capabilities here that don't exist anywhere else in the world. We are now working with them to attempt to come up with substantial areas of mutual interest where we can -- essentially what was done at Evogene between Evogene and first Monsanto and then some other companies where you are not licensing out things that you have discovered.

(multiple speakers) Go ahead, sorry.

I follow. But just one last point, not to belabor this though if you want to jump on, but just to use your metaphor. You have delivered that citizen, the Frenchman, the Mexican, but you said earlier once the citizen has been delivered it's irrelevant. So my question to you is don't you want to deliver a good citizen? Isn't that part of your capability is that the output is superior than otherwise they would have gotten?

The answer is, yes, we would love to but -- and we may be doing that now, but there is no way we can prove it.

It would take gave a lot of time to --.

Well, that is the whole point (multiple speakers) in circles, because that to me was the initial promise of the capabilities that you are shortening the time to successful products. Ultimately, with a higher success rate.

You have to keep in mind one thing behind all of this which is going to be the driving force, which was the driving force in Ag Bio and will be the driving force here, and that is we are not in the situation where the pharmaceutical world has an acceptable process now and we are trying to get them to change from one acceptable process on a dream and a hope that ours is going to be better. They know they don't have an acceptable process.

As a matter of fact, a number of very major pharma companies are actually thinking about 100% getting out of discovery and just going and trying to license stuff in from other parties, which would be fantastic for us because then I think that we would be the first place they would call. But what I am saying is that big pharma doesn't have the choice -- with respect to discovery they do not have the choice of remaining the way they are.

They all know that. They are setting up different systems, companies, different strategies, whatever. Slowly, but surely we are showing them that there is an alternative path. When we meet with the top discovery people, research people in pharma companies now we astonish them. I mean we totally astonish them when they see the kinds of things we can do.

That doesn't mean they then jump and say here is a $50 million check, let's work together. Because now we have to figure out how do we match our early discovery with their development pipeline. In general there is a gap in there because as I said they can only process the people coming off of the two-seater. We are coming in with a 747.

But these are things that can be dealt with the same they were dealt with in Ag Bio. But the most important thing to realize is they know they have to change. They don't know they have to change to be with us, but they know they cannot stay the way they are. And I am not aware of anyone else who is offering an alternative.

Okay, Marty. Thanks. That is very helpful. Thank you.

[Jeffrey Grossman].

I just want to emphasize, all joking aside, Marty, of course, we have had many differences over the years but I think there is a mutual respect and I have certainly grown to appreciate your conservatism. Concerning the proposal of immediate dilution, you wanted to know if there were shareholders feeling contrary to what was expressed earlier. I would say that I think this is very, very much a matter of corporate expectations.

If you were to tell me we are expecting in the next two months one or two toxicity marker agreements, in the next six months a strategic agreement, validations concerning additional peptides on the level of which might provide the results that were provided by the relaxin peptide. If you were expecting individual candidate agreements over the next couple of months, if you were expecting to announce one or two additional platforms over the next six months, I would very, very definitely avoid any such dilution especially at the present time and wait to see how matters develop.

I can only express my full confidence in you and your conservatism and I trust you implicitly in terms of the decision that has to be made when and if dilution should occur.

Concerning Mr. Chapman's comment earlier, I would simply like to express my own personal frustration and disappointment, of course, concerning the delay involving the C&S generic drug that it is thought enhances the effects of tamoxifen for breast cancer resulting from the new indications platform. On the other hand, and especially given that it was a family member -- I have a family member who suffered from breast cancer and it's of extreme interest.

On the other hand I think that we also need take into account does the Company then devote its cash to this particular drug or, for example, does it take the relaxin peptide for pulmonary fibrosis and advance that over the next year. This is a disease that is incurable, affecting 5 million persons. In which direction does the Company go?

Obviously, we have to -- my feeling is we have to rely on management and, forgive me, I am being paid by you of course and this is my opinion.

We better be careful. People may believe this so we could end up with a lawsuit tomorrow morning.

Jeffrey, just one thing because I appreciate what you said about the dilution in the beginning, but keep in mind that you kept saying if we expect A, if we expect to B, if we expect to C, keep in mind that in our business that the word expect doesn't exist. It does not exist. The question is what would your answer be if I said yes, everything that you mentioned is reasonably possible to happen? I cannot say we expect it.

In our business the word 'expect' should never be used, literally, because you can get yourself in big troubles thinking that way when you are a pharma company. The question is, is it reasonably possible and if it happens what do you do, and if it doesn't happen what is the situation that you are going to be in?

So I would ask you, how would you answer the issue of the dilution if -- everything you said my answer is yes, but it's not expect it's that everything that you mentioned is reasonably possible to happen within the next six months. And it is. So now you tell me, how do you answer the question?

Again, Martin, I am not involved in the negotiations. I don't know where you stand vis-a-vis the negotiations, for example, concerning the toxicity candidate, concerning individual product candidates, concerning the introduction or the announcement of a new platform, concerning additional testing of peptides, this would be information that I would require in order to make a recommendation. But, again -- (multiple speakers)

Let me add to that. I have -- in my history I have been in situations where after we had completely negotiated a deal, it was signed, it was subject to Board approval, and we were told that it was just a rubberstamp Board approval after like three years of negotiation and all this kind of stuff. And the Board turned it down.

I have also been in situations where you don't seem to be getting any headway whatsoever with respect to a company and you are about to write the thing off. Suddenly you get a letter in the mail saying that everything has changed and they are willing to accept. So, again, I could give you every piece of information that we here know. Everything about every negotiation, whatever, and if you really think about it though you are still stuck with this is it reasonably possible.

You cannot say, and even more so when you are talking about disease models, experiments -- I mean you are doing these things to find out whether it works or not. Now, fortunately, we have -- what we are showing is that we have an amazingly good track record from a prediction to actually happening. But every time we go into one of these things we have to cross our fingers. The rats could die.

All true. But here again I think, again I don't sit on the Board. I am not an insider. I have to rely on your conservatism and a determination of, given all of these possibilities, what is the likelihood that one, two, or more of them will occur?

I also want to although -- the people here who work with me know and probably don't like it, but it may sound like I am very definite about what I think the answer is. I know these are judgment calls. When all is said and done, if you look back on it and say we should have diluted the hell out of the Company and doubled our research budget or the reverse could be. That we could sign a couple of big deals, not have to raise any more money, and have a $0.5 billion market cap next year.

So it's a judgment -- I know it's a judgment call. I appreciate your saying conservative, because you know me. I am fiscally very conservative and I am not going to do anything that is going to put this company at risk in any way. But I am going to do the best I can to protect the interest of the shareholders.

That is fine. I think it also need be noted that the corporation has no debt and there are other alternatives to this sort of dilution involving the shares.

Plus we have taken most of the money in the bank and we have invested it in derivatives for a South American copper mines, bought them with some guy in Wall Street who assures us that this is going to triple within two or three months. So I think this is what I am really counting on is the derivatives that we have booked.

Martin, I would only note that I was very much in favor of dilution, you will recall that back when shares were at five. But here it's -- peculiarly we have a different global situation, on the other hand the Company has advanced its science. So again not an insider, not a director; any time you want to bring me in as a director I will be delighted. That is a threat.

Then we will have to send you checks. Okay. Are there other questions?

There are no further questions.

Are there any people still on the line?

Yes, sir. Before I ask Mr. Hershberg 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 US please call 1-866-726-1002. In Israel please call the 039255901. Internationally, please call 97239255901.

Mr. Hershberg, would you like to make your concluding statements?

Yes, thank you. Well, it is difficult to conclude such a lively and very active meeting, but thank you all for your active participation. It has helped highlight important issues.

I want to say I joined as chairman in January and as the newest member on the team, I am very impressed with the progress made and the development to market needs and growing the market interest are very, very impressive. Now I would like to conclude this meeting and to thank you again for your participation.

Thank you. This concludes the Compugen Ltd. second-quarter 2009 financial results conference call. Thank you for your participation. You may go ahead and disconnect.