It isn’t exactly a million-to-one shot, but the odds of a drug becoming approved is still about as likely as the Buffalo Bills winning next year’s Super Bowl. This improbability of success is one reason investors find it particularly vexing to put their money into companies focused strictly on pharmaceutical research. Yet, research-based health care companies continue to attract dollars because of the potentially huge payoffs.
That likely explains why Israel-based biotechnology company Compugen (Nasdaq:CGEN) has a market cap of more than $160 million. The company has no commercial products, lost 22 cents a share last year, and could someday in the not-too-distant future run out of money. What it does have is an interesting pipeline of preclinical candidates and some big-name health care partners that think Compugen can deliver the goods.
The typical investor probably needs an interpreter with a Ph.D. in biology to understand Compugen’s approach to finding new drug candidates. But in simple terms, Compugen uses highly sophisticated computer technology to find drug candidates and follows this up with experiments inside and outside a living thing. The contrasts with traditional high throughput trial- and-error experimental-based discovery
Compugen hopes to make its money by providing drug candidates that pass muster to pharmaceutical, biotechnology and diagnostics companies under revenue-sharing arrangements and by hitting certain milestones. Its list of partners is impressive: Merck (NYSE:MRK), Pfizer (NYSE:PFE), as well as Bayer Schering Pharma, the Medarex unit of Bristol-Myers Squibb (NYSE:BMY) and Seattle Genetics (Nasdaq:SGEN).
One of the proteins in the Compugen pipeline has shown outstanding potential for treating autoimmune disorders such as rheumatoid arthritis, lupus , multiple sclerosis, inflammatory bowel disease, Type 1 diabetes, thyroiditis, Crohn’s disease, and others. Autoimmune diseases affect an estimated 25 million people in the U.S.
In March, Compugen said it saw positive animal model results for another of its novel peptides that is known to play a key role in various immune-related disease conditions. It is the first of the company’s peptides to complete animal model testing.
Among the company’s areas of emphasis is monoclonal antibodies. Compugen said it recently began to experimentally validate drug target candidates that are novel membrane proteins. The company thinks they may serve as targets for antibody therapeutics and may play a role in the treatment of various cancer and autoimmune diseases.
In the past, the company has turned over promising molecules to its partners early in the testing stage. It now intends to do additional analysis of its pipeline products, meaning fewer of them will be ready for early-stage licensing. This could crimp the company’s cash flow short term but mean higher revenue if the candidates pan out.
At the end of 2010, Compugen had total cash and cash equivalents, short-term bank deposits, and receivables from a funding arrangement of approximately $26.8 million. In January 2010, the company’s shares fell after it issued a shelf prospectus saying it may, over time, offer shares, warrants and units worth as much as $40 million.
Currently trading at a few pennies below $5, Compugen shares have been flat for the past year. The question remains: Will the company be one of the biotechs that rewards faithful investors, or will it just fade into oblivion?
