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Gene Logic's Genomics Revenues to Disappoint; Firm Bets on Genotyping Services, Rx Repositioning


Gene Logic has stumbled on its path to profitability, which it had hoped to reach in 2007.

The company warned last week that its genomics division will generate "significantly lower" than expected revenue for the second quarter and the full year of 2006. As a result, the firm withdrew its financial guidance for 2006 and 2007.

Dennis Rossi, vice president and general manager of the genomics division, has resigned and the company said it is reviewing the business unit. Larry Tiffany, a former Gene Logic executive, will act as general manager and senior vice president for the genomics division until the company finds a permanent replacement.

Gene Logic said it would communicate the results of the review to investors by September 20.

In February, Gene Logic said in its financial guidance statement that the genomics division would "continue to grow over 2005 results," and 2006 earnings and revenues would show an improvement over those of 2005. The company's earnings for the first two quarters of 2006 would likely fall behind those for the first half of 2005, but were expected to improve by the end of the year, Gene Logic said. The company expected to become profitable "at some point during 2007, the firm said.

The company considers genotyping services "a good field to be in — a lot of growth is going to be happening, and it's something that pharmaceutical and biotechnology companies are going to increasingly need."

The expected revenue shortfall signals the end of period of growth for the genomics division, which experienced four consecutive profitable quarters in 2005. Over the course of that year, the division evolved from a model based primarily on database subscriptions to one that relied on perpetual licenses as well as microarray data generation and analysis services.

In the fourth quarter of 2005, the company added SNP genotyping services to the genomics business, and Gene Logic officers attributed some of the company's fourth-quarter growth to that new capability.

This week, a Gene Logic spokesperson declined to specify which portion of the genomics division faltered in the recent quarter, due to the company's quiet period as it prepares to issue second-quarter earnings. However, he said that Gene Logic considers genotyping services "a good field to be in — a lot of growth is going to be happening, and it's something that pharmaceutical and biotechnology companies are going to increasingly need," he said.

Investors Losing Faith

Gene Logic shares plummeted by 36 percent in the wake of the guidance withdrawal, closing at $1.30 on the day of the announcement, from $2.02 the previous day.

The company's stock had already taken a beating in April when it reported a 35-percent drop in first-quarter revenues to $12.8 million from $19.7 million in the year-ago period. Shares fell 45 percent at market closing time on April 21 from $4.19 the previous day, when Gene Logic issued its earnings.

The company attributed the genomics division's disappointing performance in that quarter to a failure to consummate anticipated license agreements, as well as the deferral of "several opportunities until later in the year."

First-quarter revenues for Gene Logic's other business units — preclinical and drug repositioning — also declined compared to the prior year period, but the company said last week that the drug repositioning service remains "on track," and that the preclinical division is expected to show "substantial improvement" in the second quarter.

The company will report its second-quarter results in early August.

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