Compugen Ltd (CGEN) 2018 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Compugen's Fourth Quarter and Full Year 2018 Results Conference Call. (Operator Instructions) An audio webcast of this call is available in the Investors section of Compugen's website, www.cgen.com. As a reminder, today's call is being recorded.

I would now like to introduce Elana Holzman, Compugen's Director of Investor Relations and Corporate Communications. Please go ahead.

Thank you, operator. Thank you for joining us today. With me from Compugen are Dr. Anat Cohen-Dayag, President and CEO; Dr. Henry Adewoye, Chief Medical Officer; and Ari Krashin, CFO and COO.

Before we begin, I would like to read the following regarding forward-looking statements. During the course of this conference call, the company may make projections and other forward-looking statements regarding future events or future business outlook, anticipated progress on Compugen's pipeline programs and financing related matters as well as statements regarding the potential benefits and consequences from its corporate restructuring and anticipated cash expenditures and savings through 2020. We wish to caution you that such statements reflect only the company's current expectations and that actual events or results may differ materially. You are kindly referred to the risk factors and cautionary language contained in the documents that the company filed with the Securities and Exchange Commission, including the company's most recent annual report on Form 20-F filed March 27, 2018. The company undertakes no obligation to update projections or forward-looking statements in the future.

I will now turn the call over to Anat.

Thank you, Elana. Good morning, and good afternoon, everyone. I would like to welcome you to our fourth quarter and full year 2018 corporate and financial update. As Elana mentioned, with me today are Dr. Henry Adewoye, our Chief Medical Officer, who will update you on our COM701 Phase I study; and Ari Krashin, our CFO and COO, who will provide a financial update.

As we announced in today's press release, after reaching a number of important milestones in our corporate development during 2018 and forward-integrating clinical capabilities into our organization, we undertook a comprehensive review of the company's operations and cost structure and are now implementing a process of corporate restructuring to streamline our operations and focus on our core value driver.

The corporate restructuring consists of 3 key elements: a reduction of approximately 35% of our workforce, which is about 35 employees, the majority of which is in R&D; consolidating our R&D activities in one location by eliminating the overlapping R&D and G&A activities which exist today between the 2 R&D centers in Israel and in South San Francisco and phasing out our R&D laboratory activities in the United States; and outsourcing certain preclinical activities that are currently conducted in-house.

Our clinical development and business development will continue to operate in the U.S. These changes and resulting cost reductions are being taken to accomplish 2 main objectives. First, to allow us to have the necessary resources to execute our ongoing Phase I studies for COM701, including the initiation of expansion cohorts for combination studies with Opdivo. This is our highest priority. Second, it will allow us to maintain and continue investing in our long-term core value drivers, our proprietary computational target discovery platform and our early-stage immuno-oncology pipeline.

The cost reductions are expected to extend our cash runway through mid-2020, and we anticipate cost savings of approximately $10 million on an annual basis. Furthermore, we believe that the outcome of this organizational change will result in a more cost-effective structure for Compugen and will help drive the company forward towards realizing its strategic objective. Unfortunately, as a result of this organizational change, very talented employees, who have made significant contributions to the company and helped us reach where we are today, will be leaving Compugen. I would like to take this opportunity to thank each and every one of them for their dedication and hard work. I will always deeply appreciate their contributions to our accomplishments.

Compugen has made tremendous progress in recent years in achieving multiple important milestones. 2018, in particular, was a remarkable year for us marked by strong execution and significant accomplishments. In 2018, we became a clinical stage company with 2 immuno-oncology programs in Phase I clinical trials, 1 developed internally and the other partnered to Bayer, both against novel drug targets we discovered.

In addition, we entered into 2 important agreements with pharma companies. Earlier in 2018, we announced a license agreement with MedImmune AstraZeneca to enable the development of bispecific immuno-oncology antibody product. And in October, we announced a clinical collaboration agreement for COM701 with Bristol-Myers Squibb, which also became a strategic investor in Compugen.

The 2 clinical programs, COM701 targeting PVRIG and BAY 1905254 targeting ILDR2, are, to the best of our knowledge, the only clinical stage programs addressing novel immuno-oncology targets identified by a computational discovery platform. These, together with the discovery of TIGIT, serve as proof points for the power and validity of our computational discovery platform. Today, with all the hype around using computational tools, such as AI and machine learning technologies in the field of life sciences, we believe that we are the only company that has already validated its computational discovery platform.

While Henry will share a more detailed update on our Phase I study, which is intended to evaluate COM701, both as a monotherapy and in combination with Opdivo, Bristol-Myers Squibb's PD-1 inhibitor, I'm happy to report that the study is progressing as planned. Patient enrollment and site recruitment are on track. We continue to see enthusiasm from clinical investigators as they recognize the biological rationale and potential of COM701 targeting a novel immune checkpoint that has never been evaluated before. The suggested intersection of the PVRIG pathway with the PD-1 pathway also provides a stronger combination rationale than that seen with a number of other immunotherapies currently being tested together with PD-1 inhibitors.

In addition, we recently published preclinical data in 2 papers in Cancer Immunology Research in an ACR publication. The data serves as the basis for our understanding of the PVRIG pathway and its importance in cancer immunotherapy and in combination with TIGIT and PD-1 pathway inhibitors. It also reinforces our belief that targeting the PVRIG pathway may be foundational in expanding options for cancer patients nonresponsive to other immunotherapies. The data also support our selection of tumor types, which include lung, breast, ovarian and endometrial cancers for the enrichment part of our Phase I clinical study.

We intend to keep the medical community, life sciences industry and our shareholders apprised of our progress. At this stage, this will be done through trialing progress presentations in medical conferences, which are designed to provide enrollment information from our trial as well as guidance we may share on our quarterly calls. Henry, in his prepared remarks, will elaborate on this planned guidance.

Moving to BAY 1905254, an antibody targeting ILDR2 that is currently being evaluated in a Phase I study under our collaboration with Bayer. This program is progressing after Bayer initiated their Phase I clinical trial in September 2018. BAY 1905254 appears to have a unique mechanism of action relative to other immune checkpoint inhibitors currently in clinical testing. ILDR2 itself is expressed in lymph nodes, suggesting that BAY 1905254 exert its effect on immune cells priming rather than on directly enhancing immune cell killing effect in the tumor microenvironment. Additionally, it was shown to have broad combination potential in preclinical tumor models. We continue to work closely with Bayer and receive periodic updates from them on the progress of their trial. As a reminder, the release of any information on this program is entirely controlled by Bayer and subject to their disclosure.

Moving now to our third most advanced program, COM902, a TIGIT inhibitor, which is progressing towards IND filing expected later this year. As we have previously stated, we see the importance of COM902 primarily in its potential combination with COM701. As you may recall, our collaboration with Bristol-Myers Squibb is designed to address additional studies to evaluate other combinations, including triple combination studies, such as PVRIG and TIGIT. As such trials can test our biological hypothesis for the PVRIG pathway, with Bristol-Myers Squibb's TIGIT inhibitor, we have decided to align our COM902 clinical development plans with those under our collaboration with Bristol. So we will continue to move forward and finalize the planned IND filing of COM902, but we will assess the initiation of COM902 Phase I trial based on the progress of our collaboration with Bristol as well as future available resources to support such a trial.

In addition, we continue to advance and develop other immuno-oncology programs in our pipeline, which are in earlier stages of development and involve various mechanisms of action. We will provide additional information as these programs advance in our pipeline.

The organizational changes we announced today will allow us to continue investing the necessary capital resources and management attention in these programs as well as in our core competency, the discovery capabilities, so we can continue to generate new programs for internal development and potential partnering purposes.

I would also like to provide today a brief update on CGEN-15001, our autoimmune program. To remind you, CGEN-15001 is an Fc fusion protein drug candidate for autoimmune diseases, which was shown to be effective in animal models for treating several autoimmune diseases, possibly through the induction of immune tolerance. As we stated in the past, given our focus on immuno-oncology, we de-prioritized our internal development work on this program, and we're looking to partner each for further development. Despite the potential, we and key opinion leaders we collaborated with [seeing this] program, it is still considered early-stage and requires additional investment prior to partnering.

Given the current capital resources and our intent to continue focusing on immuno-oncology, we decided to stick to our past decision and not to allocate at this time additional resources required to advance CGEN-15001, while understanding this may affect the probability of partnering this program.

Before turning the call over to Henry, I would like to conclude my prepared comments by saying that I'm tremendously proud of what we have accomplished and where we are today. The organizational change we are undergoing these days is not an easy one, and in the process we are parting with valuable employees. Nevertheless, we believe that this will strengthen the company and will better position Compugen in its path forward. Henry?

Thank you, Anat, and good afternoon, good morning, everyone. As Anat mentioned, I will focus on the COM701 clinical program and our ongoing Phase I clinical study evaluating COM701 as monotherapy and in combination with Opdivo in patients with advanced solid tumors.

As you may recall, the combination arm of this study is in collaboration with our partner, Bristol-Myers Squibb. The study is designed to address the scientific and clinical rationale of the COM701 program, which evaluates inhibition of components of the DNAM axis, PVRIG and its linked PVRL2 leading to activation of T-cells in the tumor microenvironment in patients with advanced solid tumors.

In addition, the suggested intersection of the PVRIG and the PD-1 pathways provides a strong combination rationale of COM701 with PD-1 inhibitors. This is complemented by the biomarker strategy, which is implemented in the protocol and is based on our understanding of the biological pathway of PVRIG and our supportive preclinical data.

The primary objective of the study is safety and tolerability evaluated by dose-limiting toxicities and the determination of a maximum tolerated dose, including the pharmacokinetics. A secondary objective is the evaluation of preliminary anti-tumor activity of COM701 in combination with Opdivo in patients with selected tumor types. At this time, the study is enrolling patients into arm A, evaluating COM701 monotherapy dose escalation in allcomers, that is patients who have exhausted all available standard therapies. At the completion of the monotherapy dose escalation study, we expect to have a recommended Phase II dose of COM701.

I am pleased to inform you that the study is progressing as planned, site recruitment and patient enrollment are on track, the investigators on the study are excited and very engaged in the study as they see COM701 as a novel and first-in-class investigational monoclonal antibody with the unique mechanism of action for activating T cells.

We're currently recruiting patients in 5 sites, the START Center in San Antonio, Texas; the University of Tennessee West Cancer Center in Memphis, Tennessee; and Sarah Cannon Research Institute in Nashville, Tennessee. In addition, Massachusetts General Hospital in Boston and the University of Chicago, which we added more recently. All 5 medical centers have strong capabilities in recruitment for Phase I studies and the participating clinicians possess relevant experience in running oncology clinical trials in general and in particular in the field of immuno-oncology. All in all, we expect to have up to 10 sites recruiting patients for the study, and we will update these on clinicaltrials.gov as they begin to actively recruit patients.

We also have in place a biomarker strategy, which will evaluate the study's clinically relevant endpoints, clinical activity and safety with immunophenotyping, PVRIG pathway expression and target coverage by COM701. Our biomarker analysis will be a retrospective analysis, which, if confirmed, will serve for patient selection at later stages of the trial.

Later this week, at the ASCO-SITC Clinical Immuno-Oncology Symposium in San Francisco, we will present our first poster in the trials-in-progress category relating to the COM701 Phase I study. The poster abstract was published on the conference's website on February 25 and provided enrollment information as of the submission date of the abstract, which was in November 2018. Our presentation at ASCO-SITC will take place Thursday and will include current information on those patients enrolled as of the abstract submission date. Following the presentation, we will publish this information in the form of a press release. Pursuant to the conference submission guidelines for trials-in-progress presentations, no clinical data will be presented. During the course of the year, we intend to use the trials-in-progress format to appraise the medical community, the life science industry and our shareholders of the progress of our study along with updates on the clinicaltrials.gov website as appropriate.

The next trials-in-progress poster we plan to present is in the upcoming AACR Conference in Atlanta, Georgia, March 29 to April 3. In light of the progress to date in the COM701 Phase I trial, we would like to update that the initiation of arm B of the Phase I study evaluating escalating doses of COM701 with fixed doses of Opdivo is projected for the second quarter of 2019.

In addition, we believe that during the second half of 2019 we will provide updates on the 2 following milestones: completion of enrollment for the monotherapy dose escalation, completion of enrollment of the dual combination dose escalation.

Before turning over the call to Ari, I'd like to add something on a personal note. I joined Compugen as Chief Medical Officer and as part of the management team almost a year ago. I have been very impressed with the leadership of the company and the high-achieving and goal-oriented team that Anat has assembled, which was about the smooth transition from a predictive target discovered company into a clinical stage company. I am delighted to be a part of this team and look forward to advancing COM701 in a population with a high unmet medical need.

Finally, I would like to thank our patients, their families and the clinical investigators and sites for participating in the study. Ari?

Thank you, Henry. Our financial results for the fourth quarter and full year 2018 we list today are in line with our expectations. In general, they continue to reflect the increasing clinical development expenses attributed to the progress made with COM701 as well as the preclinical expenses associated with manufacturing and IND-enabling studies for COM902.

Our total cash expenditures during 2018 totaled approximately $36 million. The announced restructuring is expected to provide us with anticipated savings of up to $10 million on an annual basis. As a result, we expect that the cash expenditures for 2019, including onetime restructuring-related cost, will be significantly lower and will be in the range of $27 million to $29 million with the full effect of the savings reflected in 2020.

We ended 2018 with approximately $45.7 million in cash and cash-related accounts compared with $30.4 million at the beginning of 2018. The company has no debt. The net increase in our cash balances is attributed to the revenue during 2018, which were comprised of $10 million from the license agreement with AstraZeneca, the $7.8 million from Bayer resulting from the clinical milestone achieved as well as the $12 million investment made by Bristol-Myers Squibb and the $20 million net from the registered direct offering offset by our 2018 cash expenditures.

The restructuring process required us to make some difficult decisions. However, we believe they were necessary for us in order to become a more financially stable company. It removed some of the cash overhang and would extend our cash run rate through mid-2020 to allow the continued funding of the planned expansion of the ongoing Phase I study for COM701 and the focus on the long-term value drivers of our organization.

Having said that, I would like to remind you that as a policy, management and the board periodically evaluate the company's cash status in light of its development plans, business activities, financing opportunities and market conditions. Each is considered together with the long-term interest of our shareholders, strengthening our balance sheet continues to be a top priority for management and the board.

Now turning to the rest of our 2018 financial results. Research and development expenses during 2018 increased by 6% and totaled $30.3 million compared with $28.6 million in 2017. For the fourth quarter of 2018, research and development expenses were $7.5 million compared with $7.2 million in the comparable period of 2017. The increase in both cases is attributed mostly to the initiation of COM701 clinical trials during 2018.

General and administrative expenses during 2018 increased by 5% and totaled $8 million compared with $7.6 million in 2017. For the fourth quarter of 2018, general and administrative expenses were $2 million compared with $1.9 million in the comparable period of 2017. The slight increase in general and administrative expenses during 2018 was attributed mostly to expenses associated with the collaboration agreements with AstraZeneca and Bristol-Myers Squibb.

Net loss for 2018 was $22.6 million or $0.41 per diluted share compared with a net loss of $37.1 million or $0.72 per diluted share for 2017. Net loss for the fourth quarter of 2018 was $9.4 million or $0.16 per diluted share compared with a net loss of $9.3 million or $0.18 per diluted share for the comparable quarter of 2017.

Before opening the call for questions followed by Anat closing remarks, I would also like to join Anat and the rest of the management team in thanking our employees, those who will be leaving us and those who are staying, for their dedication and significant contributions to our organization. We will make sure to implement the organizational changes with the utmost respect for all of our employees.

Thank you, and with that, we will now open the call for questions. Operator?

(Operator Instructions) The first question is from Mark Breidenbach of Oppenheimer?

I think I heard Henry slip in some very important guidance there. I just wanted to reconfirm I heard him correctly. You expect to begin dosing patients in the Opdivo combination expansion trial beginning in second quarter and you expect to complete enrollment of both the dose-escalation monotherapy trial and in the combination expansion cohorts in the second half of this year. Was that correct? Did I hear that right?

Mark, just some little corrections. So the second quarter of 2019, we expect to initiate the combo dose escalation, not the expansion, so the escalation. And for the second half of 2019, we expect to complete enrollment for the monotherapy dose escalation, that's COM701, and also complete enrollment of the dual combination dose escalation cohort.

Okay, so expansion cohorts will still, maybe, be ongoing or will not wrap-up by the end of this year. I have another question, were there any specific triggers or events that needed to be satisfied before the COM701 plus Opdivo dose-escalation cohort could begin enrolling in the second quarter?

Sure. So without disclosing what's current in terms of clinical data, it's the numbers based on what we have assessed as dose-limiting toxicities that we will disclose during the ASCO-SITC abstract and poster presentation. So we're confident in the data that we're seeing and that's what's triggering the dose escalation. So things are going on track, in short.

Okay, and with regard to COM902, what you mentioned was -- the development, sort of, been aligned with your plans for COM701. Would you anticipate you'll be in a position to make a go or no-go decision for continued development later this year? Or is it a question of sort of a second half '19 versus a 2020 event before we might see COM902 enter the clinic.

I believe that was in Anat's.

Yes, Henry, I'll take it, thanks. So yes, you heard correctly that we are going to align our plans for COM902 with our plans under the Bristol collaboration, it is very important for us. Obviously, the plan is -- with Bristol is to test various combinations, including their anti-TIGIT with COM701 and Opdivo. And not necessarily we will wait to see ultimate data but that will be dependent -- as I just said in my prepared remarks, it will be dependent on the plans moving forward and the funding for the trial on the behalf of Compugen. So that's basically the 2 things.

Having said that, we're moving forward in filing the IND during '19, and we will obviously advise the shareholders of this step taken.

Okay, thank you so much for taking the questions and congrats on making progress with the COM701 trial.

The next question is from Peter Welford of Jefferies.

Just a couple -- just sticking with the 701 Phase Ia trial, just to sort of understand, I think originally you were starting at very, very low doses with that in single subjects and titrating very slowly as per FDA requirements. Given we're going to potentially start now combo dose escalation in 2Q and also anticipate to then finish enrollment, should we take that as being that you reached the sort of recommended Phase II dose, if you like, (inaudible) relatively early in the dose titration or is it just that you've passed quite quickly through the various dose stages? I guess, just given previous commentary, it seems quite early and I wonder if you could comment at all on that.

And then also on arm B, just wondering then when we start the dose-escalation combo, do you then again in arm B start at sub-therapeutic levels or will that trial start at a level that is therapeutically relevant? And if I could just ask one on the financials, Ari? Can you just give us some sort of idea as to the cash costs for the restructuring we should see in '18? So I guess when we think about $27 million to $29 million, how much of about $27 million to $29 million is, if you like, one-off cash charges so that we can consider sort of the underlying run rate?

Sure. Thank you, Peter. This is Henry. So with regards to your first question, the short answer is we're progressing pretty fast through the dose-escalation cohorts. We haven't reached the MTD yet and hence the reason where we've escalated rapidly through the single-dose cohorts and now at the 3 plus 3 study design.

With regards to the second question in COM701 in combination with Opdivo, we will start at a dose which we'll project will be tolerable and a much lower dose than what we are currently using just because of safety reasons. Not because we have seen any toxicities, but because that's what was written as assessed in the protocol.

Okay. So thank you, Henry. And Peter, I'll address your question about the restructuring costs. So as we stated, the budget or the expected expenditures for 2019 going to be in the range of $27 million to $29 million. I can share with you that the restructuring cost is probably going to be lower than $2 million. Is that going to be higher than that? It's still in the range between $1 million to $2 million depends on multiple elements.

But I can also share with you that even going into 2020, the capital expenditure, the total is going to be even lower than that for 2 main reasons. First of all, we just initiated the restructuring, so Q1 of 2018 (sic) [2019] did not benefit from the savings. And also in 2020, we will not have the restructuring costs. So if I have to guess at the moment, we clearly didn't finalize the budget for next year, but I would assume that next year it's probably going to be even lower by $2 million to $3 million, even $4 million compared to the range that I just gave for 2018 (sic) 2019.

This concludes our Q&A session. I would now like to turn the call back to Compugen President and CEO, Dr. Cohen-Dayag. Would you like to make your concluding statement?

Thank you, operator. 2018 was a remarkable year for Compugen with strong execution. I am very proud of the progress we have made this year in achieving corporate goals. We brought COM701 to the clinic, BAY 1905254 being developed by Bayer also entered Phase I studies, and we executed 2 new pharma deals, which substantiate our discovery and development capabilities. In recent weeks, we undertook a comprehensive overview of our operations and reached a difficult decision to implement a corporate restructure. Layoffs are never an easy decision, but we believe this is the correct next step for Compugen. The resulting company will be smaller with a cost-effective structure that is more appropriate to a company in our early stages of clinical development. We will be more efficient and focused on activities that will bring the greatest value to our shareholders and patients.

Thank you for joining us today. I look forward to continue updating you on our activities in 2019.

Thank you. This concludes the Compugen Ltd. Fourth Quarter 2018 Financial Results Conference Call. Thank you for your participation. You may go ahead and disconnect.