1Q loss is pared at Gene Logic Inc.

Analysts' expectations are exceeded, while revenue increases 44%

April 30, 2002|By Julie Bell | Julie Bell,SUN STAFF

Gene Logic Inc. reported yesterday that its first-quarter loss narrowed as revenue increased 44 percent.

The Gaithersburg-based company, which sells information to help drug researchers elicit which genes are at work in diseases, reported a loss of $7.5 million, or 28 cents a share, on revenue of $11.8 million. That compares with a loss of $10.6 million, or 40 cents a share, on revenue of $8.2 million in the first quarter last year.

The results exceeded analysts' expectations of a loss of 30 cents a share, according to the average estimate of five analysts surveyed by Thomson Financial/First Call.

Gene Logic offers subscriptions to online databases showing what genes are "expressed," or turned on, in samples of healthy tissue taken from various parts of the body compared with samples of tissue taken from the same areas in people with diseases. The tissue samples often are retrieved during surgeries and collected from hospitals with which Gene Logic has agreements.

"We don't have any direct competitor or public alternatives to what we are doing today," Gene Logic Chairman and Chief Executive Officer Mark D. Gessler said yesterday in a conference call with investors. "And over the last three years we have built high barriers to entry."

The business is part of a broader biotechnology industry segment known as genomic information. A number of companies recently have exited the business or de-emphasized it, blaming lack of prospects for significant revenue growth or profits. Rockville-based Celera Genomics Group, for example, said last week that it would shift marketing of its genomic information -- also sold to drug companies via Internet subscriptions -- to a sister company for royalties. Celera plans to focus on discovering drugs.

Analysts, however, noted that Gene Logic, which has gene-expression information built up from its repository of more than 12,000 tissue samples, offers more valuable information to scientists than information about the order of DNA in the genome -- the thing for which Celera was best known. Much of the same sequence information was available for free over the Internet, thanks to a publicly funded project, making it tough for Celera to renew subscriptions to its own at high prices.

"Someone else could go out and build a big tissue repository," said Punk, Ziegel & Co. analyst James D. Ackerman, who yesterday reiterated his "buy" recommendation on Gene Logic, but "it's not easy to do."

Gessler said on the conference call that Gene Logic continues to see "strong and consistent demand for our products," to which companies such as Pfizer Inc. and Biogen Inc. already subscribe. The quarter marked the 13th-straight three-month period for which the company said its revenue had grown at least 25 percent over the corresponding period a year earlier.

The company, however, is unprofitable, and some analysts question how much growth the business can muster in the long run. "We remain optimistic, yet conservative, on the outlook for growth in this sector," said a report issued yesterday by RBC Capital Markets analyst Todd R. Nelson. "Specifically, we recognize the lack of competition is favorable to Gene Logic's business offering, yet visibility into how big the market for expression data can be near term remains murky."

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