GLGC Gene Logic Inc. (MM)

Gene Logic Inc. (NASDAQ:GLGC) today reported financial results for the second quarter ended June 30, 2005. Led by the second consecutive profitable quarter for its genomics and toxicogenomics business, Gene Logic today announced several strong second quarter achievements, including a 41% reduction in its year-over-year net loss, no decline in its cash balance and continued success in achieving business development and scientific goals in its new drug repositioning business. -0- *T Q2 Highlights Genomics and Toxicogenomics Services -- The Company achieved its second consecutive profitable quarter for its Genomics business. -- The Company signed seven (7) new customers, including Imclone, CISRO and Neurocrine, bringing to sixteen (16) the total number of new customers signed in the first half of 2005. -- Shortly after the quarter end, the Company launched the SCIANTIS(TM) System, a new online gene expression reference database for use by academic, government and other non-profit research organizations. In connection with the launch of SCIANTIS, the Company signed a global distribution agreement with GE Healthcare whereby GE will distribute the System in 32 countries and will be exclusive distributor in Japan. Drug Repositioning and Selection Services -- The Company commenced work on an additional ten (10) drug candidates, all of which are candidates from discontinued clinical programs that were stalled for reasons other than toxicity. The current total number of drug candidates in Gene Logic's repositioning pipeline stands at seventeen (17) as of June 30, 2005. -- Two drug candidates currently under evaluation have now advanced to the next stage of development. In each case, the partner agreed that the repositioning platform had presented evidence compelling enough to warrant the performance of efficacy animal model validation. -- The Company generated promising data suggesting new possible indications for an additional two (2) candidates under evaluation, bringing to four (4) the current number of promising leads from the seventeen (17) drug candidates under evaluation. Nonclinical Contract Research Services -- The Company completed the expansion and upgrade of its nonclinical services facilities, increasing its general toxicology testing capacity by more than 50% to meet growing industry demand for nonclinical testing. Revenue Second Quarter Ended June 30, 2005 Q2 2005 Q2 2004 % Change ------------ ------------ ------------ Genomics and toxicogenomics services $ 14,166 $ 12,663 12% Nonclinical contract research services 5,820 5,959 -2% Drug repositioning and selection services 147 - NA ------------ ------------ ------------ Total revenue $ 20,133 $ 18,622 8% ------------ ------------ ------------ *T Total revenue for the second quarter of 2005 was $20.1 million compared to $18.6 million for the second quarter of 2004, an increase of 8%. Revenue for the Company's genomics and toxicogenomics business increased $1.5 million, or 12%. Revenue for the second quarter of 2005 includes $2.9 million for the first deliverables of a $5.5 million sale to an existing customer, for a perpetual license for data. The balance of the $5.5 million will be recognized as data is delivered through December 2006. The Company is currently broadening its portfolio of genomics services and related distribution channels as the Company continues its strategy of increasing its sales beyond large, multiyear subscriptions. Revenue for the Company's nonclinical contract research services business declined slightly in 2005. -0- *T Six Months Ended June 30, 2005 6 Months 6 Months 2005 2004 % Change ------------ ------------ ------------ Genomics and toxicogenomics services $ 27,405 $ 26,473 4% Nonclinical contract research services 12,254 12,370 -1% Drug repositioning and selection services 214 - NA ------------ ------------ ------------ Total revenue $ 39,873 $ 38,843 3% ------------ ------------ ------------ *T Year-to-date total revenue was $39.9 million compared to $38.8 million for the prior year and reflects a 4% increase in genomics and toxicogenomics revenue and essentially flat revenue for the Company's nonclinical contract research services. Operating Income (Loss) -0- *T Second Quarter Ended June 30, 2005 Q2 2005 Q2 2004 % Change ------------ ------------ ------------ Genomics and toxicogenomics services $ 1,669 $ (1,895) 188% Nonclinical contract research services (2,838) (2,316) -23% Drug repositioning and selection services (2,460) - NA ------------ ------------ ------------ Total operating income (loss) $ (3,629) $ (4,211) 14% ------------ ------------ ------------ *T Total operating loss for the second quarter of 2005 was $3.6 million, which included $2.5 million in losses from our investment in our new drug repositioning and selection services business. This compares to $4.2 million for the second quarter of 2004. This improvement of 14% reflects the positive impact of increased sales volume of $1.5 million and reduced database production expenses, offset by higher facility, labor and support costs associated with expansion of the Company's nonclinical contract research services capacity, as well as the investment in the Company's new drug repositioning and selection business. -0- *T Six Months Ended June 30, 2005 6 Months 6 Months 2005 2004 % Change ------------ ------------ ------------ Genomics and toxicogenomics services $ 2,504 $ (4,560) 155% Nonclinical contract research services (5,840) (4,859) -20% Drug repositioning and selection services (4,919) - NA ------------ ------------ ------------ Total operating income (loss) $ (8,255) $ (9,419) 12% ------------ ------------ ------------ *T Year-to-date total operating loss was $8.3 million, which included $4.9 million related to our investment in our new drug repositioning and selection services business. This compares to $9.4 million for the first six months of 2004. This improvement of 12% reflects the positive impact of reduced database production expenses and achievement of other operational efficiencies, offset by increases in cost of sales and research and development expenses, which now include the development and commercialization of the Company's new drug repositioning and selection business. -0- *T Note: Management uses operating income to evaluate segment performance. To arrive at operating income, the Company has included all direct costs for providing its services and an allocation for corporate overhead applied on a consistent and reasonable basis. The Company has excluded the cost of income taxes and interest income or expense and could also exclude certain unusual or corporate related costs in the future. In addition, while the Company's consolidated results of operation include adjustments to reflect the elimination of inter-company transactions, individual segments may include these types of transactions. The Company does not believe these transactions are material and believes that their inclusion would not impact either management's or shareholders' understanding of our various segments. For the purpose of clarity, revenue is reported net of inter-company transactions. *T Operating Expenses Operating expenses, excluding the cost of nonclinical contract research services, for the second quarter of 2005 were $17.1 million compared to $16.7 million for the second quarter of 2004. These results reflect the impact of lower costs associated with developing additional database content, including costs for microarrays, tissues, amortization and agreements with third parties, offset by $2.6 million in increased expenses associated with the ongoing development and commercialization of the Company's new drug repositioning and selection services business. Year-to-date operating expenses, excluding the cost of nonclinical contract research services, were $34.3 million, a decrease of $1.3 million or 4% when compared to $35.7 million for the prior comparative period. Gross Margin The gross margin in the Company's nonclinical contract research services business for the second quarter of 2005 was negative $0.8 million or negative 14%. Gross margins reflect the impact of higher facility, labor and support charges largely associated with and in advance of our recently announced 50% increase in nonclinical contract research capacity. We expect margins to increase as we begin to utilize this additional capacity. Income Tax Expense Income tax expense for the second quarter of 2005 was zero compared to $0.5 million for the second quarter of 2004, reflecting the impact of the implementation of a new income tax treaty between the United States and Japan, effectively eliminating withholding taxes on payments made between the countries after July 1, 2004. Net Loss The net loss for the second quarter of 2005 was $2.6 million, or $0.08 per share, compared to $4.4 million, or $0.14 per share, for the second quarter of 2004, and reflects an improvement of 41%. Year-to-date net loss was $6.7 million, or $0.21 per share, compared to $9.9 million, or $0.32 per share, for the prior year, and reflects an improvement of 32%. Backlog As of June 30, 2005, Gene Logic had a backlog for nonclinical contract research services of approximately $15 million, which comprises commitments under signed task orders (or other written firm commitments), excluding any amounts thereunder recognized as revenue. Cash As of June 30, 2005, Gene Logic had approximately $98.0 million in combined cash, cash equivalents and marketable securities available-for-sale, which compares to $97.8 million as of March 31, 2005 and $102.9 million as of December 31, 2004. Gene Logic Guidance The Company is reaffirming its previous guidance issued on March 17, 2005. Conference Call and Webcast Gene Logic will host a conference call and webcast to discuss these results on Wednesday, July 20 at 9:00 a.m. Eastern Time. -0- *T Conference Call Details: Dial-In: 800/322-2803 Domestic 617/614-4925 International Replay Dial-In: 888/286-8010 Domestic 617/801-6888 International Passcode: 21115816 Webcast: Please go to www.genelogic.com, Investors, within 15 minutes prior to the call and select the webcast link. *T The conference call replay will be available through August 3, 2005. The webcast will be archived on Gene Logic's website. Gene Logic Overview Gene Logic is leading the transformation of pharmaceutical research and development with its extensive gene expression databases, pioneering efforts in toxicogenomics, sophisticated bioinformatics expertise, specialty nonclinical testing capabilities and cutting edge technology program for drug repositioning. Gene Logic technologies and services are used by many of the world's top pharmaceutical and biotechnology companies. Over 150 organizations and government agencies have benefited from Gene Logic's diverse portfolio of drug development services, enabling them to make more informed, more reliable and more predictive decisions at each point in the highly complex and costly drug development process. Founded in 1994, Gene Logic is headquartered in Gaithersburg, Md., with additional research and development facilities in Cambridge, Mass. and Berkeley, Calif. The Company maintains customer support operations in Europe and Asia and currently has about 450 employees worldwide. For more information, visit www.genelogic.com or call toll-free - 1/800/GENELOGIC. Safe Harbor Statement This news release contains forward-looking statements that involve significant risks and uncertainties, including those discussed below and others that can be found in our Annual Report on Form 10-K for the year ended December 31, 2004 (filed on March 16, 2005) and in subsequent filings made with the Securities and Exchange Commission. Gene Logic is providing this information as of the date of this news release and does not undertake any obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise. No forward-looking statement can be guaranteed and actual results may differ materially from those we project. The Company's results may be affected by: the extent of utilization of genomics, toxicogenomics, bioinformatics, nonclinical contract research and drug repositioning and selection by the pharmaceutical and biotechnology industry in research and product development; our ability to retain existing and obtain additional domestic and international customers in a timely manner; capital markets and other economic conditions adversely affecting the purchasing patterns of pharmaceutical and biotechnology companies; levels of industry research and development spending; risks relating to the development of genomics and toxicogenomics-based services and their use by existing and potential customers; our reliance on sole source suppliers; our ability to limit our losses and become profitable; our ability to timely supply customers with additional data as required under some of our genomics and toxicogenomics services contracts; risks relating to the fact that our contracts with our Japanese customers are payable in foreign currency beginning in 2005 and may be subject to fluctuations due to changes in currency exchange rates; our ability to continue to successfully manage growth of our nonclinical contract research operations, including increasing facility capacity and achieving optimal use of facilities and facility capacity and adequate quality of studies; our ability to comply with, and to provide studies that are compliant with, regulatory requirements, including those of the FDA, DEA, and AAALAC; our ability to attract and retain key employees; our continued access to necessary human and animal tissue samples; the availability of large animals for clinical testing; our ability to enforce our intellectual property rights and the impact of intellectual property rights of others; outsourcing trends in the pharmaceutical and biotechnology industries; competition within the drug development services outsourcing industry; our ability to limit losses from certain fixed price contracts for nonclinical contract research services; technological advances or alternative technologies, methodologies and services that may make our genomics and toxicogenomics services, nonclinical contract research services and/or drug repositioning and selection services less competitive; risks associated with valuation of assets representing acquired businesses; our ability to successfully develop and commercialize the Horizon technologies acquired from Millennium Pharmaceuticals, Inc., and our related drug repositioning and selection services, and our ability to successfully develop new indications for compounds, and to realize value from such results of our services. Note: Gene Logic, BioExpress and the Gene Logic logo are registered trademarks used by Gene Logic Inc. Financial tables follow. -0- *T Gene Logic Inc. Statement of Operations (in thousands, except per share amounts) (unaudited) Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------- 2005 2004 2005 2004 ---------- ---------- ---------- ---------- Revenue: Genomics and toxicogenomics services $ 14,166 $ 12,663 $ 27,405 $ 26,473 Nonclinical contract research services 5,820 5,959 12,254 12,370 Drug repositioning and selection services 147 - 214 - ---------- ---------- ---------- ---------- Total revenue 20,133 18,622 39,873 38,843 Expenses: Cost of nonclinical contract research services 6,618 6,115 13,808 12,605 Database production 8,021 10,498 16,203 22,609 Research and development 1,380 357 2,841 719 Selling, general and administrative 7,743 5,863 15,276 12,329 ---------- ---------- ---------- ---------- Total expenses 23,762 22,833 48,128 48,262 ---------- ---------- ---------- ---------- Loss from operations (3,629) (4,211) (8,255) (9,419) Interest (income), net (617) (308) (1,117) (618) Other (income) expense (402) - (427) - ---------- ---------- ---------- ---------- Net loss before income tax expense (2,610) (3,903) (6,711) (8,801) Income tax expense - 489 - 1,101 ---------- ---------- ---------- ---------- Net loss $ (2,610) $ (4,392) $ (6,711) $ (9,902) ========== ========== ========== ========== Basic and diluted net loss per share $ (0.08) $ (0.14) $ (0.21) $ (0.32) ========== ========== ========== ========== Shares used in computing basic and diluted net loss per share 31,742 31,449 31,725 31,358 ========== ========== ========== ========== Note: Certain reclassifications have been made to the prior years' financial statements to conform to the current year presentation. Gene Logic Inc. Consolidated Condensed Balance Sheets (in thousands) June 30, December 31, 2005 2004 ------------ ------------ (unaudited) ASSETS Current assets: Cash and cash equivalents $ 68,981 $ 53,237 Marketable securities available-for-sale 29,002 49,678 Accounts receivable, net 7,828 4,953 Unbilled services 6,214 6,406 Inventory, net 2,975 1,683 Prepaid expenses 2,439 2,210 Other current assets 1,576 2,185 ------------ ------------ Total current assets 119,015 120,352 Property and equipment, net 29,722 23,034 Long-term investments 4,239 4,239 Goodwill 45,707 45,707 Intangibles and other assets, net 11,387 13,749 ------------ ------------ Total assets $ 210,070 $ 207,081 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,500 $ 5,256 Accrued compensation and employee benefits 6,152 3,990 Other accrued expenses 5,095 4,629 Current portion of capital lease obligations 142 136 Current portion of long-term debt 495 494 Acquired technologies payable 3,419 - Deferred revenue 16,623 9,788 ------------ ------------ Total current liabilities 35,426 24,293 Deferred revenue 4,350 3,595 Capital lease obligations, net of current portion 132 204 Long-term debt, net of current portion 151 174 Acquired technologies payable - 3,347 Other noncurrent liabilities 3,633 2,640 ------------ ------------ Total liabilities 43,692 34,253 ------------ ------------ Stockholders' equity: Common stock 318 317 Additional paid-in capital 385,499 385,313 Accumulated other comprehensive loss (62) (136) Accumulated deficit (219,377) (212,666) ------------ ------------ Total stockholders' equity 166,378 172,828 ------------ ------------ Total liabilities and stockholders' equity $ 210,070 $ 207,081 ============ ============ *T