Following several acquisitions that added two new business units to its core genomics operations over the last few years, Gene Logic has kept relatively quiet about the database and software products that have historically generated the bulk of its revenues, but company officials stressed this week that the genomics business is not only alive and well, but poised for growth over the course of 2006.
This morning, Gene Logic's genomics business reported its fourth consecutive profitable quarter, posting a 27-percent increase in revenues to $17.5 million from $13.8 million in the fourth quarter of 2004 and an operating profit of $4.7 million compared to a loss of $459,000 in the prior-year period.
The strong performance of the genomics group offset declining revenues in the company's nonclinical services group and flat performance in its drug repositioning business for both the quarter and the full year.
The genomics group generated 78 percent of Gene Logic's total revenues of $22.4 million for the quarter, compared to 69 percent of the firm's total revenues of $20.1 million in the prior-year period.
For the year, revenues for the genomics group rose to $56.6 million from $52.2 million, and the segment reported a profit of $7.2 million, compared to a loss of $6.9 million in 2004. The company as a whole reported total revenues of $79.4 million for the full year, compared to $75.9 million in 2004.
"We've accomplished a lot in 2005. Specifically, we achieved profitability in our genomics division for the first time in our history, and we did so in each and every quarter of 2005."
Gene Logic's total net loss widened to $48.3 million from $28.5 million in 2004 due to a $32.8 million non-cash impairment charge in the third quarter related to its nonclinical services group.
"For 2006, we expect our genomics business to continue to grow," said Gene Logic CFO Phil Rohr in a conference call to discuss the company's fourth-quarter and full-year earnings.
CEO Mark Gessler added that "2005 was a big step forward for Gene Logic," with an "outstanding year" for the genomics business, which was "profitable for the first time."
Earlier in the week, the company released an updated version of its BioExpress database and version 3.0 of its Genesis Enterprise System software. Loralyn Mears, vice president of marketing and partner alliances in the genomics group, told BioInform that the upgrades are the result of a "significant investment" in the company's core genomics business during 2005.
This year, she said, the company is placing a similar focus on its toxicogenomics business, and product upgrades in that half of the genomics segment are slated for release later in 2006 — particularly in the area of lead optimization screens, predictive toxicology models, and in the ToxExpress database.
The latest upgrades join Ascenta 2.0, a web-based platform that the company released last October that offers access to a subset of its gene expression data [BioInform 10-24-05]. Mears said that all three product updates are in line with Gene Logic's strategy to become "the outsourcing partner of choice to this industry."
One key to this goal is the quality of samples that the firm is using for its database products. Qing Zeng, senior marketing manager at Gene Logic, said that the company is analyzing fewer samples per year than it used to — around 2,000 to 3,000 currently — but stressed that the company is focusing itsefforts on "valuable samples" that are applicable to "compelling disease areas" and would prove difficult for customers to obtain on their own.
While the number of samples has decreased over the last few years, Gene Logic's investment has increased because the quality of those samples has improved, Zeng said.
In the case of the BioExpress, the company reanalyzed 10,000 samples using Affymetrix's U133 Plus 2.0 human array to update the information in the database. Zeng estimated that the database includes "hundreds" of data points per sample relating to disease state, gender, age, drug treatment history, and other clinical factors.
BioExpress currently includes gene expression data for more than 30,000 human samples, Zeng said.
Mears said that Gene Logic has tweaked its content and software products to provide more flexible options for customers. In the case of BioExpress, for example, customers can choose to purchase data related to a certain disease or tissue type, or can opt for a perpetual license or a subscription-based deal. This is a departure from Gene Logic's previous model for its database business, but one that appeals to customers on tighter budgets, she said.
In addition, Zeng said, many customers are initially signing up for "something small" and coming back for larger service agreements — a trend that appears to be in line with the company's outsourcing ambitions.
Gessler cited this strategy in the conference call. During 2005, "we expanded our genomics division beyond the multi-year subscriptions for which we were known," he said. "We introduced flexible pricing and licensing models to suit pharmaceutical and biotechnology clients of all sizes."
As a result of these changes, Gessler said, "we've accomplished a lot in 2005. Specifically, we achieved profitability in our genomics division for the first time in our history, and we did so in each and every quarter of 2005."
Mears told BioInform that Gene Logic has also opened up its software so that it is no longer "inwardly focused." Genesis 3.0, for example, which was initially developed as a front end for the company's BioExpress and ToxExpress databases, now includes a feature called GX Connect that allows customers to feed their proprietary content into the system. Genesis is also compatible with third-party gene expression analysis software like Spotfire's DecisionSite and Rosetta Biosoftware's Rosetta Resolver, and is interoperable with Gene Logic's Ascenta.
The changes in the company's product lineup appear to be paying off. The company said in its quarterly earnings release that it sold $6.9 million worth of perpetual licenses for "certain data and software" to existing customers during the fourth quarter, and that it signed genomics and toxicogenomics services agreements with 25 new customers during the year — "significantly more than any year in our previous history," according to Gessler.
Gene Logic did not provide specific financial guidance for 2006, but the firm said it expects to reach profitability "at some point during 2007."
Gessler cautioned that the road to profitability may be a bit bumpy for the genomics business, however. "As we increase the number and types of customers we serve, we expect variability in our revenue flow, compared to when we were solely a subscription business, but we expect this will lead to increased revenue and a more diversified customer base."
— Bernadette Toner ([email protected])