Genel Logic (NASDAQ:GLGC) is a stock that is either one incredible value stock in biotech land, or it is just another major value trap.  Even after the last market malaise, we are still in a world where you have to lie, cheat, and steal to buy non-financial companies at what is perceived to be trading at "under net tangible book value."

This weekend I was reviewing some of my older value stock lists and hi-beta mega-outperforming stocks from prior years, and Gene Logic was one of the more interesting names.  Gene Logic was one of the picks from 2004 that hadn’t done that well at all the year before and would in fact still qualify as one of those stumbling biotechs that still trades under book value.  The problem is that at then end of 2003 or early 2004 (January 4, 2004 was report date) shares were at $5.19 and they are currently down more than 75% from that time.  Some of these other value picks rose 200% or even more since then, but not this one.

Compare 2004 to 2007 stats:

• Gene Logic Price on January 4, 2004: $5.19; implied stats at the time: Market Cap $159M; Net Liquid Assets $115M; CashBurn/Qtr $7M; Revenue/Qtr. $17M.
• Review compared to today: Stock price $1.28; Market Cap $41.2M; Net Liquid Assets $58.5M; CashBurn/Qtr $7M to $9M; Revenue/Qtr. $5+M.                         

What is funny is that if you go compare then to today, this picture just has refused to get better even if you consider the net value is under the market cap.  In any money-losing company trading at sub-book value you have to factor in the cash burn rates and look a few quarters out to see if it is real or if it is a trap.  Depending on what you model for revenues this will be back at book value in only one or two more quarters and it looks and acts like it has gone on life support. 

It would probably only cause upset stomachs to go back and ask investors from early 2000 how they liked this stock when it was well above $50.00.  If you look at Gene Logic of 2007 compared to 2000 you will probably think that those days are not just unlikely, they are probably impossible.  Interestingly enough, this just signed a repositioning pact last Monday with Solvay to discover new development paths for multiple clinical candidates.  The week before it signed a pact with Merck-KGaA-Serono. Shares hardly budged on the news releases. It also has signed a new senior vice president of clinical development to help its focus on its 70+ compounds under evaluation.

Gene Logic shares closed Friday at $1.28, and the stock has traded as low as $1.17 and as high as $2.88 over the last 52-weeks.  The company has two more or maybe three more quarterly reports that this stock trades under book value if the stock price and market cap were to stay static here.  After that, shareholders may try to pressure the company to just liquidate and return the assets slick.  There is obviously some value here.  It’s just hard to tell if this is a creaming value stock in micro-cap land or if this is just another perpetual money-losing biotech value trap.

This one will either become a phoenix that arises from the ashes, or it will become just another biotech zombie like so many other biotech and therapeutic companies.  This is one where you will also have to fend entirely for yourself since it has virtually no analysts that cover the microcap stock.

Jon C. Ogg
September 1, 2007

Jon Ogg can be reached at [email protected]; he produces 24/7 Wall St. LLC’s Special Situation Investing Newsletter and he does not own securities in the companies he covers.

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