Monday, June 22, 2009

Investing Then and Now, Compugen

Almost 50 years ago, I took all of my savings, $150, from raking leaves and shoveling snow, and invested in a company named Corn Products, which manufactured Skippy Peanut Butter, Hellmann's Mayonaise and Mazola Corn Oil. I asked to hold the three shares in my own name and received in the mail a handsome stock certificate with a vignette depicting a farm, a factory and a goddess cradling the earth in her delicate hands. More remarkable, several weeks later I received a personal letter from the President of Corn Products, welcoming me into the company's family of shareholders.

Over the many years that I held these shares, I always made a point of buying their products at the grocery store and reading from cover to cover their quarterly and annual reports. The company prospered, never failed to pay a quarterly dividend, and after some 20 years as a shareholder, I reluctantly sold these shares at a profit.

Today, still a creature of habit, I continue to take a very personal interest in the companies in which I invest and actively attempt to examine their employees, management, science and aspirations. I have no interest in day trading, i.e. buying and selling shares in companies of which I know little more than their symbols. Instead, I do the unacceptable: I fall in love with the companies in which I invest, and they become part of my family.

I want to tell you about an Israeli company named Compugen whose shares I own. This is not a recommendation to buy or sell. Rather, I hope to describe an organization which embodies many of the values that I hold dear. For better or worse, this company has penetrated my soul.

Compugen was born some 10 years ago and initially studied a little known phenomenon known as alternative splicing. According to the prevailing science of the time, every gene in the body gave rise to a single protein; however, in rare instances a gene could give rise to multiple proteins via alternative splicing. Compugen came along and asserted, based upon its computer studies, that no small percentage of human genes produced multiple proteins via alternative splicing. Lo and behold, it was subsequently discovered that humans had far fewer genes than previously thought, and Compugen was proven correct.

As a result of this discovery pertaining to alternative splicing, Compugen was able to create a better map of the transcriptome (our body's RNA) and proteome (our body's proteins) and to identify a number of potential therapeutic proteins. But unlike other small biotech companies which gambled everything on the success of a limited number of product candidates, Compugen continued to invest in R&D.

Peptides are fragments of proteins. Compugen determined the cleavage points of the body's proteins and created maps of the human, viral and bacterial peptidomes. Having reached this stage, Compugen was finally ready to create cutting edge, therapeutic discovery platforms and to build an inventory of new therapeutic candidates at a time when the pipelines of Big Pharma were going dry.

Why did Big Pharma's pipelines go dry? In part because they all relied on the same high throughput and ultra-high throughput technologies. They created vast libraries of molecules which they threw at targets and waited to see if anything happened. At first this system yielded results, but over time costs rose while discoveries became few and far between. Of late, Big Pharma has fired large numbers of R&D personnel and has begun to seek new therapeutic and diagnostic candidates outside its own walls.

Compugen's discovery platforms? I do not pretend to understand the genius underlying their mechanics, but I can try to appreciate their beauty. Example:

It is known that proteins fold in various manners. It is also known that when proteins fold in certain ways, they assume a disease associated conformation ("DAC"), and Compugen has learned to predict peptides that prevent proteins from assuming their disease associated conformations. Although the animal testing of the resultant therapeutic candidates is early stage, the results are thus far remarkable: An initial run of the DAC blocker platform resulted in the computerized prediction of therapeutic peptide candidates for some 40 drug targets with potential use for solid cancers, inflammatory diseases, septic shock and viral diseases. Seven of these drug targets were selected for initial experimental validation, and peptide blockers were found for all seven.

Another example:

Some 40% of all drugs work by modulating what are called G-protein coupled receptors ("GPCRs"). Discover a new GPCR peptide ligand and you have an approximately 50% chance of eventually bringing to market a new drug. Unfortunately, GPCR ligands are difficult to find: only two such ligands have been disovered on average each year over the past decade. After studying the structure of known GPCRs, Compugen created a discovery platform for novel GPCRs, using its peptide libraries. In the initial run of this platform, eight new GPCR peptide ligands were discovered. Better still, Compugen recently announced that one of these newly discovered GPCR peptide ligands was able to activate the Relaxin receptor and showed positive therapeutic effects in an animal model of pulmonary fibrosis, an incurable condition: "Following two weeks of administration of the CGEN-25009 peptide to mice induced with lung fibrosis, there was a complete reduction in the fibrosis." It remains to be seen whether this GPCR peptide ligand has applications for liver fibrosis from hepatitis C and alcohol abuse, i.e. cirrhosis of the liver, and for kidney fibrosis from hypertension.

Compugen is tiny: only some 40 employees. How can they succeed where Big Pharma has failed? Because one exceptional scientist is worth more than an entire mediocre R&D army. Because as in Robert Frost's poem, Compugen ventured down the path seldom traveled. Because Compugen attempted the near impossible - computerized modeling of cellular processes on the molecular level - and, after 10 years of intensive, painstaking effort, is succeeding. Were mistakes made along the way? Absolutely, but Compugen channeled everything they learned from their mistakes into improving their algorithms and discovery platforms.

As I already said, the purpose of this post is not to recommend the purchase or sale of Compugen's shares. Rather, watch with me the announcements of this little company over the coming months. This is breakaway science upon which medical progress will be grounded.

Yes, I am a twenty-first century, fossilized anachronism, who takes pride in his company. It's about hope. It's about caring. It's about a better future for my children and my children's children.

[On June 23, Compugen announced that CGEN-25007, a therapeutic candidate discovered by means of the Company's DAC blocker platform, "has shown positive therapeutic effects in an animal model of inflammatory bowel disease (IBD), a commonly used term covering ulcerative colitis and Crohn's disease." According to the announcement: "Professor Markus F. Neurath, from the University of Erlangen, Germany, who supervised the study and is a recognized world expert in this field, stated: 'The results achieved with CGEN-25007 are very impressive. In the past, we have evaluated numerous molecules in this model but never saw such dramatic effects. If these results continue to be confirmed in further studies, this molecule should represent a very exciting drug candidate in this substantial, and largely unmet medical need.'"]

4 comments:

  1. Jeffrey, I very much enjoyed reading your comments. Not just because of my familiarity with the company but because of your investment style. My first shares came from my dad. 10 shares of American Chicle Company, the maker of chiclettes gum. This company was bought out by Warner Lambert which was bought out by Pfizer. In the 1950’s as a stockholder I received a box with a sampling of all their products at Christmas time. It gave me a love for investing. Those ten shares purchased for $400 were at one point worth $50,000.

    I too can pick certain company’s and love them and feel like an owner. Not every investment I make but a chosen few. The last one was a company called M-Systems a small Israeli Company that ended up being purchased by Sandisk. I met the chairman and the CFO in New York and rooted for them all the way from a capitalization of $30 million to one of around a billion dollars. Their too we were dealing with breakthrough technolgy. I made enough money to put my kids, Seth and Jen, through private colleges and give them their down payments on their homes. The money was great but so was watching these people succeed.I assure you I have had my lumps too but once in a while the right things happen.

    Regarding Compugen, it is a very exciting company that may do wonderful things for people. If their science is the cutting edge that we believe it will not only be a lucrative investment but one that we can be very proud of. The first thing I do every day is to see if there is news on this company. I too a wait the coming announcements with excitement. It is wonderful when you see a mangement and staff succeed.

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  2. It is a very interesting text. I worked in computerized drug design and with genetics, everything you are saying makes sense for me. May be, except the size of the company. I never heard about successful biotech companies with 40 employees. If everything is as you say, I can only share your excitement. Israel can be proud of its researchers.

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  3. I have owned a small number of shares for the last 7 years and bought significantly more recently when the stock was below 0.50. My concern is that it may take a number of years for the market valuation of this stock to be realized. This stock was publicly offered at $10 a share. Now that they are startig to accomplish what they set out to do the stock is worth only $30M. The problem is that they are years away from any marketable drugs and I'm not sure that Martin Gertsel, the chairman and successful businessman and drive behind this company will be around long enough to see this happen given he is close to 70. Its hard to value the platfoms themselves or what this stock is really worth to big drug companies.

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  4. Re "value" and "worth", at any given time an investor must perform a risk/reward analysis. This must be undertaken by each individual investor, taking into account corporate developments and his/her own finances. I know what I have decided.

    Martin Gerstel is a visionary businessman, not a scientist. Now we need to see if the cutting edge science that he nurtured has achieved critical mass.

    There has been a revolution of sorts at Big Pharma. For the first time instructions are being given from the highest level to seek new product candidates outside their struggling R&D departments.

    As stated in my post, I look forward to seeing their announcements over the coming months.

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