UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

 

☐	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018

 

OR

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

☐	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

DATE OF EVENT REQUIRING THIS SHELL COMPANY REPORT __________

 

Commission file number: 000-30902

____________________________________________________

 

Compugen Ltd.

(Exact name of registrant as specified in its charter and translation of registrant's name into English)

 

___________________________________________________________________

 

Israel

(Jurisdiction of incorporation or organization)

 

Azrieli Center, 26 Harokmim Street, Building D, Holon 5885849 Israel

(Address of principal executive offices)

________________________________________________

 

Ari Krashin, Chief Financial Officer

Phone: +972-3-765-8585, Fax: +972-3-765-8555

Azrieli Center, 26 Harokmim Street, Building D, Holon 5885849 Israel

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

________________________________________________

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

 (Title of Class)

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

☐ Yes          ☒ No

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

☐ Yes          ☒ No

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

 

☒ Yes          ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

☒ Yes          ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “accelerated filer” “large accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

Emerging growth company ☐

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act ☐

 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

 

Other ☐

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

 

Item 17 ☐       Item 18 ☐

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

☐ Yes          ☒ No

 

 

 

 

CAUTIONARY STATEMENT REGARDING

 

FORWARD-LOOKING STATEMENTS

 

This annual report on Form 20-F includes “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. These statements include words such as “will,” “may,” “assume,” “expect,” “anticipate,” “could,” “project,” “estimate,” “possible,” “potential,” “believe,” “suggest,” and “intend,”, and describe opinions about future events. We have based these forward-looking statements on information available to us as of the date hereof, and on our current assumptions, intentions, beliefs, expectations and projections about future events. We assume no obligation to update any such forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties that may cause the actual results, performance or achievements of Compugen to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that could cause our actual results to differ materially from those projected in the forward-looking statements include, without limitation, the risk factors set forth under “Item 3. Key Information -D. Risk Factors,” the information about us set forth under “Item 4. Information on the Company” and information related to our financial condition under “Item 5. Operating and Financial Review and Prospects.”

 

‑‑‑‑‑‑‑‑‑‑‑‑

 

All references in this annual report on Form 20-F to “Compugen,” the “Company,” “we,” “us,” “our,” or similar references refer to Compugen Ltd. and our wholly owned subsidiary Compugen USA, Inc., except where the context otherwise requires or as otherwise indicated.

 

‑‑‑‑‑‑‑‑‑‑‑‑

 

We have prepared our consolidated financial statements in United States dollars and in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. All references herein to “dollars” or “$” are to United States dollars, and all references to “Shekels” or “NIS” are to New Israeli Shekels.

 

‑‑‑‑‑‑‑‑‑‑‑‑

 

 

PART I.

 

ITEM 1.          IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable.

 

ITEM 2.          OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable.

 

ITEM 3.          KEY INFORMATION

 

A. SELECTED CONSOLIDATED FINANCIAL DATA

 

The following selected consolidated financial data are derived from our audited consolidated financial statements which have been prepared in accordance with U.S. GAAP. The selected consolidated financial data as of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016 have been derived from our audited consolidated financial statements and notes thereto included elsewhere in this annual report. The selected consolidated financial data as of December 31, 2016, 2015 and 2014 and for the years ended December 31, 2015 and 2014 have been derived from audited consolidated financial statements not included in this annual report. The selected consolidated financial data set forth below should be read in conjunction with and are qualified by reference to “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements and notes thereto included elsewhere in this annual report.

 

Selected Financial Data

 

 

⁽¹⁾          Includes stock based compensation – see Note 7 to our 2018 consolidated financial statements.

 

 

 

For additional financial information, please see “Item 5. Operating and Financial Review and Prospects – A. Operating Results,”

 

 

B. CAPITALIZATION AND INDEBTEDNESS

 

Not applicable.

 

C. REASONS FOR THE OFFER AND USE OF PROCEEDS

 

Not applicable.

 

D. RISK FACTORS

 

An investment in our ordinary shares involves a high degree of risk and many factors could affect our financial condition, cash flows and results of operations. You should carefully consider the following risk factors, as well as the other information in this Annual Report. If we do not successfully, or cannot, address the risks to which we are subject, we could experience a material adverse effect on our business, results of operations and financial condition, which could include the need to limit or even discontinue our business operations, and accordingly our share price may decline and you could lose all or part of your investment. We can give no assurance that we will successfully address any of these risks. The principal risks we face are described below.

 

Risks Related to our Business, Financial Results and Financing Needs

 

Our corporate restructuring may not be successful.

 

On February 26, 2019, we announced a corporate restructuring to reduce costs by consolidating and streamlining R&D operations (the “2019 Restructuring”). Anticipated cost reductions are expected to extend our cash runway through mid-2020 to enable the planned expansion of the ongoing Phase 1 study for COM701. In addition, we will maintain investment in our proprietary computational discovery platform and will continue to advance our earlier stage immuno-oncology pipeline programs, which are our two long-term core value drivers.

 

The 2019 Restructuring includes reducing our workforce by 35%, consolidating R&D activities in one location in Israel and outsourcing certain preclinical activities to third-party service providers. Clinical development and business development activities will continue to operate in the United States.  We anticipate savings of up to $10 million on an annual basis.  However, our restructuring activities may also result in unexpected risks or costs, such as:

 

·

loss of knowledge in the translational science to develop product candidates;

 

·

loss of internal capabilities in therapeutic antibody development;

 

·

inability to efficiently transfer and consolidate R&D activities to Israel;

 

·

inability to effectively manage our internal R&D efforts;

 

·

finding appropriate external expertise for intended outsourced preclinical activities at a reasonable cost and in necessary timing to competitively advance our pipeline programs;

 

·

inability to maintain and motivate our remaining employees and identify, recruit, and integrate additional employees; and

 

·

employee claims and contractual disputes.

 

 

We cannot provide assurance that our business model will succeed in generating substantial revenues.

 

 

We have a history of losses, we expect to incur future losses and we may never achieve or sustain profitability.

 

As of December 31, 2018, we had an accumulated deficit of approximately $330.8 million and had incurred net losses of approximately $31.5 million in 2016, approximately $37.1 million in 2017 and approximately $22.6 million in 2018, in large part due to the expenditures associated with our ongoing research and development and limited revenues received to date. In addition, we expect to continue to incur net losses in the future due to our anticipated costs and expenses, primarily associated with our preclinical and clinical pipeline activities. Since we began focusing on our discovery capabilities in 2010, we have entered into three commercial arrangements with respect to our pipeline programs under which we have received to date a total amount of $55.2 million, including a $12 million investment. We cannot be certain that we will receive additional revenues under our existing collaborations or enter into additional arrangements for our pipeline programs or our computational discovery capabilities, or that such additional arrangements will provide sufficient revenues to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability.

 

We may need to raise additional funds in the future, and if we are unable to raise such additional funds, we may need to limit or curtail or cease operations. To the extent any such funding is based on the sale of equity, our existing shareholders would experience dilution of their shareholdings.

 

We believe that our existing cash and cash equivalents and short-term bank deposits will be sufficient to fund our current level of operations through mid-2020, without considering the possible receipt of any additional funds, such as proceeds from existing or additional licensing and/or collaborative agreements, or from financings. However, we cannot predict with any degree of certainty when, or even if, we will achieve profitability, and therefore may need additional funds to continue financing our discovery, validation, development, clinical and commercialization activities. In 2018, we received net proceeds of approximately $20 million through a registered direct public offering (which also included the issuance of warrants to the purchasers), as well as $12 million pursuant to an investment from a strategic partner. We may seek additional capital due to favorable market conditions and strategic considerations even if we believe we have sufficient funds for our current and future operating plans.

 

Additional funds, including proceeds from license or collaborative agreements, or from other financings, may not be available to us on acceptable terms, or at all. In addition, the terms of any financing may adversely affect the holdings or the rights of our existing shareholders. For example, if we raise additional funds by issuing equity securities, our existing shareholders would experience dilution of their shareholdings. Debt financing, if available, may involve restrictive covenants that could limit our flexibility in conducting future business activities. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail one or more of our research or development programs. We also could be required to seek funds through arrangements with collaborators or other investors that may require us to enter into arrangements on terms that would otherwise not be acceptable to us.

 

 

We have a limited operating history with respect to the commercialization aspects of our business model upon which investors can base an investment decision or upon which to predict future revenues.

 

Our ability to generate revenues from collaborations for our current novel drug targets and related therapeutic product candidates at various stages of research and development has been limited to date. Since we began focusing on our discovery capabilities in 2010, we have entered into three commercial arrangements with respect to our pipeline programs under which we have received to date a total amount of $55.2 million, of which $12 million was an investment. We recognized revenue of $17.8 million in 2018, no revenue in 2017 and $0.7 million in revenue in 2016.

 

We cannot be certain that our focus on discovery, research and development efforts in the field of immuno-oncology, along with our decision to advance select programs to later drug development stages partially or fully at our own expense, will generate a stable or significant revenue stream. Moreover, we have very limited experience with respect to the financial arrangements and terms that may be available for our candidates at their various R&D stages.  Also, and financial terms for agreements by other companies, to the degree disclosed, vary greatly. The inability to derive adequate revenues within our field of focus would materially harm our business, financial condition and results of operations and could result in the need to limit or even discontinue our business operations. Moreover, our operating history with respect to the commercialization aspects of our business model provides a limited basis to assess our ability to generate significant fees, research revenues, milestone payments, royalties or other revenue sharing payments from the licensing, development and anticipated future commercialization of pipeline programs based on our existing and future novel drug targets and related therapeutic product candidates.

 

Risks Related to our Discovery and Development Activities

 

Our computational target discovery activities are primarily focused on the discovery of new drug target candidates and our therapeutic pipeline is based on Compugen discovered targets.

 

While we believe that our drug target programs represent a compelling and unique opportunity to generate first-in-class therapeutic products, they require significant investment in the research and validation of the drug target candidate and in the discovery and development of the respective therapeutic product candidate. The computational discovery of new drug target candidates is a source for the development of potential first-in-class drug candidates, but the inherent lack of sufficient published scientific data to support the potential of these new drug targets candidates to serve as therapeutic opportunities, increases the risk of failure. Although we have built the target validation and drug discovery infrastructure and capabilities required to scientifically validate our new drug targets and to later translate them into therapeutic antibody development programs, we cannot be assured that our investment in such programs will result in validated drug targets that will enable the development of cancer immunotherapies, nor that we will realize success in product development or our ability to commercialize such opportunities and generate revenues.

 

 

Our approach to the discovery of therapeutic products is based on our proprietary computational target discovery infrastructure is unproven clinically, and we do not know whether we will be able to discover and develop additional potential product candidates or products of commercial value.

 

Our method of identifying novel drug targets is based on our computational discovery platform and involves first identifying unmet needs in the field of cancer immunotherapy, where we believe our predictive capabilities would be relevant, or could be modified to be relevant. We focus on the discovery of drug targets that could serve as the basis for the development of possible treatments for patients non-responsive or refractory to existing cancer immunotherapies. In this field, we apply our computational target discovery capabilities, or develop new capabilities, to identify novel drug targets for addressing such unmet patient need.

 

While we believe that applying our computational target discovery capabilities to identify new drug targets may potentially enable the development of first-in-class therapeutics, our capabilities are still unproven clinically and our efforts may not result in the discovery and development of commercially viable therapeutic products. Although our approach has resulted in the discovery of several novel drug targets and their related first-in-class therapeutic product candidates, they are in early stages of research and development, with two having entered the clinic in 2018. Our approach may not result in time savings, higher success rates or reduced costs, and if not, we may not attract collaborators or develop new drugs as quickly or cost effectively or at all and therefore we may not be able to commercialize our approach as expected.

 

We are focusing our discovery and therapeutic development activities on mAb therapeutics for uses in immuno-oncology. If our current candidates fail, and we fail to continue to discover and develop therapeutic mAb candidates of industry interest in this field our business will likely be materially harmed.

 

The focus of our therapeutic development activities is on monoclonal antibodies, or mAb, therapeutics in the field of immuno-oncology. As a result, we are not undertaking internal discovery and development in other life science areas or for other drug modalities, and presently we only intend to pursue such opportunities, in collaboration with third parties. With respect to immune checkpoints, although there have been positive clinical results reported by others with respect to a number of products resulting in some products gaining approval by the U.S. Food and Drug Administration, or FDA, based on this positive data, there can be no assurance that our therapeutic product candidates or our earlier stage immuno-oncology target candidates in our pipeline, will provide similar clinical advantages or interest, that no long term adverse effects will be seen, or that other classes of targets or other products will not be discovered and developed with comparable or superior attributes. In the event of any of these occurrences, the actual and/or perceived value of a substantial portion of our pipeline would likely be reduced in which case our business may be materially harmed. To date, we have signed three commercial agreements involving our drug targets and/or product candidates. There is no assurance that we will be able to enter into additional collaborations or agreements on reasonable terms, if at all. In addition, if we fail to continue to discover and validate drug targets or develop product candidates of industry interest in our field of focus, our business will likely be materially harmed. There are many risks associated with this decision focus on immuno-oncology that include, among others:

 

•

not utilizing the full scope of our target discovery capabilities;

 

•

choosing a therapeutic area with a very high degree of competition;

 

•

choosing a therapeutic area of great biological complexity and with very high failure rates in product development;

 

•

not choosing the right drug targets or therapeutic area;

 

•

having insufficient knowledge, personnel or capabilities in our chosen therapeutic area to select the right unmet medical needs, or novel drug target, or to timely, properly and efficiently validate the targets and/or select the appropriate mAb for further development as therapeutic product candidates, or to timely, properly or efficiently further them in development; and

 

•

the inherent risk of high program failure rate throughout therapeutic development.

 

In each case, our failure could be due to lack of experience, delays in our internal research programs or applying the wrong criteria or experimental systems and procedures, or unanticipated scientific, safety or efficacy issues with our selected drug targets or product candidates, with the possible result that none of our product candidates result in licensed or marketable products. If any of these risks should materialize, our business, financial condition and results of operations would be materially harmed.

 

Our computational novel target discovery platform typically results in a significant number of potential discoveries of interest with each discovery process. If we or our partners fail to select the right drug target to validate and/or progress in the therapeutic development, due to either lack of experience or applying the wrong criteria throughout the development process, the selected drug target may never result in approvable or marketable therapeutic products and our business, financial condition and results of operations will be materially harmed.

 

Our computational target discovery approach to identify novel drug targets typically results in a significant number of potential discoveries of interest with each discovery process. Following each discovery process, we assess which of such potential discoveries to move forward into target validation based on various available scientific and business criteria, which may or may not be correct or sufficient, and this assessment continues on an on-going basis. In addition, since our research and development resources are limited we are able to progress with only a fraction of our discoveries in parallel. If at any stage in such assessment, we or our partners fail to select the right drug targets to validate and/or progress in development, due to either lack of experience or applying the wrong criteria throughout the development process, the selected drug targets may never result in licensable or marketable products, and our business, financial condition and results of operations may be materially harmed.

 

Our focus on developing our pipeline has resulted in a substantial increase in activities, certain of which we will undertake for the first time and may result in therapeutic product candidate failures, or fewer therapeutic product candidates being available for partnering or commercialization.

 

Until recently, our target validation studies resulted with the functional analysis of the drug target candidate and their respective expression profile. Upon completion of such activities, or earlier, we initiated our efforts to enter into collaborations for such drug target candidates which we found to be at an earlier stage than customary for licensing in the pharmaceutical industry. As a result, we currently advance our programs beyond their initial target validation stage, including advancing our therapeutic pipeline into preclinical and clinical activities, with two therapeutic product candidates against Compugen-discovered novel targets having begun Phase 1 clinical trials in 2018. This decision to move forward certain of our programs beyond the initial target validation stage requires us to undertake certain activities for the first time.  Any failure to successfully undertake these new activities may result in therapeutic product candidate delays or failures either due to our lack of expertise, unsupportive findings, or lack of an appropriate technology, or the inherent risk of failure with respect to such activities and our ability to develop therapeutic drug candidates. Furthermore, due to our limited resources, we must choose which drug targets to advance further into extensive target validation studies, followed by preclinical and clinical therapeutic product development. This could result in fewer drug target candidates being available for partnering or commercialization at advanced stages or at all, due to our available resources being insufficient to further advance all programs. If any of these risks materialize, our business, financial condition and results of operations may be materially harmed.

 

We have limited experience in the development of therapeutic product candidates.

 

 

 

There are risks that are inherent in the development and commercialization of therapeutic products, and if any of these risks materialize, our business and financial results may be materially harmed.

 

We and our collaborators face a number of risks of failure that are inherent in the process of developing and commercializing novel therapeutic products. These risks, which typically result in very high failure rates even for successful biopharmaceutical companies, include, among others, the possibility that:

 

•

our new target candidates will prove to be inappropriate targets for mAb therapeutics;

 

•

our new target candidates will prove to be inappropriate targets for immunotherapy;

 

•

we will not succeed in choosing the appropriate mAb for these targets

 

•

our therapeutic product candidates will fail to progress to preclinical studies or clinical trials;

 

•

our early stage development efforts may provoke competition by potential partners;

 

•

our products covered by our collaborations may face internal competition from our partners’ internal pipeline;

 

•

our therapeutic product candidates will be found to be therapeutically ineffective;

 

•

our therapeutic product candidates will be found to be toxic or to have other unacceptable side effects;

 

•

our therapeutic product candidates will be inferior, or not show added value, compared to competing products;

 

•

we or our collaborators will fail to receive required regulatory approvals;

 

•

we or our collaborators will not be able to generate differentiation for our therapeutic product candidates;

 

•

we or our collaborators will fail to manufacture our therapeutic product candidates in the quantity or quality needed for preclinical studies or clinical trials on a large scale and in a cost-effective manner;

 

•

the commercialization of our therapeutic product candidates or our drug targets may infringe third-party intellectual property rights;

 

•

the development, marketing or sale of our therapeutic product candidates will fail because of our inability or failure to protect or maintain our own intellectual property rights;

 

•

once a product is commercially available, there will be little or no demand for it for a number of possible reasons, including lack of acceptance by the medical community or by patients, lack of or insufficient coverage and payment by third-party payors, inefficient or insufficient marketing and sales activities or as a result of there being more attractive, less risky or less expensive, products available for the same use; and

 

•

the product will be withdrawn from the market, or sales limited due to side effects observed in clinical practice.

 

If one or more of these risks or any similar risks should materialize, our business and financial results may be materially harmed.

 

Risks Related to Development, Manufacturing, Clinical Trials and Government Regulation

 

In the near term, we are dependent on the success of COM701. If we are unable to advance COM701 through clinical development or obtain marketing approval for or successfully commercialize COM701, either alone or with a collaborator, or if we experience significant delays in doing so, our business could be substantially harmed.

 

We currently have no products approved for sale and are investing a significant portion of our efforts and financial resources in the clinical development of COM701. Our prospects are substantially dependent on our ability, or that of any future collaborator, to develop, obtain marketing approval for and successfully commercialize COM701.

 

We are early in our development efforts, with only our lead program, COM701, in clinical development and our other product candidate, COM902, and other future product candidates in preclinical or earlier stages of development. We have invested substantially all of our efforts and financial resources in the identification of targets and early stage, preclinical and clinical development of therapeutic mAbs, including the development of our lead pipeline program, COM701. COM701 is currently in clinical development in Phase 1 clinical trial.

 

The success of COM701will depend on several factors, including the following:

 

•

timely initiation, enrollment and completion of clinical trials;

 

•

a safety, tolerability and efficacy profile, alone or in combination with other approved or investigational products, that is satisfactory to the U.S. Food and Drug Administration, or FDA;

 

•

timely receipt of marketing approvals from applicable regulatory authorities;

 

•

the performance of our future collaborators, if any;

 

•

the extent of any required post-marketing approval commitments to applicable regulatory authorities;

 

•

establishment of supply arrangements with third-party suppliers of raw materials and drug substance and drug product manufacturers;

 

•

establishment of arrangements with third-party manufacturers to obtain finished drug product that is appropriately packaged for sale;

 

•

adequate ongoing availability of raw materials and drug product for clinical development and any commercial sales;

 

•

protection of our rights in our intellectual property portfolio;

 

•

successful launch of commercial sales following any marketing approval;

 

•

a continued acceptable safety profile following any marketing approval;

 

•

commercial acceptance by patients, the medical community and third-party payors; and

 

•

successful identification of biomarkers for patient selection.

 

Many of these factors are beyond our control, including clinical development, the regulatory submission process, potential threats to our intellectual property rights and the manufacturing, marketing and sales efforts of any future collaborator. If we are unable to develop, receive marketing approval for and successfully commercialize COM701, on our own or with any future collaborator, or experience delays as a result of any of these factors or otherwise, our business could be substantially harmed.

 

If clinical trials of any product candidates that we, or any future collaborators, may develop fail to satisfactorily demonstrate safety and efficacy to the FDA, we, or any future collaborators, may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of these product candidates and may substantially harm our business and financial results.

 

We, and any future collaborators, are not permitted to commercialize, market, promote or sell any therapeutic product candidate in the United States without obtaining marketing approval from the FDA. We, and any future collaborators, must complete extensive preclinical development and clinical trials to demonstrate the safety and efficacy of our therapeutic product candidates in humans before we will be able to obtain these approvals.

 

Clinical testing is expensive, is difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. The clinical development of our therapeutic product candidates is susceptible to the risk of failure inherent at any stage of product development, including failure to demonstrate efficacy in a clinical trial or across a broad population of patients, the occurrence of adverse events that are severe or medically or commercially unacceptable, failure to comply with protocols or applicable regulatory requirements and determination by the FDA that a therapeutic product candidate may not continue development or is not approvable.  The outcome of preclinical studies and early clinical trials may not predict the success of later clinical trials and interim results of a clinical trial do not necessarily predict final results. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety profiles, notwithstanding promising results in earlier trials. Despite the safety results reported from our preclinical studies for COM701, we do not know whether the clinical trials we or potential partners may conduct will demonstrate adequate efficacy and safety to result in the advancement of our clinical trials or regulatory approval to market of COM701, or any other of our product candidates when they reach the clinic, in any particular jurisdiction or jurisdictions. It is also possible that, even if one or more of our therapeutic product candidates has a beneficial effect, that effect will not be detected during clinical evaluation as a result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or analysis of our clinical trials.

 

Any inability to successfully complete preclinical and clinical development could result in additional costs to us, or any future collaborators, and impair our ability to generate revenues from product sales, regulatory and commercialization milestones and royalties. Moreover, if we, or any future collaborators, are required to conduct additional clinical trials or other testing of our product candidates beyond the trials and testing that we or they contemplate, if we, or they, are unable to successfully complete clinical trials of our product candidates or other testing, or the results of these trials or tests are unfavorable, uncertain or are only modestly favorable, or there are unacceptable safety concerns associated with our product candidates, we, or any future collaborators, may:

 

•

incur additional unplanned costs;

 

•

be delayed in obtaining marketing approval for our product candidates;

 

•

not obtain marketing approval at all;

 

•

obtain approval for indications or patient populations that are not as broad as intended or desired;

 

•

obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings;

 

•

be subject to additional post-marketing testing or other requirements; or

 

•

be required to remove the product from the market after obtaining marketing approval.

 

Our failure to successfully initiate and complete clinical trials of our product candidates and to demonstrate the efficacy and safety necessary to obtain regulatory approval to market any of our product candidates would significantly harm our business.

 

We depend on enrollment of patients in our clinical trials in order for us to continue development of our product candidates. If we are unable to enroll patients in our clinical trials, our research and development orts could be adversely affected.

 

 

We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. Patient enrollment is affected by many factors including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, the size of the patient population required for analysis of the trial's primary endpoints, the proximity of patients to study sites, our ability to recruit clinical trial investigators with the appropriate competencies and experience, our ability to obtain and maintain patient consents, the risk that patients enrolled in clinical trials will drop out of the trials before completion, and competing clinical trials and clinicians' and patients' perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating.

 

Many pharmaceutical companies are conducting clinical trials in patients with the disease indications that COM701 and our future potential drug products may target. Additionally, other pharmaceutical companies may clinically investigate their own products against PVRIG, the target of COM701.  As a result, we must compete with them for clinical sites, physicians and the limited number of patients who fulfill the stringent requirements for participation in clinical trials. Also, due to the confidential nature of clinical trials, we do not know how many of the eligible patients may be enrolled in competing studies and who are consequently not available to us for our clinical trials. Our clinical trials may be delayed or terminated due to the inability to enroll enough patients. The delay or inability to meet planned patient enrollment may result in increased costs and delay or termination of our trials, which could have a harmful effect on our ability to develop products.

 

Clinical development involves a lengthy and expensive process, with an uncertain outcome. We may encounter substantial delays or even an inability to begin clinical trials for any specific product, or may not be able to conduct or complete our trials on the timelines we expect.

 

Obtaining marketing approval from regulatory authorities for the sale of any therapeutic product requires substantial preclinical development and then extensive human clinical trials to demonstrate the safety and efficacy of such product candidates.  It is impossible to predict when or if any of our programs or those of our collaborators based on our target discoveries will yield products that will be approved for human testing, or, if such testing is proven sufficiently safe and effective to receive regulatory approval for marketing. Preclinical and clinical testing is expensive, time consuming, and subject to uncertainty and will require significant additional financial and management resources. As a company, we have limited experience in conducting clinical trials and have never progressed a product candidate through to regulatory approval. In part because of this lack of experience, our clinical trials may require more time and incur greater costs than we anticipate. We cannot guarantee that any of our therapeutic drug candidates from our pipeline will be advanced into clinical trials or that our clinical trials will be conducted as planned or completed on schedule, if at all. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for such products.

 

We submitted to the FDA an Investigational New Drug application, or IND, for COM701, which was cleared by the FDA in June 2018. However, there can be no assurance that we will submit additional INDs, nor if submitted, the actual timing for such submission, nor that such submissions will be accepted by the FDA allowing clinical trials to begin. There can be no assurance that clinical trials will begin at any predicted date or will be completed on schedule, if at all. Moreover, even if these clinical trials begin, issues may arise that could result in the suspension of or termination of such clinical trials. A failure of one or more clinical trials can occur at any stage of testing. Events that may prevent successful or timely completion of clinical development include:

 

		Year ended December 31,
		2016				2017				2018
		(US$ in thousands, except share and per share data)
Consolidated Statements of Operations Data
Revenues		$	712			$	-			$	17,800
Cost of revenues			223				-				1,034
Gross profit			489				-				16,766
Research and development expenses, net			24,549				28,583				30,318
Marketing and business development expenses			1,174				1,189				1,634
General and administrative expenses			7,349				7,633				8,041
Total operating expenses (*)			33,072				37,405				39,993
Operating loss			(32,583	)			(37,405	)			(23,227	)
Financial and other income, net			1,097				339				628
Loss before taxes on income			(31,486	)			(37,066	)			(22,599	)
Taxes on income			(20	)			-				-
Net loss		$	(31,506	)		$	(37,066	)		$	(22,599	)
Realized gain arising during the period from marketable securities			(440	)			-				-
Unrealized gain arising during the period from foreign currency derivative contracts			7				17				-
Realized loss (gain) arising during the period from foreign currency derivative contracts			19				(7	)			(17	)
Total comprehensive loss		$	(31,920	)		$	(37,056	)		$	(22,616	)
Basic net loss per share			(0.62	)			(0.72	)			(0.41	)
Weighted average number of shares used in computing basic net loss per share			50,855,908				51,179,694				55,277,428
Diluted net loss per share			(0.62	)			(0.72	)			(0.41	)
Weighted average number of shares used in computing diluted net loss per share			50,855,908				51,179,694				55,277,428

		As of December 31,
		2016				2017				2018
		(US$ in thousands)
Consolidated Balance Sheet Data
Cash and cash equivalents, short-term bank deposits and restricted cash		$	61,527			$	30,438			$	45,675
Total assets			71,139				38,746				53,180
Accumulated deficit			(270,965	)			(308,242	)			(330,841	)
Total shareholders' equity			63,519				29,297				37,243

		Payments due by period (US$ in thousands)
		Total				Less than 1 year				1-3 years				3-5 years				More than 5 years
Operating Lease Obligations(1)		$	6,358			$	1,489			$	2,312			$	1,215			$	1,342
Accrued Severance Pay, net(2)			491				-				-				-				491
Total		$	6,849			$	1,489			$	2,312			$	1,215			$	1,833

Name		Age		Positions
Paul Sekhri (3)		60		Chairman of the Board of Directors (Chairman of the Nomination and Corporate Governance Committee)
Anat Cohen-Dayag, Ph.D.		52		President and Chief Executive Officer, Director
Prof. Yair Aharonowitz(2)		78		Director
Jean-Pierre Bizzari, M.D.		64		Director
Gilead Halevy(2)		52		Director
Kinneret Livnat Savitzky, Ph.D. (1)(3)		51		Director
Arie Ovadia, Ph.D. (1)(2)		69		Director (Chairman of the Audit Committee)
Sanford (Sandy) Zweifach(1)(2)(3)		63		Director (Chairman of the Compensation Committee)
Ari Krashin		46		Chief Financial and Operating Officer
Kirk Christoffersen		51		Senior Vice President – Corporate and Business Development
Henry Adewoye, MD		54		Chief Medical Officer
John Hunter, Ph.D.		56		Chief Scientific Officer
Zurit Levine, Ph.D.		51		Senior Vice President, Technology Innovation
Riki Schwartz, Ph.D.		49		Vice President Research and Discovery

Information Regarding the Covered Office Holders		Compensation for Services(2)
Name and Principal Position(1)		Base Salary($)				Benefits and Perquisites ($)(3)				Stock-Based Compensation($)(4)				Total($)
Dr. Anat Cohen-Dayag President & CEO			391,330				281,059				181,614				854,003
Kirk Christoffersen Senior VP – Corporate and Business Development			300,000				249,343				90,044				639,387
John Hunter Chief Scientific Officer			300,000				196,031				106,761				602,792
Ari Krashin Chief Financial and Operating Officer			232,235				129,226				214,275				575,736
Henry Adewoye Chief Medical Officer			269,129				241,739				48,038				558,906

		December 31, 2018				December 31, 2017				December 31, 2016
Research & Development			66				78				74
Administration, Accounting and Operations			21				20				21
Marketing and Business Development			2				3				3
Total			89				101				98

Beneficial Owner		Amount Owned				Percent of Class
Anat Cohen-Dayag (1)			1,098,622				1.80	%
All directors and executive officers as a group (14 persons) (2)			2,542,753				4.08	%

Beneficial Owner		Number of Ordinary Shares Beneficially Owned				Percent of Ordinary Shares Beneficially Owned(1)
ARK Investment Management LLC(2)			7,105,958				11.86	%

Year Ended		High				Low
December 31, 2014		$	14.32			$	6.27
December 31, 2015		$	9.65			$	4.64
December 31, 2016		$	7.57			$	4.32
December 31, 2017		$	5.40			$	2.25
December 31, 2018		$	5.00			$	2.00
Quarter Ended
March 31, 2017		$	5.40			$	4.20
June 30, 2017		$	5.40			$	3.50
September 30, 2017		$	4.25			$	2.60
December 31, 2017		$	4.15			$	2.25
March 31, 2018		$	4.73			$	2.43
June 30, 2018		$	5.00			$	3.10
September 30, 2018		$	4.10			$	3.00
December 31, 2018		$	4.00			$	2.00
Month Ended
September 30, 2018		$	4.10			$	3.65
October 31, 2018		$	4.00			$	2.76
November 30, 2018		$	3.59			$	2.90
December 31, 2018		$	3.59			$	2.00
January 31, 2019		$	3.68			$	2.17
February 28, 2019		$	3.86			$	2.95

Year Ended		High*				Low*
December 31, 2014		$	13.48			$	6.40
December 31, 2015		$	9.66			$	4.59
December 31, 2016		$	7.38			$	4.31
December 31, 2017		$	5.32			$	2.36
December 31, 2018		$	4.66			$	2.12
Quarter Ended
March 31, 2017		$	5.32			$	4.18
June 30, 2017		$	5.37			$	3.52
September 30, 2017		$	3.99			$	2.76
December 31, 2017		$	3.95			$	2.36
March 31, 2018		$	4.66			$	2.41
June 30, 2018		$	4.55			$	3.13
September 30, 2018		$	4.07			$	3.03
December 31, 2018		$	4.07			$	2.12

Month Ended
September 30, 2018		$	4.07			$	3.64
October 31, 2018		$	4.07			$	2.93
November 30, 2018		$	3.51			$	3.03
December 31, 2018		$	3.56			$	2.12
January 31, 2019		$	3.67			$	2.17
February 28, 2019		$	3.86			$	3.14

		2018				2017
Audit Fees		$	146,000			$	155,000
Audit Related Fees		$	90,000			$	15,000
Tax Fees		$	6,500			$	2,500
All Other Fees		$	2,500			$	2,500
Total		$	245,000			$	175,000

4.11@	License Agreement, between the Company and MedImmune Limited (“MedImmune”), entered into as of March 30, 2018 (incorporated by reference to Exhibit 10.1 to Compugen’s 6-K, filed with the SEC on May 9, 2018 (File No. 000-30902)).
4.12@	Amendment No. 1 to the License Agreement, between the Company and MedImmune, dated May 9, 2018 (incorporated by reference to Exhibit 10.1 to Compugen’s 6-K, filed with the SEC on August 1, 2018 (File No. 000-30902)).
4.13	Controlled Equity OfferingSM Sales Agreement between the Company and Cantor Fitzgerald & Co., dated May 25, 2018 (incorporated by reference to Exhibit 1.1 to Compugen’s 6-K, filed with the SEC on May 25, 2018 (File No. 000-30902)).
4.14	Securities Purchase Agreement, dated as of June 14, 2018, by and among the Company and the purchasers named therein (incorporated by reference to Exhibit 1.1 to Compugen’s 6-K, filed with the SEC on June 19, 2018 (File No. 000-30902)).
4.15	Form of Warrant to Purchase Ordinary Shares (incorporated by reference to Exhibit 4.1 to Compugen’s 6-K, filed with the SEC on June 19, 2018 (File No. 000-30902)).
4.16@	Master Clinical Trial Collaboration Agreement, between the Company and Bristol-Myers Squibb Company, dated October 10, 2018 (incorporated by reference to Exhibit 10.1 to Compugen’s 6-K, filed with the SEC on November 7, 2018 (File No. 000-30902)).
4.17	Securities Purchase Agreement, dated as of October 10, 2018, between the Company and Bristol-Myers Squibb Company (incorporated by reference to Exhibit 10.2 to Compugen’s 6-K, filed with the SEC on November 7, 2018 (File No. 000-30902)).
8.1*	Subsidiaries.

12.1*	Certification by Principal Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002.
12.2*	Certification by Principal Financial and Accounting Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002.
13.1*	Certification by Principal Executive Officer and Principal Financial and Accounting Officer pursuant to Rule 13a-14(b)/Rule 15d-14(b) under the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
15.1*	Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global.
101*	The following financial information from Compugen Ltd.’s Annual Report on Form 20-F for the year ended December 31, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016; (ii) Consolidated Balance Sheets at December 31, 2018 and 2017; (iii) Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2018, 2017 and 2016; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016; and (v) Notes to Consolidated Financial Statements.