Compugen: If You Build It, They Will Come

Definition of INELUCTABLE
: not to be avoided, changed, or resisted : INEVITABLE

- Merriam-Webster (http://www.merriam-webster.com/dictionary/ineluctable)

As anyone who regularly reads this blog knows, over the past few years I have been providing progress reports concerning the science of a small Israeli biotech company named Compugen (see: http://jgcaesarea.blogspot.co.il/search/label/Compugen). I am privileged to work as an outside consultant to Compugen, which is revolutionizing the manner in which new drugs and diagnostics are discovered, and which has spent the past decade building an infrastructure of proprietary scientific understandings, predictive platforms, algorithms, and machine learning systems for the in silico (by computer) prediction and selection of product candidates.

On Monday, Compugen announced that it had signed a significant licensing deal with Bayer HealthCare involving two immune checkpoint regulators discovered by Compugen.

Immune checkpoint regulators? Cancer immunotherapy? As explained by Compugen in their press release describing the deal (http://cgen.com/press-releases/212-compugen-announces-collaboration-and-license-agreement-with-bayer-for-antibody-based-cancer-immunotherapies):

"The immunotherapy approach aims at combatting cancer by stimulating the body´s own immune cells. The tumor and its environment suppress the ability of cancer patients to develop an effective anti-tumor immune response and in this way protect both tumor growth and survival.

. . . .

Latest cancer immunotherapies have demonstrated impressive clinical benefit, even for end-stage patients with difficult-to-treat tumors such as metastatic melanoma and non-small cell lung cancer. Unlike conventional cancer therapies, which act by directly targeting the cancer cells, resulting often in only transient clinical responses as cancer cells become resistant, clinical responses to cancer immunotherapy tend to be durable, sometimes resulting in dramatic long term survival and absence of resistance or recurrences."

Exciting science? You bet! But long before the deal, I was often asked:

• Why don't more institutions own shares of the company?

• Why is there little coverage by financial institutions of the company?

• Why has someone been shorting the shares?

My answer to all three questions: I don't care. You see, I believe in the ultimate efficiency of a free market, but at any given time, the stock market is an ass. Today, when you buy or sell shares in the stock market, more likely than not your counterparty is a computer program, whose algorithms don't give a damn about curing disease and alleviating human suffering. But more important, I explained to those asking these questions that Compugen's science is ineluctable.

Some three weeks ago, Compugen issued a press release informing the financial community about progress involving its novel peptide agonist of the relaxin receptor for possible treatment of idiopathic pulmonary fibrosis (http://cgen.com/press-releases/209-compugen-announces-us-patent-allowance-for-drug-candidate-recently-presented-at-2013-american-thoracic-society-meeting):

"Dr. Kass, Assistant Professor of Medicine at Pitt and Assistant Director for Novel Therapeutics and Translational Research at The Dorothy P. and Richard P. Simmons Center for Interstitial Lung Disease at the University of Pittsburgh Medical Center, presented experimental data demonstrating that CGEN-25009 protects mice from bleomycin-induced pulmonary fibrosis.

. . . .

As previously announced by Compugen, the Pulmonary Fibrosis Foundation provided a grant to scientists at Pitt to independently evaluate the therapeutic potential of CGEN-25009 for the treatment of idiopathic pulmonary fibrosis (IPF), a life-threatening disease affecting an estimated more than five million people worldwide."

Anyone suffering from IPF should have been much encouraged by this news, given that fifty percent of IPF patients die within three years of diagnosis.

But whereas Compugen's share price rose some 45% after the announcement of the deal involving the immune checkpoint regulators, the stock market yawned when Compugen made its IPF announcement. Sure, the deal with Bayer HealthCare involved a healthy upfront, milestones and royalties, and the IPF announcement didn't mention any cash at all. But anyone reading the IPF announcement should have understood that Compugen's predictive biology is broadly applicable and that Compugen's predictive biology is uniquely capable of providing therapeutic candidates for unmet medical needs.

Yesterday, Compugen held its second quarter conference call, and the company was asked if the company expected another major commercial deal within 12-18 months. The answer was an unqualified "yes."

I agree.

I don't know when future deals will come, with whom they will be done, or which product candidates or capabilities they will entail, given that I know nothing about the company's commercial negotiations. I only know that the deals will come. One more time: Compugen's predictive science is ineluctable.

Yes, in a world gone rotten, good things still happen.

The effect of future deals on Compugen's share price? As I already said, the stock market is an ass, I don't give stock market advice, and I'll leave it to you to figure that one out.

For me, the science is what matters.

[As noted in prior blog entries, I am a Compugen shareholder, this blog entry is not a recommendation to buy or sell Compugen shares, and in September 2009 I began work as a part-time external consultant to Compugen. The opinions expressed herein are mine and are based on publicly available information. This blog entry has not been authorized, approved or reviewed prior to posting by Compugen.]