Compugen Ltd. — FY2011 Form 20-F
Reporting period: Fiscal year ended December 31, 2011; this is an annual report, not a standalone fourth-quarter filing. Financial statements are in U.S. dollars and prepared under U.S. GAAP. Unless stated otherwise, amounts below are in millions.
Business context
Compugen is an Israel-based therapeutic product discovery company focused on protein therapeutics and monoclonal antibody targets for oncology and immunology. Its model depends primarily on licensing, research collaborations, milestones and potential royalties. The company reported more than 30 candidates in its Pipeline Program, at various validation and preclinical stages; it had no product revenue in 2011.
Key financial results
| Metric | FY2011 | FY2010 |
|---|---|---|
| Revenue | $0 | $1.115 |
| Operating expenses | $11.979 | $8.769 |
| Operating loss | $(11.979) | $(7.878) |
| Net loss | $(12.004) | $(7.203) |
| Net loss per share | $(0.35) | $(0.22) |
| Net cash used in operating activities | $(9.249) | $(4.279) |
Gross margin is not meaningful for 2011 because revenue and cost of revenue were both zero. Net R&D expense was $6.778 million, up 30% from $5.227 million; grants offsetting R&D costs fell to $0.424 million from $1.010 million. General and administrative expense rose 58% to $4.591 million, including $3.4 million of total share-based compensation expense (versus $2.1 million in 2010). G&A included a one-time $1.3 million charge associated with extending a director’s vested options.
At year-end, cash and cash equivalents were $5.846 million, short-term bank deposits $16.525 million and restricted cash $0.092 million. Combined cash, deposits and restricted cash totaled $22.463 million, compared with $22.508 million in 2010; cash and deposits excluding restricted cash were $22.371 million. Total assets were $29.081 million, shareholders’ equity $19.581 million, and accumulated deficit $180.491 million. The filing reports no conventional borrowings; it records $6.150 million of long-term research and development funding-arrangement liabilities. It also held Evogene shares valued at $4.093 million.
Changes versus the prior year
- Revenue declined from $1.115 million to zero; management attributed 2010 revenue to collaboration research agreements whose performance conditions were met that year.
- Net loss increased by $4.801 million, as operating expenses rose and 2010 included higher other income and positive net financial income.
- Operating cash use more than doubled, primarily reflecting increased Pipeline Program activity. Financing cash provided was $9.021 million, including $7 million received under research funding arrangements and $2.021 million from option exercises.
- Shareholders’ equity declined from $28.285 million to $19.581 million. The Evogene investment’s reported value fell from $6.227 million to $4.093 million.
Outlook, risks and unusual items
- Management said existing cash, cash equivalents and short-term deposits should fund operations for at least 12 months. It expected net R&D expense to remain the largest operating cost and exceed 60% of 2012 operating expenses.
- The mAb funding agreement provides for $8 million in total: $2 million was paid in December 2011, with two further $3 million installments due by June 30 and September 30, 2012. The company’s liquidity and planned research depend in part on those payments.
- Under a separate 2010 Baize agreement, Baize provided $5 million and received participation rights tied to certain pipeline candidates, warrants for 500,000 shares at $6, and an option to exchange participation rights for shares. The 2011 mAb arrangement also carries participation rights and a potential share exchange, creating possible revenue sharing or dilution.
- A $40 million shelf offering and Cantor at-the-market agreement were available. By March 12, 2012, Compugen had sold 551,000 shares for approximately $3.3 million gross, before issuance expenses.
- Key risks include no established material revenue stream, continuing losses, need for further financing, uncertain candidate validation and development, dependence on partners, and the absence of human clinical testing of the disclosed candidates. The company also reported approximately $11.2 million of contingent OCS grant-repayment obligations, payable from future revenues of funded products, and $547,000 in operating lease commitments.
- Other notable items: the company recorded a $306,000 net financial expense, partly reflecting funding-arrangement costs and embedded-derivative remeasurement; and it reported no pending material legal proceedings. Management and the auditor reported effective financial reporting controls; the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether the remaining $6 million under the mAb funding agreement was paid on schedule, and how the funding terms affect liquidity and future economics.
- Current cash burn, unrestricted liquidity and runway, including any subsequent financing or share dilution.
- Pipeline progress, validation results and any subsequent licensing, milestone or research-collaboration revenue; 2011 revenue was zero and candidates had not entered human testing.
- Terms and accounting for Baize participation rights, embedded derivatives, potential share conversions and any resulting dilution or revenue sharing.
- Whether R&D grant conditions remain satisfied and how future product sales, if any, could trigger OCS royalties or repayment obligations.