The Mystery Of Gene Logic (GLGC)

Gene Logic Inc. (NASD:GLGC) is a difficult business to understand. Not that its model is overly complex. The company, according to its own direct description, "provides a broad portfolio of preclinical services to assist drug developers with compound evaluation, from selection through clinical development. We conduct preclinical studies of all sizes and degrees of complexity in our 100,000 square feet of laboratory and support space". The company also develops software and gene expression data bases. OK. Straightforward and fair enough.

Revenue has gone up modestly over the last three years, from $69.5 million in 2003 to $75.9 million in 2004 to $79.4 million last year. But the company hemorrhages money. Its operating losses over this period were in excess of $100 million.

In the first quarter of 2006, matters went from bad to worse: Revenue dropped from $19.7 million in Q1 05 to $12.8 million this year. Operating expenses rose from $17.2 million to $18.7 million. Net loss was $11.8 million compared to $4.1 million a year ago.

Cash and cash equivalents dropped from $82.1 million on December 31, 2005 to $63.9 million at the end of Q1. The company's reaction? "The Company does not expect the unusually large decline in cash reported for the first quarter to be representative of cash usage for each of the remaining quarters in 2006." Let's hope not. That could make for a very ugly year. The company also said its sales pipeline is robust, but no one seemed to believe them. Shares were beaten down 26% to $3.10 getting close to the 52-week low of $2.75. The high for the period is $5.90.

At this point, the company does not seem to be able to make any realistic case for its business or give lucid plans for being profitable in the foreseeable future. It may be that the company's only good fortune is that the stock has not gone down further.

GLGC 1-yr Chart

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at [e-mail].