- The Washington Times - Monday, April 24, 2006

Gene Logic Inc. last week reported a first-quarter earnings loss but says it is poised for profit by next year. The Gaithersburg company provides gene databases to pharmaceutical companies to help with their drug research and development.

Losses in the first three months of 2006 grew to $11.8 million (37 cents per diluted share) from a loss of $4.1 million (13 cents) in the same period one year ago.

Total revenue for the first quarter this year was $12.8 million, compared with $19.7 million for the first quarter of 2005.

The company blamed the widening loss on a decline in sales of its genomics databases and laboratory services.

Nevertheless, company officials say new deals they have arranged would make any downturn in business a short-term problem.

“Our results for the first quarter of 2006 reflect the variability we expected,” said Mark D. Gessler, Gene Logic’s chief executive officer. “While this variability was greater than we anticipated, we remain confident about the future. Our sales pipelines are robust.”

The backlog in sales for Gene Logic’s laboratory services increased 35 percent in the first quarter, indicating demand for its services is strengthening, Mr. Gessler said.

As the company announced its first-quarter loss, it also announced a major contract with Netherlands-based pharmaceutical company Organon.

Gene Logic agreed in the contract to seek new therapeutic uses for Organon drugs that were discontinued during clinical development.

The companies would share ownership rights and revenue from any new drugs Gene Logic finds. Organon also agreed to make milestone payments for any pharmaceuticals it can develop clinically from Gene Logic’s drug-repositioning program.

The drug-repositioning program seeks to figure out ways to develop drugs commercially after they were discontinued in late-phase clinical trials.

“We are particularly excited about prospects for our drug-repositioning division,” Mr. Gessler said. “Our partnerships with Pfizer, Roche and now Organon evidence the growing interest by the pharmaceutical industry in drug repositioning as a way to enhance their late-stage pipelines.”

Despite Gene Logic’s optimism, industry analysts are skeptical.

“We appear to have been overly optimistic after a better-than-expected [fourth quarter 2005] but concede that management continues to struggle to turn around the business,” said Edward A. Tenthoff, research analyst for the Wall Street financial firm Piper Jaffray.

He lowered his investment recommendation on the stock, NASDAQ: GLGC, from market perform to underperform.

He also cautioned about too much optimism over the Organon deal.

“While the return of a [drug-repositioning] candidate into the clinic could provide milestones and validate the approach, it remains to be seen how sustainable this business model will be,” Mr. Tenthoff said. “Gene Logic did reiterate its goal of reaching profitability at some point in 2007. However, with our current outlook, we believe this may be a stretch.”

Gene Logic’s stock value in the last year has ranged as high as $5.90 per share and as low as $2.75 per share. It closed yesterday at $3.01 per share, down 9 cents, or 3 percent, from Friday’s close.

Gene Logic, founded in 1994, operates with about 434 employees.

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