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UPDATE: Affy Closes Down 36 Percent Following Revenue Warning

This story has been updated from a previous version.

NEW YORK, June 12 – Affymetrix stock plunged  $14.94, or 36 percent, to close at $26.01 on Tuesday, following an announcement late on Monday that the company was slashing its second-quarter revenue expectations due to a drop in demand for the company’s gene chips and spot arrayers.

The company said its revenues for the quarter would total between $44 million and $50 million rather than $56 million to $58 million as previously expected.

Affymetrix also said that it expected to report a net loss for the quarter of $4 million to $7 million, excluding non-cash, acquisition-related charges. Based on 57.6 million outstanding shares, the company expects a loss of 7 cents to 12 cents a share. Wall Street had expected the second quarter loss to be two cents a share, according to a poll conducted by First Call/Thomson Financial.

James Reddoch, a Banc of America Securities analyst, reacted to the news by cutting revenue expectations for the second quarter to  $46.3 million from $57.5 million and dropping the full-year revenue estimate to $219.7 million from $259.8 million. Reddoch downgraded his recommendation from “buy” to “market performer,” saying that the company’s long-term prospects for selling do-it-yourself arraying equipment were poor.

Reddoch also cited the lower revenue outlook and the murkier picture for the next two to three quarters.

Several other analysts also downgraded the stock.

During the Monday evening conference call, Affymetrix president Susan Siegel attributed the lowered revenue estimates to “erratic ordering patterns from certain [large] GeneChip accounts.”

“The current economic climate had created a challenging business environment for selling into the research departments of some key pharmaceutical companies,” she added.

Siegel also pointed to the replacement of the defective U74 murine assays, first disclosed in March, as contributing to decreased revenue expectations. Affymetrix predicted that it would lose $15 million to $20 million in revenues this year as a result of the replacement program.

“The product recall probably has some dampening affect on product sales,” said Merrill Lynch analyst Paul Kelly. “It takes more to convince people after an incident like that to transfer to an Affymetrix platform. Ultimately, [the company] will work through lingering issues.”

Kelly, who downgraded his recommendations for Affymetrix to “neutral” from “near-term accumulate” and increased his second-quarter loss-per-share estimate to 16 cents from one cent, believes the problems mentioned by Siegel are “transient phenomena.”

“The question mark is how quickly Affy can get business back on track,” said Kelly. “It looks like a several-months endeavor.”

Kelly does see a sustained red flag with the do-it-yourself array business acquired from Genetic Microsystems.

“That business has evaporated for Affy,” said Kelly.

Other genomic shares followed Affymetrix’s drop. Genomic technologies stocks ended the trading session broadly lower, with Applied Biosystems down 4.2 percent, Incyte off 3.4 percent, and Celera ending the day 9.1 percent lower. The Nasdaq Biotech Index and the Amex Biotech Index were down 1.7 percent and 3.2 percent, respectively. Bucking the trend, Ciphergen Biosystems rose 4.1 percent.

While Kelly acknowledged that negative news from a prominent company such as Affymetrix can affect an entire group, he said Tuesday’s overall downtrend was not unexpected.

Genomic companies “have been up by about 70 percent since the end of March. It still seems in this sector that major momentum moves rule the sector. Affy may have [just] been the catalyst today,” Kelly said.

Affymetrix’s share price has traded between $23.25 and $103.75 per share over the past 52 weeks.

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