PARIS - Genset SA reported a net loss of FFr28.9 million (US$5.2 million) for the fourth quarter of 1998, which was not only higher than in the corresponding quarter of 1997 (FFr21.7 million) but the company's highest quarterly loss for the year.

In the first three quarters, the Paris-based genomics company had announced steadily falling net losses, from FFr27.8 million in the first quarter to FFr23.2 million in the second and FFr16.6 million in the third.

The company attributes the unexpected increase in the fourth-quarter losses to heavy investment in research facilities, although the 45 percent rise in research and development outlays - to FFr66.3 million ($11.9 million) from FFr45.7 million in the final quarter of 1997 - corresponded to the average for the year. On the other hand, there was a much smaller increase in revenues of 17.6 percent, to FFr42.2 million from FFr35.8 million.

For the year as whole, Genset's net loss edged up to FFr96.5 million from FFr93.8 million in 1997. Total revenues were almost 79 percent higher, at FFr176.5 million, largely because research and development income more than doubled to FFr139.7 million from FFr64.2 million in 1997, while sales of oligonucleotides rose to FFr36.8 million from FFr34.4 million.

Research and development spending was stepped up by 45 percent to FFr221.7 million in 1998 from FFr152.3 million the year before, while general and administrative expenses increased by 24 percent from FFr45.9 million to FFr57 million from one year to the next. The outcome was a marginally lower operating loss of FFr127.3 million and a slightly higher pre-tax loss of FFr114.2 million.

Profitability By Year's End Not A Target

Chief financial officer Deborah Smeltzer told BioWorld International the company is no longer aiming to move into profit by the end of this year, as it had been planning.

"Profitability is only a secondary target, so we may postpone the profit goal," she said. "Our primary objective is gene discovery research, and we saw a strategic opportunity to step up our research programs," the aim being to speed up development of the company's high-resolution map and increase its market share in the discovery and patenting of genes associated with common diseases, she added. Research and development spending will continue to rise for the next six to 12 months, she said, but this will not entail more rapid depletion of financial reserves.

Genset had consumed around $22 million of its reserves in 1998 and will probably use a similar amount this year, Smeltzer said. As of Dec. 31, 1998, the company's financial reserves (of cash, cash equivalents and short-term investments) totaled FFr329.3 million, down from FFr461.7 million at the end of 1997.

Genset's heavy capital spending in the fourth quarter of 1998 included the acquisition of new technology for the high-throughput sequencing and genotyping laboratories of its genomics research center at Evry, south of Paris. In addition, the company purchased a new super computer to enhance its bioinformatics and biostatistics capability, and installed advanced capillary electrophoresis sequencing equipment in its production plant.

The rise in Genset's general expenses in 1998 reflected the growth in its patent and licensing activities, as well as the March 1998 creation of a majority-owned subsidiary in Singapore for the manufacturing and marketing of oligonucleotides for the Asia-Pacific region, and the establishment of a pharmacogenomics research laboratory at the company's premises in La Jolla, Calif. Genset's total work force stood at 479 at the end of 1998, of which about 20 staffers were based at La Jolla.

The continuing expansion of its genomics research facilities reflects the growth of Genset's gene discovery programs and the conclusion of additional research collaboration agreements. In 1998, Genset concluded two new research partnerships and a licensing agreement.

Smeltzer expects a third pharmacogenomics agreement to be signed in the first half of this year, as well as one or two new research collaborations. The French company Synthilabo is thought likely to renew its prostate cancer research collaboration again, having already renewed it for a third year in 1998, while New Brunswick, N.J.-based Johnson & Johnson (J&J) is similarly expected to renew its partnership for the discovery of genes associated with schizophrenia. Smeltzer said Genset had already supplied J&J with a large amount of data and will be announcing the results of the first phase of this collaboration in the coming months. Genset also plans to unveil the initial results of its pharmacogenomics partnership with Abbott Laboratories, of Abbott, Ill., the first of two in this area. Smeltzer said the companies will establish proof of concept in the application of genomics research to drug response.

Genset is also looking to license its gene discoveries in the field of obesity, a research program it has been conducting in-house since the collapse of a collaboration with France's National Institute for Health and Medical Research (Institut National de la Santi et de la Recherche Midicale [INSERM]) last summer. Their joint molecular physiology laboratory in Rennes, in northwestern France, was closed in August amid allegations that questioned the professional probity of its director, but Smeltzer insisted that Genset disagreed with all the criticisms made of that research. The company's collaboration agreement with INSERM was signed in March 1997, and the first patent application resulting from it was filed the following August.