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Affymetrix Inks $70 Million Deal with Roche, Hits Its Fourth Quarter Financial Marks

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Affymetrix, the bell cow of the emerging microarray industry, last week trotted out a sparkling fourth-quarter earnings report and then, less than 24 hours later, announced a $70 million, 18-year technology licensing deal with Roche. And, Wall Street responded enthusiastically.

Financially, Affymetrix put together a second consecutive quarter of profitability and narrowed losses on the year. And, the company set out positive guidance, whetting market expectations for 2003.

Certainly, the Roche deal will give the Santa Clara, Calif.-based microarray technology provider a revenue boost. Affymetrix officials said the $70 million one-time payment from the Swiss-based pharmaceutical giant would be amortized over five years. Additionally, Roche will also make payments for chips, royalties, and milestones reached.

The first product from the deal would be the P450 chip, which, according to Affymetrix, will be launched by Roche in the first half of the year.

Affymetrix president Sue Siegal, returning to conference calls after being absent the previous quarter on a leave of absence due to health, said the Roche deal validates Affymetrix’s strategy of aiming at diagnostic applications for the clinical market.

At least two analyst firms upgraded their outlook on the firm and the stock jumped to within 4 points of its 52-week high of $31 reached in the first quarter of 2002. And, in context, Affy stock prices outperformed the tech-heavy Nasdaq index over the end of the week and into this week — by more than 20 percent.

The company, said CFO Greg Schiffman, exceeded expectations in revenue and profit, pegging the growth to demand for arrays, improvement in margins, and expense management.

The company reported net income of $2.9 million for the fourth quarter, compared to a net loss of $8.4 million for the year-ago quarter. The company had a net loss of $1.6 million for the year, compared to a net loss of $33.1 million for 2001.

The company had product revenue of $69.7 million for the fourth quarter of 2002, compared to $55.2 million for the same quarter in 2001. For the year, the company finished with product revenue of $248.5 million, compared to $194.9 million in 2001. The revenue figures did not include $5.1 million in revenue for the quarter, and $21.6 million for the year, from the sale of wafers to Perlegen.

Affymetrix said it shipped more than 115,000 GeneChip arrays in the quarter and finished with 405,000 for the year. Next quarter, the company said it will report its microarray numbers in revenue, not units. It shipped four GeneChip systems weekly in the quarter, bringing its installed base to nearly 800, up from 740 at the end of the third quarter. The company also reported $46 million in revenue from instrumentation sales, including fourth-quarter sales of its new scanner to beta-testing customers.

The company said Europe is its fastest growing sales region and expects that to continue in 2003. It also expects “substantial growth” in the Japan market, where it ended a sales and distribution deal with Amersham and created its own sales team, opening a sales office at the start of the new year.

Affymetrix had $361 million in cash and investments at the end of the quarter, compared to $369 million in 2001 for a cash burn of $8 million for the year.

The company will take a $10 million charge in the first quarter to license Perlegen data.

—MOK

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