Gene Logic Reports Fourth Quarter and Full Year 2006 Financial Results
GAITHERSBURG, Md. Gene Logic Inc. (NASDAQ: GLGC) today reported financial results
for the fourth quarter and twelve months ended December 31, 2006.
Strategic Update and 2006 Highlights:
We are transforming Gene Logic into a biopharmaceutical company
through drug development partnerships with major pharmaceutical
companies. We believe this focus is the best way to create value for
our shareholders. To date, our partnerships include Pfizer,
Hoffmann-La Roche, Eli Lilly, and Organon. Our partners provide Gene Logic with drug candidates that have
been assessed as safe in human clinical trials, and for which
development for their original indications has been discontinued. We
are building a clinical-stage therapeutic pipeline by applying our
proprietary drug indication platform that includes both comprehensive
biological screening techniques and extensive genomics assets we
previously developed and commercialized. Together, these combined
assets represent a competitive advantage for Gene Logic and allow us
to seek new therapeutic uses for our partners' discontinued
candidates. We expect to earn milestones and royalties on repositioned
drugs that our partners return to their development pipelines, and/or,
in some cases, ownership positions in repositioned candidates that our
partners choose not to pursue. In 2006, we began to explore new avenues of value for our Genomics
Division, including capitalizing on our commercially demonstrated
expertise in biomarker development as a potential platform for
molecular diagnostics development. We have reduced our expenses while
we continue to serve new and existing Genomics customers. We have
engaged outside financial advisors to consider strategic alternatives
to further develop this business. This effort could include a spin-off
entity with a retained equity position or other alternative structures
to capture value for Gene Logic. In summary, during 2006 we took a number of steps to support the
new direction of our business: - Signed drug development partnership agreements with Eli Lilly
and Organon.
- Acquired certain rights from Millennium Pharmaceuticals to a
drug candidate for which we have identified potential new
indications.
- Began evaluating more than 40 clinical-stage drug candidates
for new therapeutic use. These compounds originate through our
partnerships with Pfizer, Hoffman-La Roche, Eli Lilly, and
Organon.
- Expanded our good laboratory practice ("GLP") Genomics
Services in support of our pharmaceutical customers' clinical
trials while continuing to add new customers to our Genomics
information business.
- Began to seek to apply our Genomics Division assets toward
molecular diagnostics development, and lowered expenses by
reducing our workforce and closing the Berkeley, California
office.
- Completed the sale of our Pre-Clinical Division, which
included four of our leased facilities and the transfer of
approximately 200 employees.
As a result of these changes, we have reduced the number of
employees from 434 at the end of 2005 to 151 as of year-end 2006. Gene Logic is reporting the following for the fourth quarter and
twelve months ended December 31, 2006: Revenue from Continuing Operations Revenue from Gene Logic's continuing operations is derived
primarily from its Genomic Services Division. To date, meaningful
revenue from the Drug Repositioning Division has not been recorded.
Total revenue from continuing operations for the fourth quarter of
2006 was $7.2 million compared to $17.8 million for the fourth quarter
of 2005, a decrease of $10.6 million. This decline in sales for the
Company's subscription-based database services reflects our customers'
continuing shift in their research activities from early-stage drug
discovery into later stage development and validation efforts. Total revenue from continuing operations for the full year 2006
was $24.3 million compared to $57.2 million for 2005, a decrease of
$32.8 million due to the decline in demand for the company's Genomics
subscription-based database services described above. Operating Expenses from Continuing Operations Operating expenses from our continuing operations consist of costs
for services and adding content to the Company's Genomics databases,
costs for developing and providing our Drug Repositioning Division
services and sales, marketing, and general and administrative expenses
associated with all of our businesses, as well as restructuring
expenses. For the fourth quarter of 2006, total operating expenses from
continuing operations were $13.5 million and $17.1 million for the
same period of 2005, a decrease of $3.5 million or 21%. This reduction
reflects the favorable impact of the restructuring of the Genomics
Division and lower amounts spent on additional Genomics database
content. For all of 2006, total operating expenses from continuing
operations, excluding Genomics Division restructuring expenses of $5.3
million, were $59.7 million compared to $65.3 million for 2005, a
decrease of $5.6 million or 9%. This reduction reflects the favorable
impact of the restructuring of the Genomics Division and lower amounts
spent on additional Genomics database content, partially offset by
$1.8 million in increased spending for our Drug Repositioning Division
due to the previously anticipated higher costs associated with
evaluating compounds under the terms of Gene Logic's various Drug
Repositioning agreements. Segment Operating Income (Loss) from Continuing Operations 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. Segment Operating Income (Loss) for the Fourth Quarter and Year
Ended December 31: Three Months Ended Twelve Months Ended
December 31, December 31,
---------------------- -----------------------
2006 2005 2006 2005
----------- ---------- ----------- -----------
Drug Repositioning
Division $ (3,837) $ (3,550) $ (15,077) $ (13,730)
Genomics Division (2,501) 4,248 (25,541) 5,631
----------- ---------- ----------- -----------
Total operating income
(loss) $ (6,338) $ 698 $ (40,618) $ (8,099)
----------- ---------- ----------- -----------
Drug Repositioning Division: For the fourth quarter and twelve months of 2006, the Company's
operating losses in the Drug Repositioning Business were $3.8 million
and $15.1 million, respectively, compared to $3.6 million and $13.7
million for the prior year periods, respectively. These results
reflect the continuing scale-up and development of the Company's Drug
Repositioning Business over the past 12 months. Spending increased
largely due to additional expenses related to evaluating increased
numbers of compounds as a result of more agreements with its partners.
The Company expects to continue its investment in the Drug
Repositioning Business. Genomics Services Division: For the fourth quarter of 2006, Genomics Services Division
reported an operating loss of $2.5 million compared to an operating
profit of $4.2 million for the fourth quarter of 2005. For the twelve
months of 2006, Genomics Services Division reported an operating loss
of $25.5 million compared to an operating profit of $5.6 million for
the twelve months of 2005. The results for both the fourth quarter and
full year continue the recent trend of significantly lower
year-over-year performance caused primarily by sales shortfalls due to
the continuing loss of revenue for the Company's subscription-based
database services, partially offset by the favorable impact of the
restructuring and lower amounts spent on additional Genomics database
content. Discontinued Operations On December 15, 2006 we announced the closing of the sale of Gene
Logic Laboratories, Inc., our Pre-Clinical Division, for a sales price
of $15.0 million, including $13.5 million paid at closing and $1.5
million held in escrow for 12 months to guarantee certain obligations
under the agreement. The sales price is subject to final adjustment
for certain changes in working capital and the assumption of certain
liabilities associated with the business. At September 30, 2006 we
estimated an $11.0 million impairment for our Pre-Clinical Division
which has been adjusted to $10.9 million at December 31, 2006, to
reflect the terms and conditions of sale, and to reserve against
remaining expenses and liabilities. Further adjustments to the
impairment could become necessary in 2007 to reflect actual fees and
expenses incurred, final adjustments to the purchase price, or if
valid claims are made against the amount held in escrow. In addition, $3.7 million and $4.2 million in costs for 2006 and
2005 respectively, that were previously allocated to the Pre-Clinical
Division have been re-allocated to the Genomics and Drug Repositioning
Division. Of these amounts, $0.9 million and $1.0 million for 2006 and
2005, respectively, are attributed to the fourth quarter. These
amounts represent costs that, as a result of the actual terms of sale,
we have now determined will not be eliminated as a result of the sale
of the Pre-Clinical Division. Three Months Ended Twelve Months Ended
December 31, December 31,
------------------ ---------------------
2006 (1) 2005 2006 (1) 2005
-------- --------- ---------- ----------
Revenue from discontinued
operations $ 7,254 $ 4,670 $ 25,961 $ 22,180
Income (Loss) from
discontinued operations $ 854 $ (3,126) $ (16,456) $ (42,924)
(1) Includes an impairment (credit) charge of ($0.1) million and $10.9
million during the three and twelve months ended December 31, 2006,
respectively.
Net Loss For the fourth quarter of 2006, total consolidated net loss was
$5.0 million or $0.16 per share, compared to a net loss of $2.1
million, or $0.07 per share, for the fourth quarter of 2005. For the
twelve months of 2006, total consolidated net loss was $54.7 million
or $1.72 per share, compared to a net loss of $48.3 million, or $1.52
per share, for the twelve months of 2005. Total net loss for the
twelve months of 2006 includes a $10.9 million impairment charge
associated with the Pre-Clinical Division and $5.3 million in
restructuring charges for the Genomics Services Division. Total net
loss for the twelve months of 2005 included a $32.8 million charge
associated with recording the impairment of goodwill for the
Pre-Clinical Division. Liquidity As of December 31, 2006, the Company had $50.1 million in combined
cash, cash equivalents and marketable securities available-for-sale,
compared to $82.1 million as of December 31, 2005. Appointment of Lloyd I. Miller, III to the Board of Directors The Company is pleased to announce it has appointed Lloyd I.
Miller, III, a significant investor in the Company, to its board of
directors. Mr. Miller is an independent investor and has served on
numerous corporate boards, including Vulcan International, American
Controlled Industries, and Denny's. He is currently a director of
Pharmos Corporation, Stamps.com, and American Banknote, among others.
Mr. Miller is a member of the Chicago Board of Trade and the Chicago
Stock Exchange, and is a Registered Investment Advisor. Conference Call and Webcast Gene Logic will host a conference call and webcast on February 23,
2007 at 10:00 a.m. Eastern to discuss the results for the fourth
quarter and full year of 2006. Participants to the live call may dial
(800)798-2801 or (617)614-6205 and use the passcode Gene Logic;
alternatively, a webcast of the live call will be accessible from the
Investors section of the Company's website at
www.genelogic.com/investors/confcalls.cfm. A replay of the call will be available beginning February 23, 2007
through March 9, 2007. Participants to the replay may dial
888/286-8010 or 617/801-6888 and use the passcode 90041714. An
archived webcast of the conference call will also be available under
the Investors section of the Company's website at www.genelogic.com. Gene Logic Overview Gene Logic is transforming into a biopharmaceutical development
company through partnerships with pharmaceutical companies. Our
partners provide Gene Logic with access to their drug candidates that
have been assessed as safe in human clinical trials but discontinued
for other reasons. Gene Logic applies its drug indication platform to
find new therapeutic uses for the drug candidates. Gene Logic expects
to receive milestone payments and royalties on drug candidates that
our partners choose to develop based on the indications we find or, if
the partner elects not to pursue such new indications, Gene Logic may
receive ownership and development rights. Gene Logic has also developed proprietary genomics databases and
services to enable customers worldwide to discover and prioritize drug
targets, identify biomarkers, predict toxicity and understand
mechanisms of toxicity, and obtain insights into the efficacy of
specific compounds. We continue to offer customers these services and
licenses to the databases. Such databases, services and expertise are
also a vital part of our drug indication platform. We are now seeking
strategic alternatives to use our Genomics assets capabilities and
expertise for molecular diagnostics. Founded in 1994, Gene Logic is headquartered in Gaithersburg, Md.,
with additional research and development facilities in Cambridge,
Mass. The Company currently has about 150 employees worldwide. For
more information, visit www.genelogic.com or call toll-free -
1/800/GENELOGIC. Safe Harbor Statement This press release contains "forward-looking statements," as such
term is used in the Securities Exchange Act of 1934, as amended. Such
forward-looking statements include the Company's ability to identify
strategies for making its businesses successful and the impact of such
strategies on our business and financial performance and on
shareholder value. Forward-looking statements typically include the
words "expect," "anticipate," "believe," "estimate," "intend," "may,"
"will," and similar expressions as they relate to Gene Logic or its
management. Forward-looking statements are based on our current
expectations and assumptions, which are subject to risks and
uncertainties. They are not guarantees of our future performance or
results. Our actual performance and results could differ materially
from what we project in forward-looking statements for a variety of
reasons and circumstances, including particularly such risks and
uncertainties that may affect the Company's operations, financial
condition and financial results and that are discussed in detail in
the Company's Annual Report on Form 10-K and our other subsequent
filings with the Securities and Exchange Commission. They include, but
are not limited to: whether we will be able to identify and
successfully implement strategies, on favorable terms or at all, for
improving the performance and value of our businesses and improving
the value of our Genomics business and whether repositioned compounds
are successfully returned to our customers' pipelines and generate
sales, and resulting milestones and royalties for the Company or
whether we acquire repositioned compounds on acceptable terms and are
able to derive revenue from these compounds through licensing or
otherwise, whether we can enter into agreements to develop sufficient
compounds to fulfill our plans for the Drug Repositioning Division,
and improving the value of our businesses to shareholders; whether
there will be remaining price adjustments or liabilities associated
with the sale of the Pre-Clinical Division, whether we will be able
successfully to manage our existing cash adequately and whether we
will have access to financing on sufficiently favorable terms to
maintain our businesses and effect our strategies, including
development of repositioned compounds; whether we will be able to
recruit and retain qualified personnel, particularly in light of our
restructuring efforts; potential negative effects on our operations
and financial results from workforce reductions, other restructuring
activities, and the evaluation of strategic options; the potential
loss of significant customers; the possibility of further write-down
of the value of certain intangible assets of the Company, including
goodwill associated with the Genomics Division; and the possibility of
delisting from NASDAQ Global Markets, which could have an adverse
effect on the value of our stock. Gene Logic undertakes no obligation
to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. Gene Logic Inc.
Statement of Operations
(in thousands, except per share amounts)
Three Months Ended Twelve Months Ended
December 31, December 31,
-------------------- -------------------
2006 2005 2006 2005
---------- --------- --------- ---------
(unaudited)
Revenue:
Genomics services $ 7,181 $ 17,477 $ 24,310 $ 56,602
Drug repositioning services - 272 36 588
---------- --------- --------- ---------
Total revenue 7,181 17,749 24,346 57,190
Expenses:
Database production 5,966 8,146 27,408 31,689
Research and development 2,266 2,152 9,876 6,812
Selling, general and
administrative 5,406 6,753 22,422 26,788
Genomics Division
restructuring (119) - 5,258 -
---------- --------- --------- ---------
Total expenses 13,519 17,051 64,964 65,289
---------- --------- --------- ---------
Loss from operations (6,338) 698 (40,618) (8,099)
Interest (income), net (532) (781) (2,694) (2,625)
Other (income) expense 20 (253) 55 (813)
Write-down of other-than-
temporary decline in value
of marketable securities
available-for-sale - 719 - 719
Write-down of equity
investment - - 275 -
---------- --------- --------- ---------
Income (Loss) from
continuing operations (5,826) 1,013 (38,254) (5,380)
Income (Loss) from
discontinued operations 854 (3,126) (16,456) (42,924)
---------- --------- --------- ---------
Net loss $ (4,972) $ (2,113) $(54,710) $(48,304)
========== ========= ========= =========
Basic and diluted net loss
per share:
Income (Loss) from
continuing operations $ (0.18) $ 0.03 $ (1.20) $ (0.17)
Income (Loss) from
discontinued operations 0.02 (0.10) (0.52) (1.35)
---------- --------- --------- ---------
Net loss $ (0.16) $ (0.07) $ (1.72) $ (1.52)
========== ========= ========= =========
Shares used in computing
basic and diluted net loss
per share 31,820 31,771 31,807 31,744
========== ========= ========= =========
(1) Line items include non-
cash stock compensation
expense as follows:
Database production $ 23 $ - $ 149 $ -
Research and development 13 - 92 -
Selling, general and
administrative 49 - 390 -
Income (Loss) from
discontinued operations 15 - 158 -
---------- --------- --------- ---------
Total non-cash stock
compensation expense $ 100 $ - $ 789 $ -
========== ========= ========= =========
Gene Logic Inc.
Consolidated Condensed Balance Sheets
(in thousands)
December 31, December 31,
2006 2005
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 25,700 $ 43,946
Marketable securities available-for-sale 24,410 38,179
Accounts receivable, net of allowance of
$45 and $255 as of December 31, 2006 and
2005, respectively 3,327 1,779
Unbilled services 589 3,001
Inventory, net 2,180 3,091
Prepaid expenses 1,260 1,548
Other current assets 3,551 839
Assets of discontinued operations held
for sale - 32,889
------------- -------------
Total current assets 61,017 125,272
Property and equipment, net 12,829 15,603
Long-term investments 2,964 3,239
Goodwill 2,677 2,677
Other intangibles, net 10,060 13,399
Other assets 726 529
------------- -------------
Total assets $ 90,273 $ 160,719
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,703 $ 4,802
Payable to Bridge Pharmaceuticals 1,727 -
Accrued compensation and employee
benefits 2,883 6,277
Other accrued expenses 3,751 3,554
Accrued restructuring costs 1,941 -
Current portion of long-term debt 499 497
Acquired technologies payable - 3,492
Deferred revenue 3,299 9,738
Liabilities of discontinued operations
held for sale - 5,374
------------- -------------
Total current liabilities 17,803 33,734
Deferred revenue 228 -
Long-term debt, net of current portion 78 127
Deferred rent 1,074 2,002
------------- -------------
Total liabilities 19,183 35,863
------------- -------------
Stockholders' equity:
Preferred stock, $.01 par value;
10,000,000 shares authorized; and no
shares issued and outstanding as of
December 31, 2006 and 2005 - -
Common stock, $0.1 par value; 60,000,000
shares authorized; 31,820,273 and
31,771,835 shares issued and outstanding
as of December 31, 2006 and 2005,
respectively 318 318
Additional paid-in capital 386,530 385,586
Accumulated other comprehensive loss (78) (78)
Accumulated deficit (315,680) (260,970)
------------- -------------
Total stockholders' equity 71,090 124,856
------------- -------------
Total liabilities and stockholders'
equity $ 90,273 $ 160,719
============= =============
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