Compugen was worth the wait

Gali Weinreb

Compugen shows life sciences companies that invest heavily in science can achieve a breakthrough, even after the capital market has given up on them.

Compugen Ltd. (Nasdaq: CGEN; TASE: CGEN), founded in the 1990s, was one of the prominent companies in the bio-informatics wave (combining computers and biology) that swept the world. It was believed at the time that cracking the genome and other advances in biology would move the drug discovery process from the laboratory to the computer. But the revolution stalled. Although computer systems improve the drug discovery process, most of the work is still done in the laboratory. Meanwhile, bio-informatics companies were stuck.

Compugen developed a system for automated data mining of biological information from a range of sources. When it was floated on Nasdaq in 2000, its business model was based on the sale of its data mining services to big pharma companies as user fees. Although it signed many cooperation agreements, revenue never exceeded a few million dollars a year.

In 2004, Compugen changed its business model to independently discover and develop drugs on the basis of its computing capabilities. It replaced all its management, board of directors, and a substantial part of its employees (mathematicians replaced biologists). But this did not help either, until the company found the right business model.

In 2010, Compugen decided to focus only on immune checkpoint drugs - molecules that induce the immune system to attack malignant tumors itself. One drug from this group, Yervoy, developed by Bristol Myers Squibb Co. (NYSE: BMY), was a great success, and other pharmaceutical companies rushed after other molecules from this group. Compugen's agreement today with Bayer Healthcare suggests that the bet paid off.

Compugen's story teaches that life sciences companies that invest heavily in time and effort in science over many years can achieve a breakthrough, even after the capital market has given up on them. This assumes that the outstanding science is accompanied by successful management (CEO Dr. Anat Cohen-Dayag) and a party that backs the company financially or can keep capital market enthusiasm alive (chairman Martin Gerstel).

But the lesson of the story is that it is not necessarily worthwhile to accompany a life sciences company all the way. Although Compugen's current market cap is double its IPO value, there were times when it was traded at a 90% discount on its IPO price.

Early investors in companies with such long roads rarely make a profit. When was it worthwhile to invest in Compugen? In 2010, when Cohen-Dayag announced that it was again changing direction, but by then, the market found it difficult to believe.

Published by Globes [online], Israel business news - - on August 5, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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