Compugen Ltd. — FY2012 Form 20-F
Reporting period: Fiscal year ended December 31, 2012. This is an annual filing, not a Q4 report; standalone fourth-quarter results are not provided in the filing text. Financial statements are audited and prepared under U.S. GAAP. Amounts below are U.S. dollars.
Business context
Compugen is an early-stage drug-discovery company focused on computationally identified therapeutic proteins and monoclonal antibodies for oncology and immunology. Its business model depends mainly on licensing and research collaborations that may generate fees, milestones and royalties. Most pipeline programs remained in discovery, validation or early preclinical stages; the company reported no revenue from its Pipeline Program.
Financial results and liquidity
| Metric | FY2012 | FY2011 |
|---|---|---|
| Revenue | $0.242 million | $0 |
| Operating expenses | $13.583 million | $11.979 million |
| Operating loss | $13.542 million | $11.979 million |
| Net loss | $13.628 million | $12.004 million |
| Net loss per share | $0.38 | $0.35 |
| Cash used in operations | $10.846 million | $9.249 million |
| Cash, cash equivalents, short-term deposits and restricted cash | $19.685 million | $22.463 million |
2012 revenue was from research services under a collaboration agreement; cost of revenue was $0.201 million, leaving gross profit of $0.041 million. R&D expense, net of grants, rose 38% to $9.442 million, largely reflecting the new U.S. operation and increased Pipeline Program activity. Grant offsets fell to $0.093 million from $0.424 million. General and administrative expense declined 24% to $3.457 million, chiefly due to lower share-based compensation; 2011 included a one-time $1.3 million option-extension charge.
At year-end, total assets were $28.909 million, total shareholders’ equity was $17.672 million, and accumulated deficit was $194.119 million. Current liabilities were $1.384 million. Non-current research and development funding arrangement liabilities and related items totaled $7.872 million; the filing does not present conventional bank debt as a material financing source. Investment in Evogene was valued at $5.196 million. Operating cash outflow increased as the company expanded R&D; financing cash inflow was $9.111 million, including share issuance, funding-arrangement proceeds and option exercises. Investing activities provided $12.263 million, mainly from maturities of short-term deposits.
Changes, outlook and risks
- Revenue returned to a low level after none in 2011, but remained immaterial relative to operating costs. Net loss widened by $1.624 million year over year.
- Compugen launched a South San Francisco mAb R&D operation in 2012 and increased total headcount from 39 to 52. Capital expenditures rose to $1.005 million from $0.096 million.
- Management said year-end cash and short-term deposits were sufficient to fund operations for at least 12 months. It expected R&D to remain the largest operating expense in 2013; the filing gives differing estimates of its share of total operating expenses (more than 60% in one discussion and more than 70% in another).
- Baize had paid $3 million under the amended mAb funding arrangement and was due to pay a further $5 million or $7.5 million by April 30, 2013. If the minimum payment was not made, Compugen could terminate the arrangement, subject to the agreement’s specified potential payment to Baize. The funding carries participation rights in certain future product proceeds and potential share-conversion features.
- Under its ATM program, the company reported selling 2,411,050 shares and receiving approximately $13.4 million gross from January 10, 2012 through March 15, 2013. A separate $100 million shelf registration became effective in January 2013; future equity sales could dilute shareholders.
- Key risks include recurring losses, uncertain licensing and commercialization, high drug-development failure rates, need for future capital, reliance on collaborators and service providers, patent and regulatory uncertainty, and currency exposure to NIS-denominated costs. The company reported no material pending legal proceedings and no material off-balance-sheet arrangements.
- The company reported no cash dividends and no expectation of paying them in the foreseeable future. Auditors gave an unqualified opinion on the financial statements and internal controls; management also concluded disclosure controls and internal control over financial reporting were effective at year-end.
Investor facts to verify
- Reconcile cash runway assumptions with the $10.846 million operating cash burn and confirm whether Baize made its scheduled 2013 payment.
- Review the exact participation, conversion and termination terms in the Baize agreements, including their potential effect on future licensing proceeds and dilution.
- Track pipeline validation and partnering milestones; reported animal-model results are not evidence of clinical efficacy or commercial success.
- Confirm the extent of subsequent ATM and shelf issuance, resulting share count and dilution; 36,590,478 ordinary shares were outstanding at December 31, 2012.
- Assess the company’s reliance on its Evogene investment and the sensitivity of costs and cash needs to NIS/USD movements.