Business Context and Reporting Period
Compugen Ltd. (NASDAQ: CGEN), a foreign private issuer based in Tel-Aviv, Israel, reported financial results for the third quarter ended September 30, 2007. The company focuses on the discovery and licensing of product candidates for the drug and diagnostic industries, utilizing predictive discovery engines. Key business developments during the quarter included a collaboration agreement with Teva Pharmaceutical Industries for CGEN-54 and the receipt of the first milestone payments from an existing immunoassay diagnostic agreement.
Key Financial Metrics
| Metric | Q3 2007 | Q3 2006 | 9 Months 2007 | 9 Months 2006 |
|---|---|---|---|---|
| Revenues | $90,000 | $0 | $90,000 | $205,000 |
| Net Loss (Continuing Ops) | $(2.7) million | $(2.3) million | $(8.3) million | $(8.4) million |
| Net Loss (Total) | $(2.7) million | $(2.5) million | $(9.0) million | $(9.2) million |
| EPS (Basic/Diluted) | $(0.09) | $(0.09) | $(0.32) | $(0.33) |
| R&D Expenses (Gross) | $2.3 million | $2.5 million | $6.9 million | $7.8 million |
| R&D Expenses (Net of Grants) | $1.9 million | $1.7 million | $5.9 million | $6.4 million |
| Cash & Equivalents | $19.1 million | N/A | N/A | N/A |
Liquidity and Debt: As of September 30, 2007, total cash, cash equivalents, short and long-term deposits, and marketable securities totaled $19.1 million. The company reported no long-term debt, though it carries accrued severance pay liabilities of $1.5 million.
Material Changes vs. Prior Period
- Revenue: The company generated $90,000 in revenue for Q3 2007, compared to zero in Q3 2006. However, revenue for the nine-month period decreased to $90,000 from $205,000 in the prior year.
- Loss Reduction: The net loss for the nine months ended September 30, 2007, narrowed slightly to $9.0 million from $9.2 million in the same period in 2006.
- Expense Management: Gross R&D expenses decreased by approximately $900,000 year-over-year for the nine-month period. However, governmental and other grants decreased significantly from $1.3 million to $969,000, partially offsetting the gross expense reduction.
- Cash Position: Cash and equivalents decreased by $7.3 million during the first nine months of 2007, consistent with the company's previously announced outlook of $10 million total cash usage for the full year.
Guidance, Outlook, and Risks
Management Commentary: Chairman Martin Gerstel stated that the company currently holds $19 million in cash and estimates that an additional $10 million would be sufficient to fund operations through at least mid-2010. Management anticipates that continued validation of product candidates will support share price strengthening, potentially limiting the need for equity offerings to the estimated $10 million gap.
Risks and Contingencies: The filing includes standard forward-looking statement disclaimers. Identified risks include changes in relationships with collaborators, the impact of competitive products, technological changes, and risks related to new product development. The company relies on milestone and revenue-sharing agreements for commercialization.
Investor Verification Checklist
- Verify the sustainability of the $19.1 million cash position against the projected $10 million additional funding requirement to reach mid-2010.
- Confirm the status and payment terms of the collaboration agreement with Teva Pharmaceutical Industries regarding CGEN-54.
- Monitor the trend of governmental grants, which decreased significantly year-over-year, and their impact on net R&D expenses.
- Review the details of the "Loss from discontinued operations" which contributed to the total net loss.
- Assess the timeline for the next potential equity offering and its potential dilution impact.