Compugen second quarter net income increases to $1.2 million

Compugen Ltd. (NASDAQ: CGEN) today reported its results for the second quarter ending June 30, 2011.

Dr. Anat Cohen-Dayag, Compugen's president and CEO, stated, "As previously disclosed, Compugen is focusing its discovery and development efforts towards unmet medical needs in the fields of oncology and immunology. With respect to our heightened commercialization efforts in these fields of focus, it is clear that the validation results we are obtaining for our recently discovered product candidates in areas of high industry interest and potential, such as the B7/CD28 family molecules, has led to a substantial increase in industry recognition of our Company. Therefore, we were pleased to see progress during the past quarter with respect to certain ongoing discussions as well as initiation of new discussions covering both current product candidates and discovery capabilities."

Dr. Cohen-Dayag continued, "A third area where significant progress was made this past quarter relates to some very promising past discoveries, both therapeutic and diagnostic, that are outside our current area of focus, having been made during the development and validation activities for our predictive platforms. During the past quarter we entered into discussions with various organizations to advance certain of these earlier discoveries, largely without the need for further Compugen financial resources."

As previously stated, since current revenues result primarily from research fees and milestones, quarterly results are, and will continue to be, subject to substantial fluctuations due to timing. No revenues were recorded for either the second quarter of 2011 or the six months ending June 30, 2011, compared with $800,000 and $925,000 for the same respective periods in 2010. Reported revenues for all periods do not include amounts received from governmental grants, which are accounted for by Compugen as a reduction of research and development expenses, and not as revenues.

Total operating expenses for the second quarter of 2011 were $3.4 million, including a non-cash expense of $1.7 million related to stock based compensation, compared with $1.5 million, including a non-cash expense of $412,000 related to stock based compensation for the second quarter of 2010. Included in the non-cash expense of $1.7 million for the second quarter of 2011 was a $1.3 million one-time charge to general and administrative expenses, relating to an extension of the time to exercise certain previously outstanding and vested options.

Research and development expenses were $1.6 million for the second quarter of 2011, compared with $1.3 million for the second quarter of 2010, and remain the Company's largest expense, not taking into account the non-cash expense included in general and administrative expenses, as discussed above. The growth in research and development expenses for 2011 relates primarily to increased activities under the Company's Pipeline Program. Research and development expenses are before the deduction of governmental grants, which totaled $455,000 for the second quarter ending June 30, 2011, compared with $524,000 for the corresponding quarter in 2010.

Financing income, net, was $1.2 million for the second quarter of 2011, compared with $41,000 for the second quarter of 2010. Included in the $1.2 million reported for the most recent quarter was non-cash income of $909,000 related to the re-measurement to fair value of the research and development funding arrangement signed in late 2010 in support of the Pipeline Program, that, as previously disclosed, for reporting purposes is being accounted for as a liability. These re-measurements to fair value will no longer apply on the earlier of June 2013 or, in the event that the investor elects to exchange his participation rights for Compugen shares, the date of such election.

Net loss for the most recent quarter was $2.2 million (after reflecting the non-cash expense of $1.7 million related to stock based compensation and non-cash financial income of $909,000, both as described above) or $0.06 per share, compared with net loss of $896,000 (including a non-cash expense of $412,000 related to stock based compensation), or $0.03 per share, for the corresponding quarter of 2010. The net loss for the first six months of 2011 was $4.1 million (including a non-cash expense of $2.0 million related to stock based compensation and non-cash financial income of $733,000), or $0.12 per share, compared with net loss of $3.6 million (including a non-cash expense of $1.3 million related to stock based compensation), or $0.11 per share, for the same period in 2010.

As of June 30, 2011, Compugen had $23.7 million in cash and cash equivalents and short-term bank deposits, compared with $26.8 million as of December 31, 2010, after increasing the reported amount at yearend 2010 to reflect the receipt in early 2011 of $5.0 million from the research and development funding arrangement signed in December 2010 as mentioned above. These amounts for 2010 and 2011 do not include the market value of Compugen's holdings of Evogene shares at such times. The Company's previous guidance for expected net cash usage for calendar year 2011 was approximately $10 million; such net cash usage for the first six months of 2011 was $3.1 million.