When predictive drug discovery company Compugen Ltd. (Nasdaq: CGEN; TASE:CGEN) held its IPO on Nasdaq in August 2000, the twin towers were still standing and the initial rough draft of the human genome sequence had just been published.
Compugen was a pioneer in bioinformatics, which combined genome data with computer capabilities but enthusiasm for the discipline quickly waned as first the 'genome bubble' burst almost immediately after its IPO, quickly followed by the bursting of the dot.com bubble.
Compugen not only survived back then but is also one of the only bioinformatics companies to have survived since then. It currently has a market cap of $128 million, down 90% from a peak of $1.5 billion in 2020.
Only a biotech company could survive 30 years since it was founded without producing any revenue. Compugen has burned through losses of $440 million since it was founded (perhaps more than any other Israeli life sciences company). And still it is looked upon as a company with potential.
Last week Compugen reported a change in focus, which includes ending its collaboration agreement with Bristol Myers Squibb (BMS). The company has made such unexpected changes in direction twice previously, not because of failures in clinical trials but following upheavals to make its business model in computational biology more precise. Israeli company Evogene (TASE: EVGN; Nasdaq: EVGN), formerly a subsidiary of Compugen, has coped with similar challenges in the field of agritech.
Compugen changed its model for the first time in 2004. Prior to that the company would provide computer services to pharmaceutical companies and even recorded some initial revenue but understood that wasn't where the big money was because it was looked on as a service company. Compugen decided that in order to demonstrate how much its systems were worth, and in order to receive a larger part of the value it was creating, it needed to develop its own drugs. So many of Compugen's mathematicians were replaced by biologists. The company currently has 70 employees in its Holon headquarters.
The plan wasn't to bring products to market independently but to bring finalized products to the drug companies, which would take them on to clinical trials. In 2009, Compugen chairman Martin Gerstel speculated that if the company could discover dozens of drugs and put them into the development pipeline of the big pharma companies, at least a few of them would advance to stages that would yield major returns. By 2010, the company had announced some scientific discoveries and even signed first agreements with drug companies, but progress was painstakingly slow.
At that time, Compugen made sure not to enter any independent clinical trials, so the $58 million it had raised in 2000 lasted it through until 2009, together with small amounts from collaboration agreements and the sale of Evogene shares, which were then at a peak.
In 2010, Dr. Anat Cohen-Dayag was promoted to CEO and in 2011, the company announced another change in its business model: a focus on immunotherapy - in other words drugs that use the immune systems of the patient to battle against cancer, and specifically immune checkpoint inhibitors, drugs that prevent cancer from 'lurking' in the immune system or halting the attack by the immune system on the tumor. This stood out as the biggest possible opportunity for a computational biology company, and it was clear that if the company had good products in this area, the pharmaceutical companies would not be able to ignore it. To get matters into perspective, Merck's Keytruda, a cancer drug in this sector, has annual sales of $14 billion.
The market rewarded Compugen for this decision, and the share price began to rise. In 2013, the company's approach was ostensibly justified when pharma giant Bayer took on two of Compugen's cancer treatment drugs and invested $10 million in the company immediately, and also made subsequent payments. The company's market cap jumped to $500 million.
In 2014, the company announced the discovery of a new immune checkpoint inhibitor called COM701, in the market with the greatest potential at that time. Compugen subsequently announced the discovery of two more TIGIT type immune checkpoint inhibitors, while a company called Genentech devised them through other methods. TIGIT became one of the most interesting fields in the cancer market, with all the big companies trying to develop drugs that would work in this way.
The two TIGIT discoveries put Compugen on the map in scientific terms and demonstrated that its system knew what it was doing. But there was still a long way to go in commercializing its knowhow. Compugen had to show that these actions genuinely changed the cancer process and that the drug it had developed to intervene in the mechanism, really could combat the cancer.
In this way Compugen reached the stage where drug development burns through a lot of money. But it was in the hottest area of the industry, so it was able to raise more money. The public injected $150 million into the company's coffers in a secondary offering and $32 million came from the agreement with BMS, which has just ended.
A new approach with dangers
So today Compugen has its own unique product COM701, the TIGIT product it discovered at the same time as other companies and it also strongly believes in the powerful effectiveness of combining them to treat other types of cancers.
The agreement signed with BMS is designed to check this three-way treatment of COM701, and the TIGIT further developed by BMS and another product of BMS, which it contributed to the agreement with Compugen, while the company was responsible for financing the trials.
The enthusiasm for TIGIT products in particular and biotech in general saw Compugen's share price soar in 2029, fueled by investment from guru Cathie Wood's Ark Invest, which held a 10% stake in the company, making it the biggest shareholder.
But then another bubble burst and the TIGIT sector went out of fashion after the failure of a trial by pharma giant Roche.
So after burning through $440 million since it was founded, mainly on clinical trials and quality employees, the company has $100 million in its coffers. Compugen has now ended its agreement with BMS to save money during a period that it expects to be financially challenging but also for strategic reasons. Due to the fall in interest in its drugs including in the TIGIT field, while believing that its product is in a good category and is better than other companies, it wants to promote its products itself in categories that it believes can still prove themselves as having the most major value.
This is an approach that has risks, and takes the company one stage back in its clinical trials program. But if it succeeds, the rights to the product will be in Compugen's hands and it will be able to move forward with it in the way that it sees fit, without depending on the pace of a large pharma company and its priorities.
In addition, Compugen has other products in pre-clinical stages and the product from the Bayer collaboration in Phase I trials. "The pace at which Bayer is advancing with Compugen's product is slow compared with what is happening in the field of cancer, but no slow compared with the period in which it was begun," says a source familiar with the field.
Taking into account developments in big data and computational biology in recent years, does Compugen's system still have a competitive advantage? According to a source in the sector, "Compugen will struggle to invest what is required for its system, together with the significant investment in clinical trials in a period of cuts." Another source said, 'It has experienced computational biology people and anyone in the market would be happy to take them if there were cuts."
On the other hand, in the biotech sector, as Compugen has proven in the past, even without a commercial product and revenue, it is enough that 'there are signs of oil' in the right area. The past and present are not interesting, only the future.
Published by Globes, Israel business news - en.globes.co.il - on August 14 2022.
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