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UPDATE: Affymetrix GeneChip Sales Up During Flat Q3

This article has been updated from a previous version


NEW YORK, October 24 –Despite soaring sales of GeneChip microarrays, Affymetrix reported flat third-quarter revenues Wednesday, but said that it expected to become profitable by the second half of next year.

The company’s overall third quarter revenues totaled $55.4 million compared to $55.8 million for the same period of 2000. Product revenue increased to $47.3 million, from $45.4 million for the year-ago quarter, the company said. 

This revenue included sales of 70,000 GeneChip arrays, up from 50,000 for the third quarter of 2000, in addition to shipments of 10,000 replacement murine arrays sent to customers using the company’s sequence-defective U74 murine arrays, which it agreed to replace in March on a one-for-one. The company also shipped 48 GeneChip systems during the quarter, bringing its total installed base to 540 systems.

“We’re very pleased with healthy level of orders for murine as well as the human [GeneChip] products,” said Affymetrix Chief financial officer Gregory Schiffman during a conference call Wednesday to discuss the company’s third-quarter results, noting that the murine sales did not seem to be affected by the earlier debacle with the U74 murine arrays. 

Schiffman also said that sales of spotters now comprised a smaller proportion of Affymetrix’s revenue.“While spotter sales in the year 2000 represented almost 10 percent of our revenues, in 2001 product revenues have been almost wholly derived from the GeneChip product line.” 

This shift in revenues reflects Affymetrix’s implementation an overall altered strategy, which president Sue Siegel detailed in the previous quarter’s conference call, to focus sales and marketing efforts on its core GeneChip product rather than on arraying equipment and licensing deals. Siegel reiterated this strategy during the Wednesday call.

“We should expect the spotting business not to be a material part of our business on a go forward basis,” said Siegel. However, the company is about to release a high-throughput 427 arrayer for limited launch, she added.

Schiffman meanwhile predicted that the company would continue to install an average of three to four GeneChip systems per week during the next quarter. 

During 2002, the company expects to see 25 percent revenue growth, Shiffman said, “and we expect to achieve profitability in second half of 2002.”

The growth in GeneChip revenues, said Siegel, should come from ongoing agreements with users who are converting from do-it-yourself arrays to GeneChips. One such example she pointed to was Millennium pharmaceuticals, which used to be a major do-it-yourself arraying company but just signed a new expansive microarray purchase and development agreement with Affymetrix. Additionally, Siegel said growth would come from increased use of arrays in genotyping and in increased use of expression profiling “deeper into the pharmaceutical development process,” in areas such as toxicology and drug mechanism of action studies.

During the quarter, other revenues from research, license fees, and royalties declined to $4.4 million from $10.4 million in the third quarter of 2000. Schiffman said the company expected licensing revenues to be flat in the coming quarter.

A portion of the company’s product revenues, totaling $3.1 million—was derived from sales of GeneChips and related products to spin-off Perlagen Sciences, which is seeking to do population-based studies of genetic variation using whole wafers of GeneChips. But the company also recorded this $3.1 million as a cost of sales.

The company’s overall expenses increased slightly during the quarter, to $63.2 million, from $57.6 million for the third quarter of 2000. This increase includes a rise in R&D costs to $16.6 million from $13.7 million for the third quarter of 2000, but a decline in selling, general, and administrative costs to $21.4 million from $25.5 million for the year-ago quarter. Other added costs included $4.7million in amortization of stock and purchased intangibles.

Affymetrix’s losses for the quarter totaled $4.8 million, or 8 cents per share, beating Wall Street’s expectations by three cents, according to a poll of nine brokers conducted by FirstCall/Thomson Financial.  However, losses would have been greater, (meeting Wall Street’s expectations) if the company had not recorded an “extraordinary gain” of $1.7 million due to its repurchase of convertible subordinated notes.

As a coda to the quarterly earnings announcement, CEO Steve Fodor said the company was “in discussion” with different organizations on the use of GeneChips in detection of biowarfare agents. “We have the capabilities and Affymetrix is really prepared to help out in this matter,” Fodor said.

Affymetrix reported total current assets of $443.1 million as of September 30.

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