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Gene Logic to Sell Preclinical Unit, Consider New Strategy for Genomics Group as Q3 Revenues Dive

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Gene Logic this week said that it plans to sell its preclinical services business and focus on its remaining genomics and drug-repositioning businesses following a strategic review begun in June [BioInform 06-23-06].
 
The company, which said as recently as September that the preclinical segment would be safe from any changes triggered by the review, also said it is mulling a new strategy to capitalize on its genomics assets, and is eyeing biomarker discovery and molecular diagnostics as the most promising focus areas for the business.
 
The company already laid off half its genomics staff, or around 80 people, in August as a result of the strategic review [BioInform 08-04-06].
 
The decision to sell the preclinical services business represents a shift in Gene Logic’s strategy. The company picked up the business in 2003 when it acquired TherImmune for $52 million in an effort to expand its business further downstream into drug development.
 
Since first announcing its strategic review in June, the firm has reiterated its plans to hold onto the preclinical services group. In a statement in September disclosing the results of the review, Gene Logic said the preclinical services business “continues to improve its financial performance” and noted that while the business had yet to turn a profit, “the company expects operating margins to continue to improve and losses to narrow as the substantially increased pace of new business signings leads to growth in revenue. As a result of recent facilities expansions, sufficient capacity exists for growth in the near-term.”
 
This week, however, Gene Logic CEO Mark Gessler said in a conference call that despite the improved performance of the division, “We have concluded as a result of our business review that we should focus our efforts and resources where we believe we have the most potential to create the most shareholder value. We believe that our remaining businesses are where we should be concentrating our efforts.”
 
The remaining businesses are its genomics group and its drug-repositioning unit, built upon technology it acquired from Millennium Pharmaceutical’s Horizon group in 2005 for $4.5 million.
 
So far, the firm has seen minimal revenues from the drug-repositioning business, which aims to revive drugs that have failed in clinical trials due to efficacy reasons, although it has signed partnerships with Pfizer, Roche, Organon, and Eli Lilly.
 
Gessler declined to provide a timeline for when the firm expects to rescue one of these firms’ failed compounds, but said that Gene Logic is “in discussion with our pharma partners about which [of these] drug candidates may be appropriate for further advancement.”
 
The genomics business, meanwhile, is based primarily upon the company’s legacy database business. Third-quarter revenues for the genomics group fell 68 percent to $3.7 million from $11.7 million in the comparable period of 2005, while operating losses swelled to $11.2 million compared to a profit of $27,000 in the third quarter of 2005.
 
Total receipts for the three months ended Sept. 30 — including drug repositioning but excluding the preclinical services group — dropped to $3.7 million from $11.8 million year over year.
 
The company’s overall net loss declined to $26.7 million from $29.4 million in the year-ago period.
 

“What we’ve seen in the discovery arena, which is where most of our products and services were focused, has been a dramatic decline in the investment by pharmaceutical companies over the last five and six years.”

Gessler said that the recent restructuring in the genomics group should bring future expenses “more closely in line with anticipated revenue.” In addition, the company reiterated that it has been “evaluating strategic options for our genomics capabilities and assets in areas such as clinical biomarker development and molecular diagnostics.”
 
Gessler did not provide details of the company’s plans for generating revenue in those areas and acknowledged that the firm has not been successful in defining a strategy to move its core capabilities beyond discovery.
 
“What we’ve seen in the discovery arena, which is where most of our products and services were focused, has been a dramatic decline in the investment by pharmaceutical companies over the last five and six years,” he said, noting that according to some estimates, discovery spending is only one-tenth of what it was in the late 1990s.
 
“As such, we have been redirecting our efforts downstream into the clinical development and later stages of development where we see the market indeed growing, and we have seen growth in those areas,” he said. “So then it’s up to what are some real applications for the core set of capabilities and talents and skills and assets, both physical and intellectual, that we have in this marketplace, and those areas are particularly in the molecular diagnostics arena as the areas that we’re exploring, and trying to figure out the best way for us to be in a position to capitalize on that.”
 
Gessler added, “We need to obviously adjust the business model and we’re doing the best we can to try to find opportunities for those assets.”
 
Gene Logic had around $24.1 million in cash and cash equivalents and $21.4 million in marketable securities available-for-sale as of Sept. 30.

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