Compugen Ltd (CGEN) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the rescheduled question-and-answer session for the Compugen Ltd. first-quarter 2010 financial results conference call. All participants are at present in a listen-only mode. Following a short introduction, instructions will be given for the question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded May 5, 2010. With us on line today are Mr. Martin Gerstel Chairman of the Board; Dr. Anat Cohen-Dayag, President and CEO; and Ms. Dikla Czaczkes Axselbrad, CFO. Mr. Dikla Czaczkes Axselbrad, would you like to begin?

Yes, thank you very much. Good morning to those of you in the United States and good afternoon to those of you in Europe and Israel.

In our first-quarter conference call held last Tuesday, Martin reviewed a slide presentation covering the Company's current status and outlook. This presentation continues to be available on our website under the Investor page. And then, when that page comes up, on the left, click on Financial Reports and you will see it under Corporate Presentations. Unfortunately, a technical problem last Tuesday prevented us from continuing after the presentation with the planned Q&A session.

This is why we are holding this additional conference call today. Martin, Anat and I welcome your questions at this time.

(Operator Instructions). Pamela Bassett, Cantor Fitzgerald.

Good morning. Thanks for taking my question. Will you please give us an update on the Pfizer program and where that stands?

This is Martin. Well I guess you know that since I'm the only male on the call. So, anyway, hello, Pamela.

As we've mentioned many times, it would be difficult and we really have now established a very firm policy that we are not going to be responding on a project by project or client by client arrangement.

I think though that with respect to the Pfizer program that you asked about, the planned activities were quite well spelled out in the press release when we announced it with respect to the fact that there was an initial period of time when we would be doing the discovery in a matter of a few months, that the discovered molecules or predictive molecules would then be synthesized and shift to Pfizer. And then they would have a period of time to evaluate them and determine which if any they wanted to take a license to.

This, as I said, with respect to the Pfizer agreement, was very clearly spelled out in that press release. In the presentation that I gave in our conference call last week, the general parameters of these types of agreements were laid out. And it's conceivable that we might end up at some point in time for whatever reason, varying from the timelines put here. But in general, and with respect to the discovery on demand agreements that we are discussing now, they all will fall into this general framework, and that was on slide 41 in the presentation, where it shows that during the first year, the revenues to us will be largely in the form of fees research revenues and will depend on essentially how much of the work that we will be doing and how much the client will be doing.

Then, the substantial amounts come to us if and when the licenses are taken, which as I said, takes place after the client has an opportunity to review. That review by the client could take anywhere -- usually will take like three to six months. It's unlikely to be less and also unlikely to be much longer than that.

Okay. So we may be hearing something from Pfizer then over the balance of the year, certainly?

Let me just say that based on what hasn't been publicly stated, it would be surprising if you did not -- if there wasn't something relating to Pfizer by the end of the year.

I don't really want to get into much more detailed because it gets very difficult for us to respond with respect to these client arrangements.

Okay. And, should we expect additional discovery on demand alliances this year and into the beginning of next?

I don't know if you should expect them. We expect them and, the --

(multiple speakers)

We are in discussions now with a number of companies. As I said, most of them revolve around either therapeutic peptides or targets from monoclonal antibodies. It seems like of the various platforms that we've created, right now, these are the platforms that seem to have the broadest interest, for the type of agreement that we call discovery on demand. And we are very pleased with how these discussions are going.

And are you finding that some companies have an interest in accessing multiple platforms, either simultaneously or, for example, approaching protein, the new protein-protein interaction blockers platform along with the IDD, the intracellular drug delivery platform or various combinations?

In general, Pamela, hi this is Anat. In general, Pamela, the discussions we're having with pharma companies are around this specific field of interest, which may be peptide type projects or antibody type projects or protein type projects that are not antibodies. So, in general, the discussions are not around a specific platform.

Of course, when we discuss with the companies, we present our capabilities, but for a pharma company, it doesn't matter which type of capability we apply in order to come up with new discoveries. So as long as we find protein-protein interaction platform or intra-protein interaction platform, or any other platform of interest that we have here, as a platform that can answer a specific need, we -- it's an [odd] question to decide which platform we are using in order to come up with the required discoveries for a pharma company. So in general, the discussions are not around a specific platform, but for a specific need.

Actually, I want to just make something clear that maybe we haven't in the past. And that is that all of the platform and the discovery work remains within our Company; that when we say we are working with another company on a platform, what that means is that they see the results of our efforts. Our competitive advantage and continuing focus here is to build this infrastructure and to build it in a proprietary manner. So, therefore, we tend not to be interested in creating platforms for other people. We will create a platform to meet another person's needs, but the platform will be created by us, owned by us, and will remain proprietary to us.

Understood. Okay. Thanks very much and congratulations on the progress.

Thanks, Pamela.

Ronald Urvater, Ormed Capital.

Just to follow up a little bit. Without going into specifics, and I understand the need for confidentiality, but can you share with us a little bit more the process? And by that, I mean when you're working with one of your partners, first of all, in the research phase, do they identify for you exactly what I would call proof points or validation elements such that whether they get them or they don't get them, you get some feedback and you can then go back and refine for example your discovery platforms?

Or B, do they simply say look, we're going to work with this thing. We'll come back to you a few months from now. We're not going to share with you what we've done.

But what I'm really trying to get to is what is the inflection point as far as you can tell, which would allow these relationships to migrate then into commercial licensing? There's got to be some specific demarcation points or validation points that presumably you are aware of and you've been at this for a while. So just help us to understand a bit more of the collaborative process between you and your partners.

Okay. With respect to this type of agreement that we have, where the R&D is involved, and do not relate to agreements around the candidate marker, in general, it is similar to the first scenario that you described. When we enter into an agreement with a pharma company, around the platform, usually both sides would like that to work. The type of unmet need that we are going to enter for the pharma company is something that is of real for them. And in general, they would like to guide us in the discovery and let us have as much as possible information as they can without having too much confidential information from their pipeline. But as much as they can in order to help us, to guide us so we build the right computational query in our predictive models in order to come up with the right markers discovered for them.

Sometimes the process is [iterative], like we come up with it with a specific output and we get some feedback from them and we incorporate the feedback back to our predictive model. So, in general, this is more or less the format that's allowed the obvious predictions for a specific pharma partner.

You raise a very interesting question. And it usually involves a great deal of discussion between us and the client company in that, typically, the client will bring to us areas of real interest within their organization and, areas where they have worked on them a great deal themselves.

And so, the question of, how much information they're prepared to share with us with respect to the activity and those specific types of tests that they do with our molecules is an active -- is a very active area of discussion. Because of course, as you've very rightly pointed out, the more information we get back from them, whether the product fails or succeeds, the more information we get back from them, the better we are, the more successful we will be in moving forward with our next discovery around whether it's for them or for someone else.

So, this is one of those areas of potential disagreement between us, and it's one of the things that often will delay an agreement from getting finalized. I don't recall and I doubt if it would ever keep an agreement from getting signed. But, it could very well delay it and force it to be done on what we call a blinded basis rather than an open basis or other things to get around this issue.

But in general, when the agreement is already signed, so in those deals, we are familiar with the type of validation that is done. Sometimes we are sharing the discussions about the type of assays that should be done in order to validate the specific discoveries that were performed by Compugen. So we adjust the specific assays to the specific marker that was discovered. So we are active also in this stage of the collaboration.

But it seems to me on the plus side, there's some real leverage from your point of view in that you can take back some of this information that essentially they are paying for with their research dollars; you can keep expanding your model and perhaps apply that same information with another client in the future for different needs. So that sounds to me like there's some real leverage there; is that correct?

Right. I can say that we learn a lot from this type of [processes] that we do, and yes.

This is actually the -- when all is said and done, this is the most powerful advantage that we have as a company because of the way we do our discovery. And that is the more we do, the smarter we get and the easier it gets to make future discoveries. Because it's all driven by computer models, that means success or failure does -- from the standpoint of improving your model, sometimes failure is more important than success.

And, whether we do it or they do it or whatever, it all continues to add to the infrastructure here. And as I said, this really is probably the most powerful thing you can say about our overall business model or scientific model.

And then just to add to that, I had a scientific question as a second question. So, in terms of the process again, is when you are actually embarking on these different discovery platforms, how much of that is what I would call hypothesis driven versus serendipity, meaning you're going down a certain path, you emulate or you structure a certain hypothesis, you test against it, and then basically you confirm or validate some supposition, which would be one avenue. As opposed to in the process of in doing that, something drops out in terms of the discovery, which now takes you down a different path. I was just curious how strategically or from a scientific point of view, you structure your discovery process.

In general, all of them are hypothesis driven. We start the development of a specific platform by having a specific hypothesis why we should be able to come up with a specific output from a given platform. And we start the development.

Now, as you rightly mentioned, there are times where we find something which leads our thinking to develop another even one, two, or three different platforms or computational tools that could come up just from this result that we got from the original platform. But in any case, even in these cases where we do some change in our plans as to the developed platform, this is always hypothesis driven. Just because we followed a specific result, we understood what is the mechanism of action of the specific need that we wanted to come up with. And we hypothesize what would be the right tool to develop in order to expand this result that we got.

So in general, in every step that we are taking forward in the development of the tools, there is an hypothesis why this tool should bring a specific output and how we move from the first step to the second and third and the last step in development.

Excellent. Okay. That's great. Thank you. Thanks very much.

[Ken Farber], Private Investor.

Thank you. And thank you for having this follow-up conversation today.

My question, I've looked at the website, and there are eight collaborations that are identified or at least eight companies that are identified with whom we have collaborated or are currently collaborating.

What's unclear is whether those are all ongoing collaborations or some have been completed. It would be helpful to know if you could, without going into the details of each of the collaborations, but at least identify which of these companies we are currently engaged in an ongoing collaboration. And how many ongoing collaborations we actually have at this point in time.

I think the -- to give you a sense of what's happening, I can say that I think without exception, there may be one exception, but I think without exception, all of the names that you see, we either have an ongoing collaboration or what we've done with them has led to the discussion of another program, and in most cases, a larger program.

To some degree, I think, and this is another area where, unfortunately, the uniqueness of our capabilities makes it somewhat confusing to try to appreciate from a business standpoint what we are trying to do here. Our primary goal right now with respect to the industry is to get them to take the time to understand what we can do. This typically will involve a specific project or product that we have already discovered, but the primary endpoint for us is not that, great they want to go ahead with this product, because the nature of our industry is that most products fail.

The difference here is that we have this underlying capability that if we can convince them, and we've been very, very successful in doing so with the companies that we've been working with so far, if we can convince them that we have a very, very unique capability in general to do discoveries, then that first interaction, whether it's successful or not, serves its purpose because then we are exposed to other areas within their corporation, other discussions begin. And this is the only way that we will meet our objective of breaking even with research revenues by the end of 2011, so that basically 2012 should be cash neutral at worst. The only way that's going to happen will be from us building on these initial relationships. Because these initial product specific relationships particularly aren't going to bring a lot of research revenues to us. It's the follow-on and the discovery on demand arrangements that we are now entering into.

Thank you. Can I just ask one follow-up question on the scientific side? Can someone walk through how the synthesis of selected product candidates works? Is that done internally? How do you identify a candidate, and then how do you go about the synthesis process itself? I once took organic chemistry years ago and I'm sort of intrigued as to how that process works internally and the length of time that it takes to synthesize that product. Are those new chemicals that you are actually synthesizing? Or how does that -- just sort of give synthesis 101 a little discussion if you could.

Sure. In general, I -- the question may be divided into proteins and peptides which would require different capabilities. But in general, the type of work that we do with respect to synthesis is a work that is done by service providers, pure service providers.

But I would like to relate to the question that was related to how do we come up to the sequences? The platforms that we develop here at Compugen and the capabilities that we were developing during the last decade enables us to predict sequences and to associate different clinical utilities to these sequences, either to [therapeutic] utilities or diagnostic utilities. So we predict the sequences and then -- and the utility. And then, we either synthesize the peptides or we synthesize what is called more in the jargon, express the proteins by service providers.

The timelines for synthesis and expression is variable, and it depends on the amount that you need, the amount of sequences that you synthesize. But in general, it is similar to what Martin presented in the slide that describes the activities that we are doing in discovery on demand agreements; it's like between a few weeks to a few months depends on the quantities that you're interested on.

Great. Thank you.

Ray Welsh, UBS.

On slides on page 40 and 41, Martin, if you would, the timeline of discovery on demand. And there are two parts after the broken arrow of questions of timing. And we know historically drug discovery from the beginning to a product on the market is probably 10 or 12 years. Obviously your technology is going to greatly shorten that timeframe. And you show it at the 15 months with royalties and other revenue sharing, starting sometime after that. Is there any way to further identify the timeline?

First, I want to make it clear that with respect to the discovery process, I was going to say we greatly speed it up. It's more than speeding it up. We accomplish discovery where other people are unable to accomplish it, so you can't really talk in terms of time. But it is done -- our discovery is done very quickly.

Once you leave the discovery though, and get into the question of preclinical and clinical testing, we've -- hopefully what we will show over time is that because these are predicted molecules that are predicted out of an understanding of the science, that we will have a higher probability of success, meaning that more of our predictive molecules will ultimately end up in the marketplace. I must say though that this is pure hypothetical, pure theory now that we don't have any -- obviously we don't have any evidence of that occurring.

But from a timing standpoint, we really don't see how the fact that we have discovered them in this unique way will really impact very much the amount of testing and the timelines that are involved.

So in certain areas, we are working with peptides and proteins. You can cut back that 10 to 12 years somewhat. And with monoclonal antibodies, you can -- it's a shorter period of time. But, it's -- the period of time is the same for us as it would be for any other company after the discovery is made. Anat, would you agree with that?

Sure.

Thanks so much.

Ray, nice to hear from you.

Thank you so much.

Douglas Altibeth, Private Investor.

Thank you. Martin, I just want to get a little more color. And you sort of were talking about this a couple of questions ago, about dovetailing the scientific process, the discovery process with the commercialization efforts. Specifically, you know there are two exciting announcements in the last six weeks about new platforms. The day after those announcements, do you pick up the phone, call your relationships and say hey guys, we now have additional arrows in our quiver, so to speak; this is yet another reason for you to be focusing on us? How do you, on a pragmatic basis, go from the pure science discovery to fulfilling the goal of commercialization cash neutrality?

First, we are getting to the point where we have ongoing relations with a substantial fraction of the major pharma companies. And keep in mind this isn't a consumer or business or whatever. There are maybe 50 client companies out there that could work with us on a broad basis; probably another 100 or so where we could have individual deals. But, as far as really having a substantial relationship, there probably maybe 50 potential players either on the bio side or on the pharma side. And slowly but surely, we are developing an entree and a relationship with these companies.

So, in general, we get to know pretty hopefully the kinds of things that they might be interested in. And occasionally, we will do what you said, that if we come up -- a couple of times we have met with companies, and they've said to us, if you ever come up with something like this, please let us know.

And we don't talk about either with clients or with the financial world. We do not discuss capabilities in development because this -- so far we've been very successful. But until it's proven, we really don't want to start talking about something.

So, we've had meetings with -- a couple of times we've had meetings with major companies where they've said if you ever do this, and then three months later we have that capability. It isn't because they mentioned it to us; it's just coincidence that we were developing it. In those cases, we obviously will get back to them.

But, it's -- in general, it's just added as you said to our portfolio of capabilities. And when we next have a discussion with a company, we will mention that we have it.

Again, I want to come back to it that we have a -- unfortunately we have quite a limited breadth in our business development activities. We have very good people, but only a few. And we are going to have to find ways to strengthen or expand that capability.

And given the very, very high level of interest that we are seeing now in the industry with respect to our therapeutic peptides, and our targets for monoclonal antibodies, I would guess that probably 70% or 80% of our business development at the present time one way or another is involved with those programs. Would you agree, Anat, or do you think --?

Yes.

So, there is -- I'm sorry to say that because there's an awful lot of value there that isn't getting the focus that it should, but it will happen.

Okay. Thank you.

(Operator Instructions). There are no further questions at this time. Mr. Gerstel, would you like to make your concluding statement? Hold on one moment. We have a follow-up question from Ronald Urvater. Would you like to take it?

Of course.

Hi, Martin. I just wanted to come back to one point which I wasn't really -- we didn't complete I think the answer there, which is, just to be very specific, without naming any partners or any timelines, but is there a specific hit that you are aware of that the partner is looking for, which then is the catalyst for a commercial arrangement? Is it, they screen their libraries against a potential target or a pathway? Do you have knowledge and do they share with you what is that proof point which then triggers the commercial license?

Yes, it basically has to do with the type of validation work that they will do. And usually it doesn't get involved with any type of high throughput screening or whatever. It usually is we deliver to them specific molecules, and in general these are areas of interest to them. So they have setups internally which are set up to validate whether or not these molecules do what they are looking for.

Do you know what that validation is? Do you know what the --

Yes, I would like to relate this. First, first in all the cases, we know what is the exact validation, what are the exact assays that are done. And we also know what are the success criteria that are needed.

Interesting. Okay. Thank you. Thanks very much.

[Joseph Gestinger], Private Investor.

Thanks for taking my call. This is pretty simple here and I'm just an investor. I'm looking at an article that was published 4/15. And it's just -- it bothers me to the fact that it has the top five most inefficient companies in the life science tools, and it has your company as ranked number one. Can you just fill me in why they are saying this? And are you familiar with the article?

No, I'm not familiar. And you know, there's another company in Canada called Compugen. I wonder if -- I don't have a clue.

Let me just say though that very often, people run without -- if you don't understand the substance of something, you can end up putting numbers together and getting crazy things. I know after our first-quarter release, almost every article written about our first-quarter release headlined -- and I will read you one -- Compugen sees first-quarter loss widen.

Now, if you know anything at all about our Company, you know this is like saying it's going to rain. Compugen says it's going to rain tomorrow. It has nothing to do with our company. And then their first paragraph says that this loss is due to an increase in stock-based compensation, which, first, it's true it was due to stock-based compensation, but that's non-cash. And not only that, the stock-based compensation was due to the cancellation of a large number of options which under accounting rules, when you cancel options, you must charge your P&L with the unwritten off amount of the original value that was put on by some crazy formula. So, I think that when you see headlines and you see lists of companies, whatever -- you need to look into the facts.

I will tell you that first, I don't consider us a tool company. But I will state that we are the most efficient discovery company in the pharmaceutical industry worldwide. If you just want to look at efficiency, I doubt if you can find anyone that will come close to us, order of magnitude, close to us with respect to pure discovery.

I'm not saying anything about how successful we will be or how much money we will make. Only time will tell. But if you just want to look at the efficiency of discovery, no one comes close to us, either in the capability or the diversity of our efforts.

Great, thank you. Just one brief question. I know that the -- I received the voting menu for the officers and, bear with me here. I've received so many of these from so many different companies. You are asking to generate is it about 5 million new shares or 500,000 new shares you're requesting through the vote; is that correct?

First we've had our shareholders' meeting and it was approved. What we did was we increased the authorized capital, all right? Authorized capital is only the amount that the Company has available if it wants to use it in the future.

There, as I stated in our conference call last time, the reason that we did this now is because we have absolutely no thoughts as to how we would use it. It's purely -- you never know as a company -- have a merger opportunity, or an acquisition, whatever, and you might need to move quickly and so you need to have shares authorized.

I will assure you that if you look at the authorized shares of any successful company, you will find that the authorized shares far exceeds the outstanding shares because you want to have this capability.

But I want to right now, as I said last time, to provide a very, very clear message about us getting this approval. At present, we have absolutely no expected or intended use for these shares. The increase was done solely on a just-in-case basis so that if we need them in the future, we will have them available. But again, as of now, there's nothing that is even being remotely considered for the use of these shares.

Great. Thank you for your time. I truly appreciate it. You've got a great company.

Thank you. I appreciate it.

John Stamas, Defender Capital.

Thank you. A great call, as always. Martin, I guess the question from an Evogene proving the model standpoint, if you could just speak for a minute on how the model has been proven by Evogene and what might be the hurdle that Compugen has with people that Evogene obviously didn't have with plants?

Yes, when you say the -- what has been proven with Evogene is that the underlying basic predictive understandings of how do genes express transcripts, etc., that this core predictive understanding, which is incorporated in an original package that we called LEADS, which we still use, an infrastructure platform, that that was the basis for setting up Evogene, which as you know is working in the ag world. And now has agreements, including like $100 million arrangement with Monsanto. But has arrangements I think with seven of the leading eight ag bio companies in the world, and I believe is rapidly becoming the trade provider in the a bio world based on this.

As you mentioned, they have -- when you are doing your validation, with respect to genes and proteins on plants, it's a lot easier than with humans, obviously. So they can go immediately from the in silico, from their computer predictions, go immediately to the final subject and check to see whether it works or not. This is one major advantage.

A second major advantage is that in general, the ag bio world has over the years, because of companies, prior companies, that attempted to do what Evogene now is doing very successfully, the ag bio companies set up procedures whereby they could in parallel validate hundreds of these discoveries.

The pharma world isn't quite there yet. But it will get there. There was no reason to set up a capability in the pharma world to be able to do that because there wasn't a Compugen around that could provide that level of discoveries. So those are the two major differences.

Thank you very much.

Mark Frank, Private Investor.

Thank you for taking my call. My question is, I've been an investor for many years in Compugen and periodically, I've been excited by any number of announcements that have come out, the collaborations on diabetes, irritable bowel, diseases of the eyes, etc., and they kind of fall into a black hole after that. We don't hear anything. Some of these announcements are three, four, five years old.

Without -- I know you don't want to speak to any of the specific collaborations. But, what is it that takes so long on these things? And number two, to alleviate my concern, help me understand why future announcements or even the Pfizer announcement are not going to take four or five or six years until we hear something from them? What has changed?

Well, first I would say that I think if you go back and look, I think you will find that the kinds of announcements that you are talking about now are relatively recent. The ones over the last six months to maybe 12 months where we've actually been announcing animal model results on our discoveries. And, the majority of these discoveries, again, without being specific, but the majority of them are alive and kicking and are in our portfolio either being pursued here or discussing with other companies. This is the value -- this is the beginning of the value of the Company and the proof that the these platforms really can make these kinds of discoveries.

So, if you've been an investor in the pharmaceutical world, I think you can appreciate that it's not that things fall into a black hole. It's that things do take time to go through the after discovery to go through the preclinical and then the clinical work.

And this would be the same even on the diagnostic collaboration that you have? Again, my perception is -- you have to understand I'm neither a mathematician or a scientist. I wouldn't know a protein if it came up to me and bit me on the nose. But, my perception is that based on some of your prior discussions of the differences between Evogene and Compugen, that something in the area of diagnostics might take less time with less risk than some of the other collaborations you've mentioned (multiple speakers). Your diagnostic one is a few years old at this point.

Right. You are absolutely right. And, as a matter of fact, if you look back, you will find that the early announcements that you're talking about were largely in the diagnostic area. We are not happy with the progress that we've been seeing on the diagnostic front. And, there's -- I think -- if I'm not correct, every company that we are working with in diagnostic got acquired. I guess except for one, which already was a subsidiary.

There are products of ours that continue to be in the pipelines of these diagnostic companies. And few of them actually or I think one of them actually, after getting acquired, changed its focus of direction and ended up even though our product looked quite good, they -- it was no longer in their field of interest. I think actually we relicensed it then to another company. Am I correct? Or --?

Yes.

You're hesitating, so --

No, no. (multiple speakers)

But anyway, the diagnostics have not been moving the way that we had hoped they would. I still expect us to see some interesting products come out of our early discoveries there.

We really, for -- in view of the breadth of things that we are doing here, we really, as about three years ago now, really decided -- two years ago -- really decided to really focus almost all of our business development activities in the field of therapeutics. And that's -- so, you're not seeing a lot more diagnostics at the present time. But we are -- we have a tremendous capability in diagnostic discovery, which again isn't really being used to the degree that it should. And we are evaluating alternatives there. And hopefully, we will be able to say something about that in the not-too-distant future.

And one other thing. The Pfizer announcement talked about months until something would happen, whether it be licensing or fees paid etc. And the previous announcements that I discussed, whether they be diabetes, irritable bowel, etc., did not and clearly more than months have passed I think in some of those cases.

Either what is different about the Pfizer situation or what is different about Compugen that changed in that manner?

I think most of the other announcements that were announcements about things that we had discovered in the validation activities for our various platforms, that either we were announcing the discovery or announcing the validation of our discoveries.

What's different with the Pfizer situation is that Pfizer has come to us with a very specific request with respect to three targets of interest for them that they would like us to find products or ligands for. And, so there is a very clear end point there that we do our discovery, synthesize, give them to them, they do their validation. And, we either have been successful or not successful. And if we are, there are fees and license fees and other things to be paid. So, it's -- and this is really the strength of our Company is in the area of discovery on demand.

So, how would -- so if I go back to some of the prior announcements then, irritable bowel, diabetes, etc., what happens there? Did you go to the Merck Seronos of the world for example and say hey, we've come up with this potential medication for disease X? And they say yes, we'll look at it, we'll license it if it's interesting to us, etc.? Is that the difference? Am I understanding it correctly?

I think that in general, we can relate to what you just -- the example that you just gave but also to the other product candidates that we discover, either drug targets or peptides, diabetic peptides.

The process is similar. We are discovering the candidates. We are validating them, and we then show to partner with two things in our mind. One, as the proof that our predictions are for real and that it demonstrates the power of our prediction potential.

And the other one, as product candidates themselves to be licensed by the pharma partner. So, in general, either for the molecules that we discovered here for peptides therapeutics or antibody therapeutics, this is the process that is done. All of them are presented to partners in different stages for the two reasons that I mentioned.

And no, we're building a very nice inventory here, both for platforms, potential products, companies that are aware of our capabilities. And it happened many years of building this infrastructure and capability, it's very pleasant to see it all coming together now.

I thank you and continued good luck.

There no further questions at this time. Mr. Gerstel, would you like to make your concluding statement?

Yes, thank you. First, I want to say I apologize that we forced you people to, or not forced, but lead to having a second call. And we really appreciate the fact that so many of you took the time to participate again on this phone call.

Just very quickly, just make sure that everyone understands what our principal objectives are for the short term. I think it's been clear in the answers to our questions and in the presentations, but just to be certain. First, and perhaps continuing to be most important is to continue to provide absolute proof that we have this predictive capability that so many companies in the past have attempted to create unsuccessfully. And that it really can be done now and we are doing it, and it's continuing to improve.

Second, while we want to make sure that we show the proof of what we've created, we want to continue to maintain and extend our leadership position in this field. And as you know, we actually announced in recent months, two very exciting new platforms for the cell penetrating peptides and the protein-protein interaction package.

The third, which is really can only be done now because of the first two, is to really continue to gain industry recognition. And that is happening very quickly. And I think what we will be seeing very shortly are additional agreements. And not only from new kinds, but from existing clients. And to some degree, considering the type of a company we are, I -- the fact that we get, we will have follow-on agreements with existing clients speaks even more strongly to the kind of capability that we have established here.

And last, from a financial standpoint, bringing all of these things together so that we will be in a breakeven position cash flow based on research revenues by the end of next year or early 2012. So that as we begin to receive these milestones and royalties, they will flow directly to the bottom line as profits, which hopefully will end up with Compugen being a very unique animal in the financial world that is a very rapidly growing, highly profitable and very low risk pharmaceutical company. So for those again, thank all of you for participating and look forward to talking with you next quarter.

Thank you. This concludes the question-and-answer session for the Compugen Ltd. first-quarter 2010 financial results conference call. Thank you for your participation. You may go ahead and disconnect.