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Affymetrix Books $70M in Q2; Details Plans to Include Genome s Dark Matter on Chips

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Saying Affymetrix had a solid quarter is getting to be like telling baseball fans that the New York Yankees are in the playoffs again. For the third straight quarter, the company reported a pro forma profit — $631,000 — and its revenues swelled to $70 million. The company also said it shipped a record 97,000 microarrays.

Nevertheless, there were a few surprises during the company’s quarterly conference call.

For one, the academic market seems to be a source of continuing revenue for Affymetrix, despite the general view in the industry that profitability is best reached by reaching into pharma’s deep pockets. The company’s academic business is up 75 percent over 2001, according to Affymetrix president Sue Siegel. CFO Greg Schiffman added that the volume of chip sales in academic accounts is approaching the total volume in large commercial accounts. This base could increase as more academic labs decide they want to get their own gene chip systems rather than rely on a core lab, Siegel noted optimistically.

Secondly, the California-based company seems to be focusing its growth on Europe and Asia. Schiffman said sales, general, and administrative costs would increase to $25 million in the third quarter, primarily due to “the build-out of the European and Asia-Pacific infrastructure.”

On an R&D level, the company is looking beyond genes. CEO Steve Fodor said Affymetrix is now using its technology to shine a light on “the dark matter of the genome.” The company has “begun a large-scale study of the transcriptional output” of the genome, and is designing microarrays “to scan virtually every non-repetitive base in the genome,” he said.

This study, which Affymetrix is conducting in collaboration with the NCI, involves uncovering hidden levels of RNA transcription in the human genome. The scientists in this team published early results of their work in a May Science article. [May 3; 296: 916-919]. Then just last week, Affymetrix announced that the NIH had awarded the team nearly $4 million to continue this work.

The work revolves around the idea that RNA functions not only to code proteins, but also as a complex regulator of cellular activity. The group plans to design arrays and profile samples “across nearly two billion base pairs of the human genome,” and plans to release the results into public databases, Fodor said during the conference call.

While this initial study is pure science, the useful information that the team uncovers in the “transcriptome” is likely to end up on an even higher-density gene chip than the current U133 human chip set, which has a total of 45,000 probe sets, Fodor indicated.

Additionally, the company is readying to use the information being generated by subsidiary Perlegen in future genotyping products. Fodor said that users should “expect to see a new generation of product offerings next year.”

For 2002, Affymetrix is still projecting total revenues in the $285-$290 million range, and expects to become profitable according to generally accepted accounting principles by the fourth quarter. Reaching this benchmark is top on Siegel’s to-do list for the year, which also includes 25 percent growth in product revenue and “sustained GAAP profitability going forward,” she said.

The company’s current pro forma accounting — which in this environment tends to make Enron-weary investors queasy — excludes the amortization of intangibles associated with the company’s acquisition of bioinformatics company Neomorphic in October 2000, as well as stock compensation. Including these costs, Affymetrix’s Q2 losses totaled $1.4 million.

—MMJ

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