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Affy Claims Genotyping Market Has Slowed, But Service Providers, Rivals See No Decline in Sight


By all accounts, the past seven months have been among the most challenging Affymetrix has faced since it was founded 15 years ago.

Since August, the 1,101-employee company has faced the dual challenges of launching three major products — the Human Mapping 500K Array set for genotyping, exon arrays, and tiling arrays — and experiencing a manufacturing malfunction that forced it to revise two quarterly earnings forecasts just weeks before the company was set to report its results (see BAN 1/10/2006>, BAN 10/05/2005).

During the past eight months, Affymetrix's stock has lost nearly half its total market capitalization [see accompanying chart], prompting the Motley Fool, an Internet-based investment news outlet, to name the company its second-worst "market loser" for stock performance so far this year.

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So when Affy reported in a Securities and Exchange Commission filing on Feb. 28 that the timing of reorders for its 500K Mapping Array product may change and that the company believes the genotyping market has temporarily slowed, analysts, customers, and rivals were left wondering if Affy will miss guidance again — and whether the market has in fact slowed.

"Since many customers complete projects before reordering, this may affect the timing of the 500K product reorders," the company said in the SEC filing. "In addition, we believe that the market for whole genome mapping products has temporarily slowed as early technology adopters begin to report on their whole genome genotyping studies and customers evaluate claims of competitive products about future price and performance," the company added.

The company also said that some of its 500K customers have experienced difficulties "scaling up" to handle the new high-density chips.

"More than 70 of our existing customers are currently scaling up production on the Mapping 500K Array Set and some of these customers are experiencing challenges in the scale up," Affy said.

Although Affymetrix did not announce any revision in its first-quarter guidance, the SEC filing, together with similar statements Chief Financial Officer Greg Schiffman made at the Citigroup 2006 Healthcare conference in Washington, DC, on Feb. 28 did little to assuage analysts and investors.

Piper Jaffray analyst Edward Tenthoff immediately issued a research note stating that Affy's statements did not bode well for the company. "This is a clear near-term negative to Affymetrix who may have difficulty meeting [first-quarter] product sales forecast of $87 million with estimated genotyping array revenues of $20 million," he wrote. He also said that Affy's statements "could also be a potential positive to Illumina, who we believe to be gaining market share from Affymetrix during the 500K yield and capacity set-backs."

Affymetrix declined to comment on its recent statements. Still, Schiffman provided a more detailed picture of the difficulties some customers have had scaling up during a presentation at Lehman Brothers Healthcare Conference in Miami last week.

Specifically, Schiffman said that the company's challenges have been exacerbated by the number of customers Affy has for the product as well as "the speed of adoption that [Affy] saw."

"It is clear that we did not educate our customers as well as they needed to be educated on the new assay," Schiffman said. He said that the 500K assay was a more complicated assay than a gene expression assay, and that the varied results some customers are getting using the chips are "not related to product, but related to education."

"It is clear that we did not educate our customers as well as they needed to be educated on the new assay."

'Where the Action Is'

Despite Schiffman's cautious tone, Affymetrix users and rivals described a genotyping market that is anything but slowing down.

"Without question, demand [for genotyping arrays in general] continues to increase," said David Duggan, director of the Genotyping Technology Center at the Translational Genomics Research Institute, which offers the Affymetrix platform and has seen usage at the center increase by 400 percent over the past six months. "We may have to think about hiring additional personnel to meet increasing demand."

Although Duggan has yet to use the 500K arrays — all studies so far have been done using Affy's 100K mapping arrays — Duggan said that TGen is ramping up to use the 500K and that he does not expect any problems doing so.

"Our first 500K study is in the queue to start at the end of this month," Duggan told BioArray News last week. "We are also in discussions to bring [an Illumina] HumanHap300K project to the center in the next month or two. Except for increased scan times on both of these platforms, I do not expect any difficulty ramping up these newer technologies."

Daniel Tessier, senior director of operations and business development at Genome Quebec, told BioArray News last week that "the demand for genotyping services has increased by a factor of 10 in the last year" at Genome Quebec.

The Genome Quebec Innovation Centre carried out "approximately 40 million genotypes last year, not using the newest genome-wide platforms offered by Illumina and Affymetrix. The current level of demands for those technologies leads us to believe that we will reach close to a billion genotypes this year," Tessier said.

He added that Genome Quebec began using Affy's 500K chips last year, and that it has not experienced any significant problems ramping up to handle them. "As is the case with any new technology or platform, protocols have to be implemented and adapted to operating procedures," he said. "We are approximately midway into the implementation phase right now at Genome Quebec and the delays have not been extraordinary in either case."

The view from industry is equally sunny. Illumina spokesperson Bill Craumer told BioArray News last week that, from his company's perspective, there is "no slowdown whatsoever in the whole-genome genotyping market." Illumina launched its HumanHap300 array for whole-genome association studies in January.

"It's the fastest growing segment of the array market right now," Craumer added. "That's where the action is."

However, some 500K users are experiencing situations similar to what Affy described in its SEC filing. For example, Karin Dahlman-Wright, co-director of the Karolinska Institute Bioinformatics and Expression Analysis core facility, told BioArray News last week that "since [Karolinksa] has only had a few large projects, there [have been] large fluctuations in demand." According to Dahlman-Wright, BEA offers only Affymetrix products, including the 500K set, for genotyping projects.

In addition, Dahlman-Wright said that BEA has "invested some efforts to get the 500K up and running in [its] facility."

Sarah Rizvi, a research assistant at the Microarray Core Facility at MD Anderson Cancer Center in Houston, Tex., said that her center will introduce the 500K chips for genotyping starting in April, but that "demand has not been very high."

"We currently only provide [genotyping services] to a handful of customers. I cannot say that the demand has increased," Rizvi said.

'Growth Driver'

Though Affy's recent statements have evidently affected the stock market's perception of the company, the experience of those in the marketplace, coupled with the company's own outlook, create a less ominous picture.

For example, Affy has made headway in its plans to bring online a manufacturing facility in Singapore later this year.

"In February 2006, we successfully completed the first in a series of manufacturing tests to demonstrate the capability of the Singapore facility," Affy noted in the SEC filing. "Passing this milestone keeps us on track for Singapore commercial array production in the second half of 2006."

Furthermore, in a 10-K filed with the SEC last week, Affy affirmed that its consumables business would be the primary breadwinner for the company in 2006. This segment generated 70 percent of the company's product and product-related revenues in 2005, of which 30 percent was from its genotyping business.

"Our goal in 2006 is to continue to grow our product and product-related revenue. We expect to achieve this goal through continued growth in sales of our consumable probe arrays and reagents as well as related services as we expand our product lines, applications and add new customers," Affy stated in the document.

Doug Farrell, Affy's head of investor relations, suggested last week in the Lehman Brothers presentation that any difficulties associated with its mapping products were short-term.

"This is a market that we see a tremendous opportunity and it's going to be a growth driver for Affymetrix," Farrell said.

— Justin Petrone ([email protected])

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