Compugen Ltd (CGEN) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Compugen Ltd. first-quarter 2012 financial results conference call. All participants are at present in a listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded May 1, 2012.

With us online today are Mr. Martin Gerstel, Chairman of the Board; Dr. Anat Cohen-Dayag, President and 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 972-37-65-8595. Mr. Gerstel, please begin.

Thank you. On behalf of all of us at Compugen, welcome to our Q1 2012 conference call. After my brief introductory remarks, Dikla will comment on our financial results for the quarter, which in general were as planned. Dikla will be followed by Anat, who will provide the focus of today's call concerning the infrastructure and pipeline established to pursue our corporate mission of becoming the leading provider of product candidates to the drug industry under milestone and royalty-bearing agreements. We will then open the call for any questions that you might have.

The discovery infrastructure and pipeline that have now been established at Compugen rest on a solid foundation of proprietary science and predictive models of key biological functions that is unique in the world. This capability has been established for the systematic and ongoing delivery of preclinical or, in some cases, later development stage novel, monoclonal antibody and protein therapeutic product candidates in immunology and oncology for licensing by the industry.

As individual components of our strategy have been announced, such as the recent establishment of operations in California to generate and develop monoclonal antibodies against certain targets in our pipeline program, occasionally, there appears to have been some misunderstanding. For example, I've recently been asked whether this expansion that we recently announced is a result of problems with Compugen 15001 or our other proteins therapeutics. The answer is simple -- absolutely not.

As Anat will discuss today, concurrently with the monoclonal antibody expansion, there has been an equal but more tiered expansion of the therapeutic protein program, coupled with excellent progress involving our initial product candidates. During the past few years, we have been building an infrastructure based upon our broadly applicable (technical difficulty) discovery base, focusing upon both monoclonal antibodies and protein therapeutics, intended to address unmet needs in oncology and immunology.

More specifically, this means for monoclonal antibodies, the discovery of the appropriate target and then generation and development of the actual monoclonal antibody therapeutic candidate against that target. For therapeutic proteins, this means the discovery of the membrane protein which provides the key component of the actual product -- it is the extracellular domain of the membrane protein -- which is then fused to an FC fragment to make it soluble so they can be delivered in the bloodstream.

With the establishment of the California monoclonal antibody operations, we now have as part of our infrastructure both the required discovery capabilities and the required development capabilities for both of our areas of focus. And we are extremely pleased by the continuing progress of the initial product candidates, whose low attrition rate has surprised even us.

Before turning the call over to Dikla, I want to discuss in more detail the recent market action of our shares and our sales under the Cantor program, the (inaudible) market program. Although in these calls we generally do not discuss the stock price, today, we will make an exception. As you may have noticed, we have provided up to date details on our sales in this program in the press release, but do not intend to do this on a regular basis inasmuch as there is a standard procedure for when and how such information is publicly disclosed.

We filed a shelf registration statement in January 2011 when our share price was approximately $5.00 a share. A year later, during the first quarter of 2012, we sold for the first time under that filing a total of 551,000 shares at an average price of $5.93 a share. At the end of the first quarter, our share price was approximately $6.00 per share.

Since that date, we have sold only an additional 100,000 shares and at an average price of $6.12 per share. Unfortunately, from April 5 through April 16, there was a drop in our stock price from over $6.00 per share to around $5.20, and at the same time, there was a rumor regarding the Company dumping shares into the market. We received numerous inquiries from shareholders asking why were we selling shares given the decline in the share price, and when we said we could not comment, this was evidently interpreted as proof we were selling, since this seemed to lead in a few cases to some very unpleasant interactions.

The fact is we were not selling shares, but we legally could not provide that information on an individual basis without making a public announcement. And the consequences of making a public announcement would be to set a standard whereby we would be expected to respond every time there was a rumor about us in the market, which clearly no public company can do.

We were also advised that there was apparently some substantial short-selling of our shares at the same time, although we are not in a position to know whether there was any connection between the possible short-sellers and the company is dumping shares rumor. In any event, let me repeat, since the end of the first quarter, the Company has only sold a total of 100,000 shares at an average price of $6.12 per share.

Beyond this individual incident, I would hope that it is appreciated that if we believe a specific piece of information could be considered material inside information, we cannot provide it on an individual basis, and that a no comment response should not be interpreted as anything but that.

Also, please take into account our past actions as a Company when confronting any type of rumor about us. We've been public for more than 10 years, so there is a lot of data available. And with that, I will turn the call over to Dikla.

Thank you, Martin. As Martin mentioned, our financial results for the quarter were in line with our expectations. However, there are a few items that deserve further explanation.

The net loss of $4.1 million for the first quarter of 2012, which was more than double the net loss of $1.9 million for the first quarter of 2011, includes $1.2 million in non-cash charges related to the complicated accounting required for the Baize first and second arrangement, certain other non-cash items, as mentioned in the press release, and an increasing R&D expense [of net] of about $500,000.

The increase in R&D expenses for the most recent quarter derived largely from increasing level of activities, primarily with respect to independent investigator and service providers performing evaluation studies and increased usage of lab materials and expenses relating to the establishment of our California-based mAb operations. These expansions result in approximately 28% increase in R&D expenses for the quarter compared with the corresponding quarter.

With respect to our current cash status, after gross cash expenditure of approximately $2.2 million for the first quarter of 2012, we ended the first quarter of 2012 with approximately $25 million in cash and cash-related accounts. This total of $25 million does not include $6 million to be received later in 2012 under the second Baize research and development funding arrangement, signed in late December 2011, or the market value of our averaging shares.

Including these amounts, we ended the first quarter of 2012 with approximately $36 million in valuable resources to fund our future operations. In addition, Compugen continues to have no long-term debt, other than the book liability associated with the research and development funding arrangement.

As mentioned in today's press release, for the remainder of 2012, we anticipated a cash outlay of approximately $13 million.

Before turning the call over to Anat, I would like to comment on one other item in our financial statements that could lead to questions. Our investment in Evogene shares shows an increase of approximately $600,000 for the quarter. We account for our ownership of Evogene shares on a current market value basis. So this does not represent an additional investment by us, but reflects the increase in price of Evogene shares on the Tel Aviv stock exchange during the quarter.

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

Thank you, Dikla. It is a pleasure today to provide you with more information on the capabilities, activities and some recent achievements with respect to establishing a complete infrastructure and pipeline for the systematic and ongoing delivery for licensing by the industry of preclinical or, in some cases, later development stage novel drug candidates focused on monoclonal antibody and protein therapeutics for immunology and oncology.

First, with respect to our monoclonal antibody program, the establishment of new operations in South San Francisco to develop monoclonal antibodies against certain targets selected from Compugen's Pipeline Program, as announced this past quarter, is a key component of our infrastructure and capabilities establishment. The resulting in-house combination of our novel target prediction and selection-based discovery capabilities with outstanding scientific and industry-leading expertise in the generation and development of monoclonal antibody therapeutics positions Compugen to become a potential world leader in the monoclonal antibody therapeutics.

As previously stated, monoclonal antibodies are the fastest-growing drug class in pharmaceuticals and a drug class which predominately addresses the immunology and oncology therapeutics [share].

From a commercialization standpoint, our decision to license out the monoclonal antibody drug candidates themselves after validation at least in animal models should result in substantially greater financial benefits to Compugen.

During 2011, as we evaluated numerous opportunities that led to the establishment of our California subsidiary this past quarter, we invested heavily in the discovery of additional targets for monoclonal antibodies using new, exciting pipeline candidates yet to be announced pending further validation.

The next significant value-adding stage is the generation and subsequent disease animal model validation of therapeutic monoclonal antibodies against these novel targets. The actual mAb generation is planned to be performed by two alternative methodologies, which will be selected on a target-by-target basis, the use of human antibody-based libraries or the creation of mouse-based hybridomas, followed by antibody immunization technology.

The excellent and highly experienced leaders of our newly-formed California subsidiary, Dr. Mary Haak-Frendscho and Dr. John J. Hunter, have extensive expertise with both methodologies.

Moving now to protein therapeutics, the other arm of our Pipeline Program, a similar progress was accomplished, but through [step-wise] internal growth in the development capabilities of our Israeli operations, and therefore, probably not as obvious to an outsider.

The outcome of this carefully planned and successfully executed expansion of our capabilities is that all activities relating to our therapeutic protein program, from discovery and validation to early-stage development, are now fully managed by the R&D team in Israel. The critical discovery of the appropriate novel membrane proteins to serve as the basis for the majority of our current pipeline protein therapeutic candidates continues to be performed by our excellent multidisciplinary research team.

Validation and early-stage drug development activities are mostly performed through collaborations with leading experts in academia or with commercial service providers, mostly based in the US and Europe, but are managed by a few key scientists, most hired during the last year and a half, with the required expertise in drug development.

Before opening the call to questions, I would like to briefly discuss our progress, of which we are very excited, with respect to the protein therapeutics arm of our pipeline. CGEN-15001 is the first of the novel therapeutic protein fusion candidates developed by Compugen to undergo experimental validation. CGEN-15001 is based on extracellular domain of the Compugen-discovered B7/CD28-like membrane protein and continues to list results supporting its immunomodulatory role and potential use in the treatment of multiple autoimmune diseases.

For example, the (inaudible) predicted used for the treatment of autoimmune diseases was recently tested in an adoptive transfer EAE model of multiple sclerosis, which better mimics the disease in multiple sclerosis patients. Unlike other EAE models, in which disease is induced by injection of a CNS-derived antigen, in the adoptive transfer model, disease is induced by the transfer of autoreactive immune cells that are already activated and recognized as CNS antigens. This approach mimics the way that this occurs in multiple sclerosis patients.

In addition, the administration of CGEN-15001 in this experiment began only when mice already had an established disease, again, so as to mimic the way treatment is performed in the human disease. Treatment with CGEN-15001 in this experimental model displayed robust inhibition of disease symptoms and abolishment of further relapses. Moreover, amelioration of disease symptoms was accompanied by up-regulation of certain anti-inflammatory cytokines and, at the same time, potent reduction in the secretion of (inaudible) inflammatory cytokines, restoring a balance to the immune system.

In the next month, we aim to continue CGEN-15001 lead optimization, further analyze the molecule's mode of action in selected therapeutic indications for which CGEN-15001 will be developed. With a validation in early-stage development capabilities and academic collaborations that were established for CGEN-15001, two additional (inaudible) proteins based on novel B7/CD28-like Compugen discovered molecules, CGEN-15021 and CGEN-15091, are now approaching the development stage of CGEN-15001 with encouraging results.

Both product candidates were efficacious in an animal disease model of multiple sclerosis with a long-term therapeutic response following a short-term course of treatment. CGEN-15021 has also demonstrated efficacy in an animal disease model of rheumatoid arthritis, reducing both clinical signs and structural damage to the joint. Both CGEN-15021 and CGEN-15091 are potent inhibitors of T cell activation in vitro, supporting their predictive role as novel immunomodulatory B7/CD28-like proteins.

These proteins are continuing to undergo evaluation in animal disease models and further characterization of their mode of action with the intention to start lead optimization studies for these candidates in the coming months.

Two other Fusion proteins, CGEN-15031 and CGEN-15051, each combining the extracellular domain of additional B7/CD28-like membrane proteins predicted by Compugen and an Fc antibody fragment, were disclosed last week and are demonstrating initial positive results. CGEN-15031's therapeutic activity was evaluated in animal disease model of multiple sclerosis, and CGEN-15051's therapeutic activity was evaluated in an animal disease model of rheumatoid arthritis.

The two Fusion proteins significantly ameliorated disease symptoms in these animal disease models, and are predicted to have a potential use as protein therapeutics for multiple autoimmune diseases. These Pipeline Program product candidates clearly demonstrate one of the many advantages of our unique and broadly applicable predictive capabilities, the ability to predict and select multiple novel product candidates for each therapeutic field we target.

In our ongoing commercialization discussions, we are recognizing that to obtain appropriate financial rewards from licensing out each of our novel markers for each broad therapeutic area we address, such as autoimmune diseases or oncology, in addition to demonstrating the potential for superiority of our products in the market or under development by others, we will also require product differentiation among our own individual candidates.

Therefore, as we continue these discussions, we are aggressively performing in-depth studies on each product candidate's mode of action, both in vitro and in vivo, including their effect on specific immune (inaudible) populations. In addition, we are initiating studies for testing the activity of our product candidates in animal disease models of additional autoimmune diseases, mode of action studies aimed at identifying the molecular or cellular target of a drug and to examine the specific action of the drug by which it exerts its pharmacological effect.

For example, rituximab is a monoclonal antibody which recognizes the CD20 protein found on the surface of B cells. The action of rituximab results in the destruction and elimination of B cells and is therefore used to treat diseases which are characterized by having too many B cells or dysfunctional B cells, including lymphoma, leukemia and some autoimmune disorders.

Such mode of action exploration is of particular importance with novel molecules that may offer new approaches or modes of action for treatment of diseases, namely first-in-class drugs. This is the reason why molecules with novel mode of action can be the most medically and financially rewarding, but also extremely risky.

Fortunately, our unique ability to predict numerous novel molecules for each [phase] of interest that we target should provide us with a huge reward advantage in this equation.

And with that, we will begin the Q&A portion of this conference call.

(Operator Instructions) Mara Goldstein, Cantor Fitzgerald.

Thank you very much for taking my question. I was hoping that maybe you could talk a little bit more from a practical perspective about how the California facility links into Compugen and how the flow of work will occur between the two entities.

Sure, of course. What we are doing here at Compugen in Israel is what we are doing the best, is the discovery of the monoclonal antibody targets themselves. So naturally, we are continuing to do these target discovery activities, as well as early-stage validation of the target itself, the functionality of the target, the expression profile of the target, generating deliverables that are required in order to start development of therapeutic monoclonal antibodies.

The work that is going to be done in the US and the establishment of this operation [occurring these days], hiring the full team and working about generating the work plan, is actually have to do with the development of the monoclonal antibodies themselves, either through the generation of an antibody by hybridoma-based technologies or library-based technologies, and then taking them forward for functional analysis and early-stage development work. So this will be done in the US.

And of course, there is a lot of overlap between the two entities here in Israel and the California with respect to this stage of transferring the data that is required for the more advanced work that is done in the US.

Okay, thanks.

Brian Coleman, Hawk Hill.

Thanks. At the end of 2010, when you announced the Pipeline Program, you indicated it would be, you thought, about 18 months to get your lead candidate to the point of being licensed. And I'm wondering if you could both provide an update on where we are in that process, but also maybe a little bit of color on how your understanding of how these proteins would get licensed may have changed over these 18 months, as you've been going through the process.

The actual movement of the product candidates has been at least as good as we were hoping for and expecting. We have the first wave of candidates going through, and we are extremely pleased with the results.

I would have to admit that being a pioneer company, being first, sometimes you don't appreciate some of the things that you are going to be facing, that in hindsight seem so obvious you wonder how you didn't think about them more carefully. And I think we are in a little bit of that situation here with respect to the fact that our greatest advantage probably is -- well, two really good advantages, with respect to the pure discovery capabilities themselves, and then the fact that whenever we go after a therapeutic area, we discover multiple product candidates.

Now, when you do things experimentally, you discover a product candidate, and there is no question what you do with it. You just move it forward, and if it continues to look good, fine. If not, it fails, which is usually the case, and you try again.

If it continues to move forward, at some point you go to a -- assuming you are academia or a discovery company, you go to the big pharma, whatever, and say would you like to license this in, and they evaluate it and a decision is made.

We forgot that if we actually end up not with one candidate that we are showing to them, but five, six, seven, that have all done extremely well in the same kind of experimental disease animal models that were used to demonstrate the sort of underlying capability of the molecule, that -- for example, most of the work we did with B7/CD28 was to show that they could play a major role or an important therapeutic role in many different autoimmune diseases. And there are, of course, many critically unmet needs in the field of autoimmune.

It puts the -- and I -- this is one time when, in a sense, I understand the situation of the pharmaceutical company is in, because when faced with six or seven products that have all done very well in this general test, when we say we want you to take one of them, they look and say, well, how do we know which one of them we should take. And we say -- and if they -- and we actually have had discussions with companies that have said, okay, we will take a package.

But of course, from our perspective, to get the value of our capabilities, we have to get each one priced separately. From their perspective, they're looking at it from the standpoint of, okay, we are going to take these three because we want to -- this is the indication we are looking for and we're going to find the one that is best for that indication.

From our perspective -- so we -- they are not going to pay three times sort of the market value of what they are -- of a product. But from our perspective, we are giving up three good product candidates that each should stand on its own.

But we do not have, at this point in time -- actually, we are just beginning to accumulate -- the differentiating evidence that says, okay, this one should be targeted towards this particular autoimmune disease, and this one towards this one. So to differentiate our individual -- we were so focused on making sure that we were only going to move forward products that were superior to anything that was out there in the market now or that was in clinical trials or that we knew about in the hands of others, we thought this was something that was another competitive advantage of us because of the predictive nature of how we do our research.

But -- and I think we've been unbelievably successful. If you go back -- sorry -- I have a little frog here in my throat. I'm going to have a little scotch and see what -- okay.

We -- if you look at the comments made by some of the investigators -- and keep in mind that in general these are investigators who are experts in the field that have reviewed products from all of -- many, many different organizations, companies, whatever -- and the kinds of comments that they make that basically say this is the best candidate that we've seen, you'd say that we've been, as I said, extremely successful in creating early-stage product candidates that appear to be superior to other products that are out there or in the clinic.

That's not enough, though, if we want to license each one out individually and get full value for it. We have to take it to -- because we have these multiple products, we must now differentiate, take them a little bit further and differentiate them, as I said, to really get the value of the kind of capability that we've created here. Do you want to add to that, Anat?

Yes, I think there is another aspect when thinking about Compugen. It is not just the issue of multiple. It is the issue of multiple product candidates and novel product candidates. This is a combination that we're offering to the pharma industry that is important. Novel molecules are very attractive, but require the -- I'll say wider attraction. They are attractive because they can offer novel solutions to unmet needs in different diseases.

But in order to show or to demonstrate the solution in an unmet need, you have to make sure that you explore the biology or what I was terming in the mechanism of action of the molecule in order to show that it is going to answer or generate a novel path to treatment.

And novel molecules are by definition molecules that are considered first-in-class. So you have all the rewards that you can get for first-in-class, but you are (inaudible) some more work to do in order to generate the evidence that the path is unique for treatment. And the combination of being -- offering multiple molecules that are novel, you have to make sure that you are differentiating between the different multiple molecules and also providing evidence -- and this time it has to be experimental -- that would support this first-in-class potential. And this combination is something that has to be taken into consideration when you are evaluating competition.

So how much additional work do you need to do then in the Pipeline Program to establish the differentiation among your own drug candidates?

So in general, we have to say that we are doing this while we are continuing discussions -- commercialization discussions. But this is not a stage where you can say, I need two or three months for this. This is the work that is generated for first-in-class molecules. This is the word that is generated while you are building the package of the development work that you are doing for the candidate. And this is an expansion of the package that is required and offered to demonstrate or strengthen the therapeutic potential.

We believe, based on the initial data that we have, that our molecules are offering some novel path to the treatment. But of course, the more experiments that we will do, the more experiments and settings that we will build in order to prove it from different angles, will be better. This will be built, and this is actually in our work transfer for a certain amount of time now, and it is something that we will continue to do, along with the plans that we are planning to do for the early development stage. And in general, this is something that is building value in a manner that would allow us to get the maximum value for the shareholder.

Okay. And so the announcement, the press release recently that said that 15001 had some therapeutic potential against Crohn's disease, that was part of this additional studies and data that establishes this differentiation.

You know, you are touching a very important point that we never related to it in our calls, and maybe it's a good time to relate to it now. So the answer is no, but yes, and I'll explain what I mean.

The path that I just described is the path that we are implementing in the therapeutic protein arm of the pipeline. This is in order to generate a package that would, as I said, maximize the value for our shareholders and in the value of the markets themselves.

But all the molecules that we are working -- or actually most of the molecules that we are working for the cancer immunotherapy program that we are having for the antibody therapeutics are molecules that the therapeutic protein itself was derived from the molecules that is serving as the target. And in this respect, the experiments that we are doing in order to demonstrate the potential of the target to serve as a target for oncology, are experiments that in any case support the pipeline, the therapeutic protein pipeline, the other arm of the pipeline that we have in the Company.

There is a lot of mutual evidence that we get from each of these pipeline arms that support the other part of the pipeline. And this is something -- what you have just mentioned with respect to inflammatory bowel diseases -- this is something that was done for the understanding, the better understanding of the potential of CGEN-15001P as a drug target, specifically showing that it has expression on immune cells that is very relevant for it to serve as a target for cancer immunotherapy.

And by the fact that we got this expression (inaudible) published, we've also got some strengthening to the fact that it is serving as a protein having an immunomodulatory role. And you know, I didn't put it in the script or I didn't mention it in the script of today, but of course, this is another evidence for us.

So there are multiple -- for us, the benefit of having a pipeline that is shared between antibody therapeutics and protein therapeutics, both arms are now establishing -- with the establishment of the California operations for the antibody therapeutics, both of them make the strength of our development capabilities even higher than what we could achieve if we had one arm of the pipeline. Because there is a lot of results that can share between the two pipelines and increase our confidence in the results that we are getting.

So this is -- I didn't mean that when I explained about the protein therapeutics, but you raised an important point that we never talked about between our conference calls. Thanks.

Okay. In the press release and I think in your prepared comments, you said 15021 and 15091 were both approaching the development level of 15001. Does that mean we could see three licenses -- three of these protein therapeutics licensed this year, or is that too aggressive?

You know, I'll separate my answer into two, just with respect to the development progress. And we are happy that we could build an infrastructure that was built on the basis of 15001, which was for candidate for us. We didn't have any expertise in this type of work. This is not the core competitive advantage of Compugen. But of course, as we understood that it is very important, we were trying to build here something that would serve us very well and would maximize the value of what we discovered.

So for us, being able to advance 21 and 91 to this stage that is close to 1501, this is something that we are very proud of and we think will also help us do advanced work in [pilot] on all of them.

Of course, our intention in general is to take care to license each of our pipeline program candidates in a separate package, and in our ongoing discussions, we're discussing different types. So I don't know to say if you should definitely expect, but this is something that is -- it is a molecule that is showing -- it is two molecules that are showing results at similar stages. So it is hard for me to tell which of them will go first. They are now very close.

Okay. I've got a couple more quick ones, I think. Now that you've got some experience with the Pipeline Program with these B7 proteins, it is my understanding now that you will take what you learned -- I guess what Martin calls the proprietary science -- and feed it back into that model and run the discovery platform again, another discovery run. Is that right? And what other kind of opportunities might there be in the B7 protein family beyond the nine that you've already discovered?

So the answer is of course. This is the basis of what we are doing here. And what we are proud of is that we can learn from our experience, and by definition, the next candidate should have -- not be better, but have a higher hit rate. So we will be able to validate more of them, a higher number of them.

In terms of the B7/CD28, this is something that we are working on here in the Company. We've got our experience and expertise, and this is feedback to the engines for further work.

In general in immunomodulatory proteins, there is a lot of promise in this field. Immunomodulatory proteins can serve well into multiple types of indications both for cancer and immune-related disorders. And specifically, they fit protein therapeutics and antibody therapeutics. So we see a great opportunity for Compugen in this respect due to the expertise and experience that we gained in these fields.

But a great promise also from the perspective of the pharma that show a lot of interest in such proteins and pathways. You see how much hype there is in the PD-1 pathway, the PD-1, PD-L1, which the industry is following on. And PD-1 is the B7/CD28 molecule. So we feel there is a great promise in this and Compugen is located with its expertise and experience now to extract this value from this type of immunomodulatory proteins, either B7/CD28-like or other.

Okay, let me just ask one more and then I'll let somebody else get on here. With respect to the shelf offering, if you could just provide some context for -- or some thought on how you would tap that, given that you've got $36 million, $37 million of pro forma liquidity on your balance sheet, you've got the prospects for one, two, three licenses perhaps over the next few quarters, so additional sources of cash there. How does the shelf offering come into play, given that lineup of financing?

I think given what we've invested in the Company, I think that we should continue to be very conservative with respect to our financial planning. I think the record is very clear that we are extremely mindful of shareholder interests. I might just say as an aside that I may not be the largest shareholder in the Company, but I am certain that as an individual, I have invested more cash in the Company than any other single person, and have never sold a share. So I have a personal interest in saying that we look out for shareholder interests here.

But if five years from now, six years from now, when hopefully we are a world-class company, billions of dollars of market cap, whatever, I don't think anyone is going to be upset that -- take what we've done so far under the program. We've had -- it is much less than 2% dilution. And it provides a certain level of safety, a certain level of insurance.

I've been in this industry with companies that take the long-term view, and unfortunately, there are only a few of us. Our industry could use, and I think the world would be much better off, if there were more life science companies taking the long-term view rather than trying to get lucky with an individual product.

But in any event, I think that when you are taking the long-term view, you have to be prepared for anything. For example, it is clear that there is some period of additional time now -- you know, making a deal and licensing out something, there's a whole bunch of factors, some of them in our control, some of them have to do with the status of the product, some of them have to do with the industry. There are so many different variables that you really can't count on licensing anything at any particular point in time.

And I think our current situation is -- in a way points that out, that we have performed with our programs and our products, they've actually done at least as good, probably better, than we had expected that they would be doing up until this point in time. We are pretty much on target with what we were planning.

On the other hand, we have to admit that we did not take into consideration enough the need for this differentiation. So you don't want -- because you're short six month of cash or something, you do not want to put at risk the type of valuable entity that we have created here. This is an entity that I think is going to make a substantial difference to the drug industry worldwide. And we -- number one, we must make sure that we are prepared for pretty much anything that happens.

Just to be clear, I was not -- I'm not at all critical of the decision to -- to tap the shelf offering. You called it 2% dilution, but if you've raised $3 million and you've used that to develop a blockbuster drug, it is kind of hard to call that dilution in any --

You're absolutely -- I'm glad to hear a shareholder talk that way. You're absolutely right. People forget that when you think about dilution, you have to think about both the numerator and the denominator, that if you are putting an enormous amount on the numerator, then the 2% dilution on the denominator kind of disappears. Thank you.

Thanks very much, guys. Thanks.

Brett Reiss, Janney Montgomery Scott.

Good afternoon. Just a context of a number of my questions. I have a lot of retail investors in Compugen, and I am getting some flak and criticism -- impatience that we've not seen licensing agreements. So that is the context of some of the questions.

Now, take the three potential licenses that could occur in the next year to 18 months with the 15001, 15021 and 15091. Can you give me -- could you help the investors understand -- how do you manage the progress of these molecules? Can you walk me through a day in the life of Compugen? Do you sign X amount of your scientific resources and talent to work just on this? How do you monitor it so that we see us marching toward the finish line?

Keep in mind that there quote -- is really no, quote, finish line from the standpoint of what we are doing. And it is not that we have three product and we have a pipeline of candidates that are at -- sort of we have waves of products moving forward, all at early stages, but at different stages. And we are continuing to invest in the new discovery capabilities and new platforms, new discoveries, et cetera.

So I think that you know it is very difficult to sort of evaluate us month by month or whatever with respect -- and do it in sort of a traditional sense, because we are not a company developing one or two or three drugs.

And I think that it is -- I believe that the evidence now is overwhelming that we do have unique capabilities here for discovery, that we know how to make these discoveries, we know how to do the early-stage development. We know how to select the right ones to move forward from the types of results that we are getting from the outside investigators. So every day, we are building value in this Company and very substantial value.

I am sorry that we've put ourselves in the position where kind of so much rests on when is the first deal going to be done or whatever, because it -- whether it happens today or six months from now or 12 months from now, it really -- in the big picture it doesn't matter. Because during that period of time, this whole wave of programs is moving forward. And ultimately, the products that survive will end up being licensed out. And the longer -- the more delay there is in the long run, the more value we will get for them.

So it is not a -- and here, I have to take some personal responsibility, because I have to admit that -- watching the pharmaceutical industry, it is a very high-risk, very high-reward industry. I personally don't believe it has to be that much of a high risk, and that is what I think we are showing here, is that you can end up getting the benefits of being in the drug industry, while at the same time significantly reducing the risk through this predictive ongoing capabilities or approach.

But as I said, I think I should -- and this industry is very hesitant about anyone sort of making the first move in a new direction, and I think that -- if any direction. This is an industry that was into over-the-counter, out of over-the-counter; it seems to be going back in. It was in agriculture, out of ag, bio, into veterinary, out, into consumer, out of consumer. It is -- it moves as a herd, basically, after a leading company makes a move.

And I have no doubt that that will happen. To put a time frame on it is very, very difficult. And I think I made a mistake by being as optimistic as I was about being able to be -- during this year beginning to sign a number of agreements. As I said, it is just differentiation issue, and the fact that you never can really judge these things. I've been around long enough that I should have known that you really should not put definite time frames on things.

The issue really isn't what -- the timeframe. The issue is is the product moving forward and continuing to show promising results. That's the issue.

How does -- in the type of business you are in, how does upper management -- what metrics do you use -- how do you measure -- like these three molecules that have the most promise, how do you measure that you are moving forward? What do you look at each day? Do you interview the employees that are working on this project? How do you know you are moving forward?

So there are two ways to do it. First, we have the work plans that are needed to be performed for each and every candidate, specific tailored work plans that are associated with early-stage development or validation activities that we need to do and mechanism of action studies that are needed to do. So work plans are clear. We are not inventing them. These are work plans that pharma companies are employing in order to take their molecules forward.

The second part of it is by the results that we are getting from these programs. So we have like go/no-go criteria and milestone events that we have to meet within these internal work plans. And the results that we are getting are telling us whether we have made a progress or not. And each and every candidate has this type of work plans. And it is a workload that is done here internally at Compugen.

And I would not -- I think what Martin said with respect to the programs, it is not just three programs. It is -- we've already disclosed for the therapeutic proteins the (inaudible) programs that are moving from the proof-of-concept stage forward, and from initial proof-of-concept stage forward for these specific two. And we have also the targets that we are moving ahead, the same functionality and expression profiles that should be sufficient to serve as targets.

So this is -- everything is controlled by work plans and go/no-go criteria for milestone events that we have to meet, and all by industry standards that -- and compared to references that are in the industry in order to make sure that we keep -- we are keeping the advantage that we should supply for the industry.

I want to just clarify just one point. The three that we talked about are not necessarily the, quote, most promising. They are the most advanced; that the whole concept here is to continue to move products forward. And so it is -- to say something -- there is this two dimensions to something, how far advanced is it and how good does it look.

And the typical thing in the industry is everything always looks great in the beginning and then it gets worse and worse. We have not seen that here. The programs can -- the products continue to demonstrate that they do what we predicted that they would do.

But these don't -- we -- keep in mind that these are the three most advanced in the therapeutic protein area. They are not necessarily the three most promising. I don't think we have ever -- I don't even know if we would know how to make that judgment.

Right. Now, in the San Francisco office, Dr. Haak-Frendscho -- I'm probably mispronouncing it -- I apologize -- and Dr. Hunter, do they devote their full time to the efforts in San Francisco?

So it is Haak-Frendscho. Dr. John Hunter is working as a full-time employee, and Dr. Mary Haak-Frendscho is the Chairman, but she is giving 100% of her expertise into this organization, not necessarily 100% of her time.

We are very proud that we were able to hire Dr. Haak-Frendscho as the Chairman of this entity. She is highly considered in the industry, in the antibody therapeutics industry. She has an extensive experience, and she is truly bringing it into the Company and helping us take this drug target into the generation of monoclonal antibodies.

Specifically, we got more confident in our drug targets as she was examining these drug targets as we have discovered, and decided to take the role of Chairman of this entity. So she is definitely investing her experience into this organization.

Right. With respect to Murray Goldman at Baize, have you started to discuss -- because June of 2013 is coming up -- is he leaning towards exercising the stock option, or is he going to go the other route?

We don't really believe it is our business to even ask the question. So I have no idea. And if you ask me at this point, which I would prefer to have him do -- well, I'm not going to answer that, but it might not be what you expect.

Okay, it just -- this is kind of like to counteract some of the criticisms I am getting. Murray Goldman in December of 2010 reaches into his pocket and invests $5 million, and then a year later, he invests another $8 million. So he must like what progress you are making. What is it that he is seeing that some of my investors are not seeing?

One is that he has visited us here and has met the people and has been face-to-face with what we are doing here. But I can't answer your question.

Okay. I assume $13 million is not petty cash to Mr. Goldman?

Again, I can't speak for him.

Okay. Thank you for answering my questions.

Mara Goldstein.

Thanks. I know we are running late, but I was just hoping I could ask again with respect to the California facility and how they will operate with respect to Compugen, from a budgetary perspective, do they have their own budget? Or do they, for projects, for hirings, staffings of that nature, then come to Compugen in Israel every time they need something? I am just trying to get a better understanding of how it will work between the two entities.

Of course, they have an individual budget that was structured together between the two entities and this is part of our overall budget. But as a unit within Compugen and as a separate geographical area, they have their own budget that we monitor and manage together with them.

Okay, thanks.

You're welcome.

Douglas Altabef, Matrix.

Ken Farber, a shareholder.

Thank you. Thank you for this information today. It is -- as a shareholder without any expertise in this area, it is somewhat confusing, but helpful. And so if this question is confusing, I apologize.

And it goes -- Martin, it sort of goes to the issue that you had talked about in terms of a different paradigm of risk for pharmaceuticals and that you are creating a somewhat different paradigm based on the science that you are developing. And I'm not sure I fully understand that.

And the reason being that the risk for an individual pharmaceutical company purchasing a molecule from you is still a significant risk, given the stage of development of that molecule and given the process that molecule must then follow, through approval by the various organizations that have to approve the molecule to get it on to the marketplace. And these molecules are still at a very early stage relative to companies I'm seeing buying whole companies that have a product that is maybe in a Phase II or Phase III development and paying large royalties on those.

I guess the question I have is, how do you ensure that the royalty arrangement that you're going -- is going to benefit us to the extent that we are seeing these other royalty arrangements, given that these molecules are still at a very early stage. And I could see that from a pharmaceutical standpoint, their position will be, well, I'm not going to spend as much money on this because I don't know that I'm going to get it through the approval process. And so we are still dealing with pharmaceutical companies buying individual molecules, where there is still substantial risk.

Where I see risk minimization is if a package of molecules is purchased or even the platform is purchased. And it sort of gets to this issue of where is Compugen most valuable to a pharmaceutical company? Is it as a division of a pharmaceutical company, or is it in individual products that the pharmaceutical company may in fact purchase, but may have limited success on an individual basis?

So I sort of -- if you could sort of give me your thoughts on that, that would be helpful.

It's interesting. And first, when I said a different paradigm, I wasn't necessarily speaking from the standpoint of the pharmaceutical -- individual pharmaceutical companies, at least not short term. Perhaps long term, as we hopefully prove that our products do have a higher probability of success than those that have been discovered experimentally, maybe then the risk/reward at their end changes in their favor. But that, we have no evidence in that at this point in time, and that will definitely take time to occur.

When I was talking about the low risk or a lower risk and still high return, I was talking about for us, for Compugen. Because from the Compugen perspective, we are not betting on an individual -- first, let me just say, you are absolutely right when you said that many of these products are early on; even after they are licensed, they may fail in development. I wouldn't worry at all about somebody licensing something in and then saying they are not going to put that much effort on it or whatever. A, it doesn't work that way. I mean, if they license something in, they are going to develop it or attempt to develop it.

But the rule in the industry or just -- unless our products are totally different than everyone else's, that most will fail before they get to -- not most in the biological space kinds of products we are talking about, but there will be failures. And they know that and we know that. That is one of the reasons why that at the present time, it is -- when they say it is too early -- it is very interesting, and I believe -- Anat, correct me if this is not correct.

I don't believe we have ever had a pharmaceutical company that has come to evaluate possibly taking a license to a product of ours, I don't think we've ever had one that said we don't want it because we don't think that it meets the criteria for what we are looking for or whatever. They will -- very often, they will say it is too early. It looks great. If it still looks this way a year from now, please call us. Keep us informed. But it is just too early for us.

Or they might say that this is an area that we are moving out of, and we've decided not to commit any more funds to it or whatever. But as I said, I don't think there has ever been -- I can't recall -- I don't know whether anyone has ever actually seriously come in, evaluated a program of ours and ended up saying we're not going to license it because it doesn't meet our criteria.

So it's an issue of us -- of just things moving forward. But for us, the risk reduction is in the ability to do the discovery by computer and only rely on the expensive experimental work to validate the discoveries. And then of course for development. And the fact that because it is not just by computer; a lot of people do things by computer. But we are not talking about computerizing the way things are done traditionally, using a computer to do maps of stuff.

We are talking about using a computer with predictive modeling, which means that when you get your results, you feed them back into the system, and you improve your model. So over time, you get better and better at what you are doing.

If you want the one unbelievable weakness of our industry, of the pharmaceutical industry, is not so much that it costs so much money to discover drugs and develop new drugs or that so many of them fail. That is not the problem. The problem is that in the traditional way of doing things, you learn almost nothing from your failures.

For a major pharmaceutical company today, it is as hard to find a new drug as it was -- or it is harder today than 10, 20 years ago. This doesn't make any sense unless you understand that they are doing things experimentally, which means you get the easy things first and then it gets harder and harder and harder. Whereas if you do things predictively, what happens is like predicting the weather. Your predictions just get better and better and better over time.

So those are the aspects where I am confident that for us, for Compugen, we really are changing the paradigm, but at this point in time it is for us (inaudible) because of the way we are doing our research.

Did I put you to sleep?

No, I think this is a better conversation over coffee sometime when you are in the States. Because I think the issue -- the challenge here is that, as you said, for a lot of these molecules, they are early-stage molecules and you have companies that don't want to invest large amounts in early-stage molecules. And yet that is what we are selling in the marketplace here.

And so you can't expect the royalty levels that we would like to generate that is going to provide the revenue to sustain the Company unless we start seeing the molecules develop past the early stage or companies willing to take the risk on larger -- on either promising molecules, early-stage molecules, or packages of early-stage molecules.

I think I would just like to add that there are two ways to look at it, either from the perspective of the molecule itself, as you were just relating to, or from the perspective of the discovery approach.

So as Martin said, the discovery approach is offering systematic ways to discover multiple molecules and hit rates should increase with time, even though we are happy with the hit rates that we have now. But as Martin said, we are doing it now for ourselves.

But from the perspective of the molecule itself, it comes back to what we discussed earlier in the call, and it is the fact that molecules are novel, they are offering first-in-class opportunity for the companies in areas that there are clear unmet needs. And the challenge is to show -- and this is what we are focusing now -- is to show exactly the path or the novel path that it may offer in order to generate another class for treatment.

The IP perspective, the intellectual property atmosphere that we are offering with respect to these molecules. And all of this package being more advanced with time, with more and more data, is something that pharma companies are looking for. So I would summarize it in this way.

Well, don't misunderstand. I appreciate the work that you are doing. I have a significant amount of my retirement in this Company, and I am optimistic that we are going to get where we need to get as a Company.

But as a shareholder, Martin, I think you've said it. You've laid out expectations for us over time, and those expectations and the timeline for those expectations seem to change from call to call. And I will leave it at that.

Douglas Altabef, Matrix.

I think he has gone to sleep.

Very pleased to hear you talking about Compugen being a multibillion-dollar company five or six years from now. But I don't know that we will get there ex nihilo, or in one fell swoop. I think there is a progression to be had.

And as an individual shareholder who has been patient, loyal, supportive and in awe of the science, I would -- I am hearing and I am going to echo some of the, shall I say, skepticism that I'm hearing on this call. And it may boil down to an issue of managing expectations, as the previous caller left his question with.

I have one question and then one suggestion. The question is, is there merit -- I'm hearing both you and Anat talking about getting the most, the optimal, the best result from a particular compound, molecule or whatever. Is there, however, merit in showing the viability of the commercialization process by taking a -- accepting a deal that may not in retrospect or in hindsight look to be -- have been an out-of-the-park home run, where the goal really is to establish the perception of viability, of commercial viability, that in fact these candidates are licensable, that people are going to pay money for them, and that the first one opens the gate of acceptance, awareness, visibility and viability that can't really be said in the absence of having done a deal.

I was a little bit perplexed to hear that you are, in effect, the victim of your own success. As you identify a target, then there are variations of it and you have to now differentiate among the variations. That seems like you are setting yourself back or you are required to do that much more to move the ball forward.

And at a certain point, while this is all important from the science point of view, from the perception of your shareholders and those who might want to become shareholders, it has the appearance of say, there is yet another reason, another pitfall, another opportunity for licensing commercialization not to take place or to be delayed.

And because you have given guidance on expectations in the past, whether it has been Compugen being cash flow neutral or expectations as to the timing of when licensing should begin, no one is holding your feet to the fire and saying you have to be prescient about this. But all of that is background for this question of whether there isn't merit in doing something that establishes some viability, even if it is not the optimal deal that one would want to have.

Let me clarify something, because (inaudible) my comments were misunderstood. I never said that -- we are now approaching the timeframe, or we are in the timeframe when I said that I was hopeful that we would be -- that our products would reach the stage where I thought that they would be licensable within the industry on attractive terms for us.

I have never said that we are not going to -- that is not going to happen. What I said is that there -- we did not foresee this issue with respect to differentiation as probably as strongly as we should have.

Let me clarify also something that maybe if a person isn't in the field, maybe it doesn't -- it won't appreciate the difference. But we do not have a product with -- a molecule with variations. We have completely novel, separate molecules. It's not a question of one with variations on a theme kind of a thing. Each one of our B7s have almost no molecular similarity to one another. So they are completely different products.

And I tend to sort of agree with you that if we were able to license out an individual product on a reasonable basis at this point in time -- or let's just say if -- because you have to look at it from the pharmaceutical's standpoint, from the person who is licensing it in. If it is, as I said, one of five or six and they are not well-differentiated, they are not going to want to take in -- they are not going to want to license in one.

Licensing in is a big deal for a pharmaceutical company, because it means they -- not only the front-end money or whatever, but it is the commitment of their resources and it goes into their pipeline, and then they really start spending significant monies on it.

So it is the -- I'm not prepared at this point in time to license out the package of our B7/CD 28 family on the basis of getting paid a nice package -- a nice fee, but essentially for one very promising compound. Because from their eyes, that is what they are looking for. But from our standpoint, we would be licensing out a whole package of products.

Then if that is the case, it behooves us all to have some updated, realistic expectations as to what should be the timeline for the differentiation process and the ability of Compugen to go to the community, the pharma community, with something that is both differentiated, unmet need, novel and commercially interesting.

There really isn't any way to define those things. It really comes back to -- and to look at the product portfolio as it continues to be developed and to ask ourselves, are they moving forward in the way that we would hope that they would, and are we continuing to build value?

At what time our timeline is going to cross with the timeline of one or more big pharmaceutical companies, it is -- it could happen tomorrow, it could happen in six months. It is -- you can't -- there isn't any magic formula, and there isn't any -- when we talk about differentiation, there isn't any -- it is not a black-and-white situation. It is a matter of building evidence. And the question is at what point -- and this probably is different for every big pharma -- at what point is there sufficient evidence for them to be able to make the decision with respect to a specific candidate.

And is it fair to say that an additional variable here is the issue of how far along you have to take any additional prospective licensing candidate, not only differentiating it, but moving it further along the spectrum of development?

This is something that is already pertaining to our work plan. So this is not -- the work plans in the R&D are work plans that are not taking into consideration a specific stage of licensing. So we didn't -- we are not just sitting and waiting for licensing. We have work plans that are well moving forward, long-term work plans. And at a point of time that we will reach licensing, we will change the way we are working with respect to priorities in different markets. But this is something that is built already into the work plan.

Okay, thank you.

Before I ask Mr. Gerstel to go ahead with his closing statement, I would like to remind participants that a replay of this call is scheduled to begin in two hours for a period of 72 hours. In the US, please call 1-888-782-4291. In Israel, please call 03-925-5918. Internationally, please call 972-39-255918. Mr. Gerstel, please go ahead with your concluding statement.

Thank you. In view of the long period of time, let me just say that we are extremely pleased to see the position that the Company is now in with respect to having in place in-house fully the capabilities for both the research and the early-stage development in our two chosen fields; that having proven the discovery -- the unique discovery capabilities of the Company; and that we are very enthusiastic about the remainder of this year, which, as we've said before, we believe is going to be the year where the long-term promise of predictive drug discovery is going to be much -- is going to be much more understood, appreciated and rewarded.

We want to thank our long-term shareholders and we appreciate your being with us in this relatively long call. Good evening, or good morning for you.

Thank you. This concludes the Compugen Ltd. first-quarter 2012 financial results conference call. Thank you for your participation. You may go ahead and disconnect.