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Gene Logic Plans Sale of Genomics Division; Touts Progress in Drug Repositioning Effort

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Gene Logic said last week that it is planning to sell its genomics division and focus its resources on becoming a pharmaceutical development company based on its drug repositioning business.
 
In line with that strategy, the company for the first time provided information about the progress of its drug repositioning effort, disclosing that a candidate licensed from Millennium showed efficacy “at relevant doses” in in vivo testing for inflammatory bowel disease.
 
“Our strategic policy comprises two terms,” Gene Logic CEO Charles Dimmler said during the company’s second-quarter earnings call. “First we focused our resources tightly to become a pharmaceutical development company. We based this on our proprietary drug positioning program in Cambridge. And, second, we are exploring a wide range of alternatives to optimize the value of our genomics assets.”
 
“Following a comprehensive assessment of a range of strategic alternatives for [the genomics] unit, we’ve decided to direct our efforts to the possibility of a sale of all or parts of this division,” Dimmler added.
 
Gene Logic has been hinting at the possibility of selling off its genomics business for several months now. In April, the company said it was “considering strategic alternatives” for the unit, and two months before that, the firm said it may create “a spin-off entity with a retained equity position or other alternative structures to capture value for Gene Logic.”
 
Selling all or part of the genomics business will "likely require” shareholder approval, Gene Logic said. The company has hired investment bank Aquilo Partners to consider its options.
 
Gene Logic Chief Financial Officer Phil Rohrer said that although the company has decided to sell all or parts of the genomics business, it is not providing any financial forecast related to the sale of the division, which currently generates the majority of its revenues.
 
“The genomics division actually comprises a multitude of potential databases and services, as well as some future potential around molecular diagnostics,” Rohrer said during the call. “Part of the issue is we’re not to the point where any particular transaction could actually be outlined because we’re not sure exactly which of these pieces would be involved in … any of the transactions that may actually come to pass.”
 
Over the past year, Gene Logic has been in a continual state of flux, repeatedly repositioning itself by chipping away at its various divisions. Last November, the company got rid of its preclinical division, refocused its genomics arm, and said it was pinning its hopes on its drug repositioning activities [see PGx Reporter, 11-15-2006].
 
Now, the company plans to concentrate on its drug repositioning business, aspiring to transform itself into a pharmaceutical development company through partnerships with pharma. While Gene Logic has announced drug repositioning partnerships with Pfizer, Roche, Lilly, Organon, and most recently Abbott and H. Lundbeck AS, the company has been tightlipped about its drug repositioning platform and the drug candidates it is rescuing.
 
To this end, Gene Logic reported separately last week for the first time that one repositioning drug candidate, GL1001, licensed from Millennium, showed efficacy “at relevant doses” in in vivo testing for inflammatory bowel disease. IBD affects 1 million people in the US in the form of ulcerative colitis and Crohn’s disease.
 
While Gene Logic initially performed the drug repositioning studies for GL1001 under an agreement with Millennium, Gene Logic now has “certain exclusive rights” to the candidate for commercial development. “Based on the in vivo test results and market opportunities in IBD, the company is seeking a partner for the clinical development of GL1001,” Gene Logic said in a statement.
 
It is not known in what disease setting Millenium had originally tested GL1001. Gene Logic said that it assessed the drug’s potential utility “in a wide spectrum of disease indications” using its drug repositioning platform. The findings were also supported by analysis of Gene Logic's proprietary gene expression database, BioExpress, the company said.
 
According to Dimmler, several of the compounds Gene Logic is investigating for its pharma partners have advanced from “the hypothesis stage to the validation stage” in their redevelopment.
 

“Revenue from Gene Logic’s cost of operations is derived primarily from its genomics division and to date, no meaningful revenue for the drug repositioning division has been reported.”

“The greater the number of drug candidates that we expose to our repositioning program the higher the probability that our work will yield the income from milestone payments and royalties, or in ownership positions, which according to our agreements with them, the compounds’ originators transfer title of the compound to us,” Dimmler assured investors during the call.
 
When asked during the call how Gene Logic plans to fund the costly development programs to reposition these drugs, Dimmler said that for the time being the company would seek development partners, but if it manages to generate revenue from the buisness, it may explore more independent routes. 
 
“The answer at the outset, given our current financial resources, is to seek a development partner,” Dimmler said. “As our business progresses and as we assemble, assuming that we do in the future, a large treasury to enable us to fund the development internally, then we’ll explore those alternatives as well. We’re obviously at the outset of this process of transformation, proceeding on a cautious and prudent basis within our financial means.”
 
Dimmler noted that Gene Logic plans to pursue both strategies — the sale of the genomics business and the focus on drug repositioning — aggressively. “We will do so remaining mindful of the crucial necessity to manage our cash prudently,” he said. “We are pleased to report that our cash conservation program which we initiated several months ago is yielding positive results. It’s our intent to stay this course in a disciplined fashion.”
 
Gene Logic last week reported that second-quarter revenues rose 15 percent as R&D spending rose 8 percent and net losses narrowed 30 percent.
 
Total receipts for the three months ended June 30 rose to $5.4 million from $4.7 million year over year. Of that, only $38,000 was attributed to the drug repositioning business.
 
R&D increased to $2.7 million from $2.5 million.
 
The company said net loss decreased to $7.9 million from $11.3 million in the year-ago period. While the net loss for the genomics division narrowed to $3.8 million from $6.7 million, the loss in the drug repositioning division widened to $4.6 million from $3.7 million in the second quarter of 2006.
 
As of June 30, Gene Logic had $20.8 million in combined cash and equivalents and $15.8 million in marketable securities. The company said it expects cash usage for the second half of 2007 to be lower than for the first half of 2007.

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