Gene Logic Inc. said yesterday that its loss nearly doubled in the second quarter, despite a 41 percent increase in revenue.
The Gaithersburg company reported a second-quarter loss of $9.4 million, or 35 cents a share, on revenue of $9.6 million. In the comparable period last year, Gene Logic lost $4.8 million, or 19 cents a share, on $6.8 million in revenue.
Analysts had estimated the company would lose 36 cents a share in the quarter, according to the average estimate of six analysts surveyed by IBES International Inc.
Gene Logic shares rose 42 cents to $19.20 on the Nasdaq stock market yesterday - a day when the overall market for biotechnology stocks traded lower.
Eighteen large pharmaceutical and biotechnology companies have agreed over the past 18 months to pay an average of $2.2 million a year to subscribe to Gene Logic's databases, known as the GeneExpress Suite.
The databases, which help drug makers identify which genes are important in certain diseases, should have 30 such subscribers by year's end, Chief Executive Officer Mark D. Gessler told analysts in a conference call yesterday.
"Going into next year, we have our eyes set on going to 50 to 100 clients as fast as possible," he said. In an interview, Gessler predicted the company would achieve profitability "in the next several years."
But some Wall Street analysts believe the company has plenty to prove despite the company's recent success at attracting customers such as AstraZeneca PLC, one of Europe's largest drug makers.
"The question of the hour is, `How big a business is this and what kind of margins can they drive?'" said Eric Schmidt, a biotechnology industry analyst for SG Cowen Securities Corp, who is "neutral" on Gene Logic's stock.
"We're taking a wait-and-see attitude toward them."
Gene Logic begins by taking samples of human tissue obtained from surgeries at 24 hospitals with which it has agreements. The tissues are used in experiments to identify the genes at work in diseased and healthy samples.
By year's end, the company estimates, it will have acquired up to 15,000 tissue samples from various parts of the body, giving it genetic information on 400 different diseases of interest to drug makers.
(Drug companies can learn what genes may be important by comparing those at work in cancerous tissues, for example, with those at work in healthy tissues.)
But some analysts wonder if gene databases can provide enough revenue to make a business successful. Competitors, such as Incyte Genomics Inc. of Palo Alto, Calif., and Celera Genomics Group in Rockville, have widened their strategy from selling databases to discover drugs and molecular diagnostics.
Another competitor, Rosetta Inpharmatics Inc., was bought by the Pharmaceutical giant Merck & Co. Inc. in May for $620 million, leaving Gene Logic as one of the few major companies in the field to focus purely on providing information to others.
"Clearly, the market views companies developing drugs as a sexier play," said James D. Ackerman, an analyst at Punk, Ziegel & Co.
But, he said, while companies such as Celera have the potential to hit the jackpot with a new drug, Gene Logic's strategy affords something drug-discovery does not: easy-to-predict, recurring revenue. Ackerman predicts Gene Logic will become profitable by late 2003 or early 2004.
Gene Logic has a lingering credibility gap that came from overestimating how quickly it would sign up customers last year. The company has done significantly better in that regard over the last few quarters, "but it's been a long time in coming," said Schmidt, the SG Cowen analyst.
Gessler noted in the interview yesterday that since he became CEO in June 2000, the company has beaten analysts' expectations for four straight quarters. And he reiterated that the company would stick to its business plan, offering genetic information as well as the software to help organize and make sense of it.
"We're a company focused completely on helping customers do their jobs," Gessler said, noting that, unlike Celera, Gene Logic doesn't mine its own databases for future drugs that could compete with their customers' pharmaceuticals.
"That gives them a lot of comfort."
