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Gene Logic Prepares for Next Wave of Genomics, But is Pharma Ready to Ride it?

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After wrapping up what CEO Mark Gessler described as a “transformation year” in 2003, Gene Logic has defined a vision for future growth based on a radical overhaul of the traditional drug development pipeline.

All the company needs is for pharma to buy into the same vision.

This ambitious strategy appears to ignore pharma’s notoriously glacial pace of transformation, but Gessler argued that some early movers — namely GlaxoSmithKline, Wyeth, and Novartis — are already reengineering their pipelines in “a mirror image” of how Gene Logic has restructured its own capabilities over the past year, following its acquisition of TherImmune Research.

In a conference call to discuss the company’s fourth-quarter and year-end 2003 earnings, Gessler glossed over Gene Logic’s recent performance in favor of highlighting growth opportunities for its revamped strategy, which he described as “a new breed of outsourcing, with services that span discovery and development.” While the company has had a compound annual growth rate of more than 40 percent since 1998, Gessler said this was merely “the first wave” for both the company and for the broader field of genomics, and instead emphasized “the next wave that is starting to build.” Gene Logic, he said, is now courting a $2.5 billion portion of the total outsourcing market for drug discovery and development, which it estimates to be around $12 billion.

The company is clearly in the midst of a transition phase. Although Gene Logic’s overall revenues increased 33 percent for the fourth quarter and 27 percent for the full year in 2003, this was due to new contract research service revenue from the TherImmune acquisition. Broken down by business segment, however, revenues slipped year-over-year for both the information business and the contract research business. Gene Logic posted total revenue for the fourth quarter of $19.7 million, up from $14.8 million in the fourth quarter of 2002. Information services revenue, however, was $13.9 million for the fourth quarter of 2003, compared to $14.8 million in the prior-year period, while contract study services revenue was $5.8 million for the fourth quarter, approximately 20 percent lower than TherImmune’s reported revenues for the prior year.

Likewise, Gene Logic’s total revenues for the year increased to $69.5 million from $54.8 million, but information services revenue declined to $52.0 million compared to $54.8 million in 2002, and contract services revenue of $17.6 million was 10 percent lower than in 2002.

Despite the decline in information product revenues, Gessler said that renewals among top-tier pharma companies were actually very strong during the year. “We are now one contract away from signing 100 percent of those large pharma clients that were up for renewal in 2003,” he said. During the year, GlaxoSmithKline, Aventis, Sumitomo, Wyeth, Genentech, Biogen-IDEC, and Boehringer-Ingelheim renewed their GeneExpress subscriptions. Top-50 pharma firms currently make up around 75 percent of the company’s subscription business, Gessler said.

The company’s plans for growth in 2004 are built upon its existing information products, as well as new services derived from the preclinical testing capabilities it picked up from TherImmune. The company is advancing its predictive toxicology tests, Gessler said, and plans to begin work on a new patient-stratification offering later this year.

Pitching a New Pipeline

Gene Logic’s longer-term plans for future growth, however, depend on pharmaceutical companies radically restructuring the architecture of their drug pipelines. The recent wave of investment in genomics technologies was “just a patch” for the well-known productivity shortcomings of the pharmaceutical R&D process, Gessler said. Applying genomics technology to the target identification stage of the process only led to a bottleneck at the next stage, validation. “While we were able to help companies produce more valuable targets, we had no way to push them through the pipeline,” Gessler said.

Applying genomics methodologies further down the pipeline, on preclinical toxicology testing, for example, has helped a bit, Gessler said, but the problem is that it takes “a lot of emotional investment and a lot of financial investment” to bring compounds to that stage, only to have them fail.

Gessler argued for a pipeline architecture that actually eliminates traditional validation methods and “uses the clinical development phase to obtain human clinical samples that will be used and analyzed back in target discovery.” Gessler said that these samples can be analyzed for SNPs, expression, or other genomics-related properties, and that data could then be applied to target identification to help determine which targets or future products are the most likely to succeed in later stages.

According to Gessler, companies like GSK and others are already beginning to migrate to these methods, and in comparisons of animal models vs. genomic analysis of human clinical data, “they found that the human data is a much better proxy for what they’re likely to see downstream.”

Gessler also called for the use of toxicogenomics and predictive modeling earlier in the discovery process, as well as the use of expression pattern-based biomarkers in clinical trials to help identify those patients most likely to respond to specific therapies. Dubbing this approach the “new school pipeline,” Gessler added, “it’s where the industry is going, and represents the second wave that is building.”

But pharmaceutical companies may not be ready to pull the plug on their traditional validation efforts just yet, even if they are beginning to blur the line between discovery and development a bit. Gessler admitted that many of Gene Logic’s customers are still “concerned” about the FDA’s position on genomic data, and are “reluctant” to set up full-scale genomics-based efforts until the agency provides its final guidance on the use of genomics data in the drug approval process. This guidance, expected later this year, will certainly help Gene Logic and other genomic services companies, but “this is not going to be a watershed for Gene Logic per se,” Gessler cautioned, “because change will continue to move along at a slower rate within the pharmaceutical industry.”

Aaron Geist, an analyst with Robert W. Baird, told BioInform that although “the market in terms of transitioning to the new type of drug discovery research that Gene Logic referenced is still in its infancy… what we’re seeing is that many pharmaceutical companies are realizing that the old way of drug discovery is not productive and are trying to increase efficiency and productivity by using some of these new tools and new technologies.”

Gene Logic’s chances for success are still unclear, Geist said, but he noted that the changing marketplace for genomics information left the company with little choice. “The company’s historical model of selling subscriptions for gene expression information hit a pretty substantial roadblock,” he said. “They realized that they had to change their model to survive, and I think that was a strong and smart move to make.”

— BT

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