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UPDATE: Affy Reports Slight Q2 Revenue Increase, Predicts Profitability in 2002

NEW YORK, July 25 - In line with a recent warning that sales of GeneChip products and do-it-yourself arraying equipment has slowed, Affymetrix reported revenues of $49.5 million for the second quarter Wednesday, compared to $45.4 million in the same period last year.  

These revenues comprised a total nine percent increase over the year-ago quarter, and landed at the high end of the company's revised revenue outlook of between $44 to $50 million. The company issued these figures in June, cutting back on initial revenue projection of between $56 and $58 million.  

But these final revenue figures include $2.9 million in revenues from Affymetrix subsidiary Perlegen, which the company essentially paid itself, as it listed $2.9 million in expenses for Perlegen revenues during the quarter. Without this self-payment, Affymetrix's revenues for the quarter totaled $46.6 million, up only two percent from the previous year period.  

Affymetrix's GeneChip revenue, however, increased 18 percent over the previous year's revenues.   

Company president Susan Seigel said this increase "reaffirms our confidence in the acceptance of GeneChip technology." In a conference call with analysts Seigel said the company placed three of its instruments per week during the quarter, for a total of about 36. And CEO Stephen Fodor said that more than 70,000 chips were shipped in the quarter. He estimated that between 15,000 and 20,000 of those were replacements for flawed mouse chips. 

Taking a swat at competitors such as Incyte and Corning, Seigel remarked, "We do fundamentally believe that oligo arrays are going to outperform cDNA arrays. We're seeing that through our licenses ... we feel very confident it will go toward the oligonucleotide basis."

Fodor told analysts that while he expects licenses and royalties to remain flat for the rest of the year, he expects to demonstrate an improving bottom line and to achieve profitability in 2002.    

Affymetrix earlier said it expected slowed growth in GeneChip revenue amidst uncertainty and erratic ordering patterns in its larger customers, as well as delays in ordering caused by the replacement program for the company's defective U74 murine arrays. Seigel said, "With regard to the mouse issue, the worst is behind us." But, she acknowledged, "Some of our largest accounts really did put us through the paces and were particularly concerned to see if this was affecting [human chips.] We had to show them almost probe by probe how we had gotten the probes." 

The company also said earlier that it had revised its revenue expectations downward due to the decrease in do-it-yourself arraying equipment caused by a shift among academic users from homemade to prefabricated arrays.  

In releasing its revenues, Affymetrix said this shift to prefabricated arrays, along with increased use of arrays for drug development, "are two trends the Company believes will expand its microarray market."  

During the week, Affymetrix released two new products that target this market, its NetAffx online information resource, a website where customers can draw together information about genes being probed with GeneChips from public and private database; and its CustomExpress array service for custom arrays. NetAffx will also allow users to choose gene probe sets for the CustomExpress arrays, the company said. 

Fodor remarked that the company is committed to "the expansion of whole-genome products from both a commercial and scientific perspective."  

Responding to analysts' questions as to when whole-genome scanning work being done by its subsidiary, Perlegen, will begin to bear fruit for Affymetrix, Fodor said that disease association studies will begin as soon as possible but that the "actual launch of products with Perlegen data will be a couple of years away." One "big benefit of [the Perlegen activities] will be the generation of new diagnostics," he said.

For the quarter, Affymetrix's expenses increased to $61.8 million compared to $53.2 million for the year-ago quarter. These included R&D expenses of $16.5 million, compared to $13.0 million in the second quarter of 2000, sales, general, and administrative expenses of $22.0 million, down slightly from $23.1 million in the same period of last year; as well as amortization of deferred stock compensation and intangibles totaling $4.8 million, which the company did not have in the year-ago period.  

The company's losses for the quarter totaled 16 cents per share, slightly wider than Wall Street's revised expectations of 13 cents per share, according to a poll of nine brokers conducted by FirstCall/Thomson Financial.