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Gene Logic CEO Mark Gessler on Firm s Deal with GE, Tx Revival, and the Future

Mark Gessler
President and CEO
Gene Logic

Name: Mark Gessler

Position: President and CEO, Gene Logic, 2000 — the present

Background: : President and COO, Gene Logic, 1999 — 2000.

Senior vice president of corporate development and CFO, Gene Logic, 1997 — 1999.

Gene Logic has had some good fortune recently, and Pharmacogenomics Reporter spoke to CEO Mark Gessler last week to gain some insight into why.

On June 19, the firm announced that GE Healthcare will distribute its Sciantis online gene expression-analysis system to researchers in academia, research, and government in 32 countries.

The next day, the company posted its second-quarter financial results, and disclosed that it had narrowed its losses 41 percent, from $4.4 million to $2.6 million, and increased revenues by 8 percent, to $20.1 million from $18.6 million. Part of the improvement came from $500,000 in savings compared to last year's quarter due to a new income tax treaty between the US and Japan that came into effect July 1, 2004, although its genomics and toxicogenomics unit was largely responsible for the quarter's earnings.

Gene Logic just launched its drug-repositioning program in March, and until the recent SEC filing, its stock price was confined mostly to the $3 to $3.50 range. But since its second-quarter earnings report, the company's stock price has hovered between $4.50 and $5, and it sat at $4.85 before press time this week, a rise of approximately 32 percent from its pre-release price of $3.68.

Not bad progress, if the company can keep it up.

In Gene Logic's recent SEC filing, loss had narrowed 41 percent to $2.6 million. What do you attribute that to?

I think it's what we've been out there talking about, which is the genomics part of our business, genomics services moving to something that looks more and more like outsourcing. Our major competition is in-house research at major pharma, and as they continue to look at ways to effectively manage their own internal costs, there is going to be more opportunity for that work to be moved onto the outside, and we think we're in a great position with what we would argue is the world's largest supplier of genomic outsourcing. There's nobody who's even close to us in that respect. And so, for us to be in a position to do this on a routine basis, we're starting to see that transition happen. The relative amount of subscription business to overall revenues will go down over time, and the service revenue, in terms of running microarrays and doing analytical work for our clients, is going to increase over the next years to come. And it's going to be around core areas of expertise, like toxicogenomics, as well as samples that may be run in conjunction with clinical trials.

Why would pharma want to outsource?

You've got major pharmaceutical companies that are constrained, that want to move down their entire cost basis for R&D, and the only way to do that fundamentally is to restrict the number of programs they're working on, or doing it for a lower cost and having more flexibility through an outsourcing partner. That's the way that they're going to go, and when it's non-core to their business — even though genomics is becoming part of the fabric of everything up and down the entire pipeline — it's something that we're in a position to offer as an outsourcing service. Where they would be running microarrays with us, we would do part of the analytical work — it's something that we started to grow a number of years ago around the toxicogenomics area, and we're finding that even the largest companies in the world are not willing to make that infrastructure investment — it's just too costly to have all this stuff in house.

How does the relationship with GE Healthcare affect the future of Gene Logic?

It's a new product, a new market and a new distributor relationship for us. The new product is called Sciantis. This is aimed at taking our human BioExpress data, and putting it in a format that we can send out to the academic marketplace. This would be a per-researcher thing, that's how it would be marketed. There would be seat licenses for this, and it's obviously aimed at academic investigators throughout the world.

The big question for us was how to get it distributed — that will be through GE Healthcare. It's really a standard sort of distribution and marketing agreement — they take care of marketing, we do all the back-end work, in terms of the product, which is hosted at Gene Logic. They transact the deals and we provide the support and hosting — it's a web-based product.

Who are your competitors?

Publicly available data, perhaps. In-house data that [researchers] may be using. But this is truly the opportunity to take the power that we have in our BioExpress database and take a portion of that data that will be useful for academic researchers that may be interested in what a gene is doing in a specific disease, or following a specific pathway, such as the kinds of changes that can be seen across disease states.

Is there a market for the database beyond research?

No, this is the big broadening of the availability right now for us. We didn't have the channel to get at the academic marketplace, so we wanted to broaden the market for the kind of information that we have and GE is a good partner in that respect.

What size is the research market that you're now selling to?

I don't have specific figures in terms of worldwide academic research, but it's basically everybody that's a researcher in government and academic institutions. There's a huge potential there. It's still early days, and there are no competitors out there or head-to-head market comparisons that you can make. We want to start seeding the academic market with access to our information products.

Do you have customers at this point?

That's really GE's bailiwick — I suspect that they do.

There has been a positive reaction to Gene Logic's earnings among investors — will the GE news and the earnings sustain interest?

I think the GE story was part of it, and on the back of that we had the financial announcement. And as well, we had good progress on the drug-repositioning business — we announced that two drugs that we've identified potential indications for, and those drugs are now moving into animal-model testing for validation. We have two more behind that that we've also identified preliminary new indication space for. It's a group that's now up to 17 drugs that we're assessing.

At what phase did these compounds usually drop out of development before Gene Logic licensed them from their original developers?

It has tended to be Phase II.

What indications does the company have in mind for the next two compounds?

We haven't discussed that just yet, but we'll be giving more granularity in the quarters ahead. But in the two cases thus far, [there have] been completely unanticipated new indications for these compounds. That's exactly what we believe is going to be the case. We're going to be interrogating these compounds with our platform and coming up with new indication space that had been unanticipated by the prior research.

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