A year ago this week, Affymetrix CEO Steve Fodor and president Susan Siegel warned investors in a conference call that revenues for the second quarter would fall sharply short of Wall Street’s modest expectations. Customer confidence in the company had been seriously shaken following its disclosure last March that its mouse chips had contained defective oligos, and as a result, Affymetrix was seeing what Siegel called “erratic ordering patterns” for its arrays: in other words, pharma wasn’t buying. Time was ripe for one of the company’s mammoth competitors to rush in for the kill.
How a year changes everything. Last Thursday evening, when Fodor got up to speak at the company’s annual shareholder meeting, he couldn’t resist the urge to gloat just a tiny bit. Last year, he remembered, stockholders were worried about how Affymetrix would deal with all of the competition. “What’s happened is that Affymetrix has become the industry standard...and the market leader in this area. I think that’s unquestionable at this point.”
In fact, the company’s boomerang since last June is now such a given that Fodor left until the end of the shareholder meeting to mention the company’s accomplishments for 2001: a 40 percent increase in chip shipments, a 50 percent growth in the company’s base of installed instruments, a doubling in the number of academic customers and tripling in the number of biotechnology access customers; 60 issued patents and three settled lawsuits. And he didn’t even mention that this litany of accomplishments took place in the second half of the year, or that 2002 revenues so far have exceeded expectations.
What Fodor did choose to focus on is the remaining area of uncertainty surrounding Affymetrix: the company’s future. He knows that Wall Street is still concerned about what will happen once the expression analysis boom is over.
The company, he said, will not respond to such worries by flinging itself into new areas such as drug development. Instead, spurning the popular wisdom that says ‘diversify,’ Affymetrix is planning to keep spreading out over the microarray market as it expands into genotyping.
“The primary commercial opportunity that we’ve really exploited at this point is in the expression variability area,” Fodor said. “We will begin introducing more products in the area of looking at sequence variability, and ultimately, you want to link the two ... you want to know how the changes in the sequence affect variational output in the genome.”
But Fodor emphasized that this foray into genotyping, which the company began over a year ago with the launch of population genomics subsidiary Perlegen, is not going to supplant the expression efforts: contrary to some investor concerns that expression is going to “dry up,” Fodor said, “we believe this whole expression market has just barely begun.”
Genotyping efforts, nonetheless, will help the company market more directly into the clinical arena, as researchers link polymorphisms to disease. “That’s really one of the big areas we are really going to be focusing on in the upcoming years, to have this technology to reach all the way from this area of broad research...understanding the genome, through the validation, preclinical, and clinical end of health management,” said Fodor.
Even though the company has invested considerable time and effort into the current high-density photolithographic microarray system, Fodor indicated that Affymetrix, with the creation of Affymetrix Research Labs, was exploring “different chip formats and different levels of automation so we can really address these marketplaces.”
In the immediate term, this means launching products such as the focus arrays, a new human chip with over 8,500 verified human sequences from the NCBI RefSeq database that are also represented on the Human Genome U133 array. This focus array is going for the lower end of the research market, for users who do not need to look at the whole genome. “We’re looking forward to marketing that,” said Steve Casey, of Durham, NC-based Affymetrix service provider Expression Analysis. “I think that array opens up a lot of opportunity for people who just want to dip their toe into the Affymetrix microarray arena, and don’t want to go through the reams of data from 33,000 genes.”
Another new product, the sample cleanup module that the company jointly launched with Qiagen this week, can be seen as a practical answer to customer demand, rather than a wildly different innovation. The kit is designed to simplify the sample preparation process so that users do not have to get reagents from many different providers. Recently Joel Credle, the former director of the UC Berkeley DNA analysis center, complained in an interview with BioArray News that he had to order chemicals, reagents, and supplies from 20 to 30 different companies to do a sample preparation. “I am waiting for someone to jump on the ball and say, ‘We can sell you an all-in-one kit that has been validated, that’s one order number,’” Credle said. Looks like someone at Affymetrix was listening.
The biggest innovation that Affymetrix has come up with lately, in fact, is listening to customers. And in responding to the demands of customers for incremental improvements in its arrays and software, rather than trying to develop some hot next-generation product, Affymetrix may not only have made a lot of friends: the company may have discovered the secret to success that eludes so many in this field.