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Gene Logic s Genomics Gamble Pays Off With Record Profits and Product Upgrades

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This article has been updated from a previous version to correct the description of how Gene Logic's software can be utilized by users of other software packages.

SAN FRANCISCO — Gene Logic capped a year of investment in its genomics and toxicogenomics business unit this week with the launch of an upgraded version of its BioExpress database, and the release of fourth-quarter financial results showing four consecutive quarters of profitability for the unit.

Customers will now have access to 10,000 selected human samples that have been reanalyzed using Affymetrix's U133 Plus 2.0 GeneChip and added to the BioExpress database over the past year. They can also now access SNP genotyping on the Affy platform via the firm's Microarray Data Generation and Analysis Services, and now can purchase Gene Logic's Genesis 3.0 software platform, the company said last week.

In terms of profits, Gene Logic's genomics business reported its fourth consecutive profitable quarter and a 27-percent increase in revenue, which grew to $17.5 million from $13.8 million in the fourth quarter of 2004. The performance of the genomics group offset declining revenues in the company's nonclinical services group and flat performance in its drug-repositioning business for both the period and year ended Dec. 31, 2005 (for the rest of Gene Logic's Q4 results, see sidebar).

According to Loralyn Mears, Gene Logic's vice president of alliances and marketing, the new BioExpress launch and profitable results are the result of a significant change in philosophy at Gene Logic about its genomics offering.


"With the monolithic database and the monolithic Genesis software that came wrapped up with the database, there wasn't anything distilled out for any other industries."

"Prior to one year ago you could only buy the whole database, and you'd have to subscribe to it. It's many millions of dollars and contains millions of data points and tens of thousands of samples," Mears told BioArray News during Cambridge Healthtech Institute's Molecular Medicine Tri-Conference, held here last week.

Mears said that the company had managed to win many of the top-10 pharmaceutical companies as customers, but that growth among other types of customers was being limited by the offering itself.

"With the monolithic database and the monolithic Genesis software that came wrapped up with the database, there wasn't anything distilled out for any other industries," she explained.

According to Mears, Gene Logic responded to the situation by making some administrative changes, such as creating the position of a general manager for the unit, which was filled by Dennis Rossi, formerly of Accelrys. The company also decided to make some significant changes in its offering.

"We chopped up the database so that you can buy it by therapeutic area or by disease area," Mears said. "We took our Genesis software and we externalized it so that people can buy it and combine it with their own data, public data, and ours," she continued. The company also built Ascenta, a software product with pre-calculated data that combines gene-expression analysis with clinical information, and released a software package called Sciantis, an online gene expression analysis system, to lure more academic customers.

"This way we have the opportunity to go out to sell into government, non-profit research centers, and biotechs, where, up until January 2005, we only had the pharma customers," Mears said.

Reference Data as 'Bread and Butter'

Of all of Gene Logic's newest offerings, Mears said that its BioExpress upgrade is the most significant. Qing Zeng, Gene Logic's senior marketing manager, told BioArray News during the Tri-Conference that the upgraded version of BioExpress is not just bigger, but more diversified to meet the different needs of the firm's customers.

"Reference data is the bread and butter of the company," Zeng said. She said that BioExpress data has traditionally been broken down into five disease therapeutic areas.

"We have oncology, central nervous system, metabolic, inflammation, as well as vascular, and normal," Zeng said. "For each of these five therapeutic areas, we break it down into different diseases, like for oncology we have breast cancer, prostate cancer, et cetera," she said. What is different now, Zeng said, is that customers can directly purchase access to their therapeutic areas of interest, rather than having to pay "millions of dollars" to access samples they may not need.

Gene Logic Q4 Revenues Rise 12 Percent

Gene Logic reported last week that 2005 fourth-quarter revenue rose 12 percent to $22.4 million from $20.1 million in the fourth quarter of 2004.

Gene Logic's genomics services business reported its fourth profitable quarter in a row and a 27-percent increase in revenue to $17.5 million from $13.8 million in the fourth quarter of 2004.

Revenues for the firm's nonclinical services group fell, however, to $4.7 million from $6.3 million in the year-ago period, while the newly launched drug-repositioning business posted $272,000 in revenue for the quarter.

The company's losses narrowed in the fourth quarter to $2.1 million, or $.07 per share, from $4.0 million, or $.13 per share, a year ago. Losses reflect the final purchase price allocation of $300,000 related to a purchased R&D write-off in connection with the company's purchase of the Horizon drug-repositioning business from Millenium Pharmaceuticals in 2004.

R&D spending increased to $2.2 million from $1.1 million in the year-ago period.

As of Dec. 31, the company had approximately $82.1 million in combined cash, cash equivalents and marketable securities available-for-sale. Of that, $44.0 million is in the form of cash and cash equivalents.

Bringing BioExpress up to speed has also cost the company millions. According to Mears, the $9.5 million the company agreed to pay for Affy products, disclosed in a December 2004 SEC filing, was spent entirely on the genomics half of its genomics and toxicogenomics business unit. The company now has approximately 40,000 human and animal samples in the BioExpress database, she said.

She said that the $7.6 million the company will pay for Affymetrix products and services in 2006, disclosed in an SEC filing last month, will now be spent on upgrading the company's toxicogenomics database, ToxExpress.

"This year there is going to be a major investment in toxicogenomics," Mears said. Asked if Gene Logic expects to add data from other microarray platforms, Mears said that the company so far has no customer requests to provide data on another platform.

"The majority of the world works on the Affymetrix platform," Mears said. Gene Logic's SNP genotyping service will also run Affy's 500K Mapping Array Set platform. During a conference call with investors and analysts last week, Gene Logic CEO Mark Gessler said that the company's SNP genotyping group has "completed projects" with two customers, although the identities of the customers and the objectives of the projects were not revealed.

"We expect SNP genotyping to be an important growth area in 2006," he said. Mears said that Gene Logic began signing SNP customers in December.

Competition?

Because Gene Logic offers its gene-expression database as well as data-analysis and -management software, it has different rivals depending on the product.

For example, a clear competitor for its ToxExpress database, which is being upgraded this year, is Iconix Pharmaceuticals, whose DrugMatrix database enables customers to perform toxicological studies. On the software front, however, Gene Logic competes against other informatics companies like Spotfire, although Zeng said that customers can export gene expression data from Gene Logic's Genesis Software into the analytical software of other companies, such as Spotfire, to conduct further data analysis.

However, Mears said the real competition for Gene Logic is getting large pharmaceutical customers that already have their own reference databases and informatics to see the value in outsourcing that work, rather than continuing to produce their own reference data.

"Our competitors are not so much competing companies in the sense of other commercial efforts but in-house efforts at some of our larger pharmaceutical clients who are building some of their own databases," Mears said. Mears offered that companies that see their needs as unique can always integrate their existing data with Gene Logic's data using its available software tools.

— Justin Petrone ([email protected])

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