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Affymetrix Posts 12 Percent Revenue Drop, Amends Deal for eBioscience

NEW YORK (GenomeWeb News) – Affymetrix reported after the close of the market on Thursday that revenues in the first quarter dropped 12 percent year over year.

The Santa Clara, Calif.-based microarray company also announced separately that it has signed an amended deal to acquire eBioscience for $315 million in cash.

Affy's revenues for the three months ended March 31 dropped to $65.2 million, down from $73.7 million a year ago, but still above Wall Street estimates of $64.8 million.

Product revenues dropped 13 percent to $58.5 million from $67.5 million, and services and other revenues increased 8 percent to $6.8 million from $6.3 million. The product revenues consisted of $53.7 million in consumables revenues and $4.7 million in instrument revenues, the company said.

On a conference call following the release of the results, Affy CFO Tim Barabe said that the revenues achieved in the first quarter "represents our fourth consecutive quarter of generating revenue in the mid-$60 [million] range and indicates our business is stabilizing."

The company attributed this stabilization to growth in its genetic analysis and clinical applications business, which includes products for applied markets such as cytogenetics and agricultural biotechnology. Affy President and CEO Frank Witney said on the call that by the end of 2012, CytoScan sales should contribute 10 percent of total revenues.

In late 2011, Affy reorganized its business into three business units. It did not break out its revenues by its business units, but said that it saw its expression business stabilize during the first quarter, thanks in part to growth in non-array product lines such as its Panomics QuantiGene and Procarta RNA and protein expression products, which Barabe said increased more than 15 percent year over year.

Nevertheless, expression revenue was down 20 percent year over year. The firm's goal is to lessen the decline to between 5 and 10 percent year over year.

The 8 percent decrease in its life science reagents unit was attributed to changing from relying on a distributor to selling its USB products directly.

During the first quarter, the company released and began shipping its Axiom Exome Genotyping Arrays, and signed a deal with Almac Group for the distribution of Almac's Xcel arrays. Regulators in China also approved Affy's GeneChip System 3000Dx v.2 for in vitro diagnostic use.

The company said on Thursday that it began this month running samples for its CytoScan Dx clinical trial and plans to file for marketing clearance in the latter part of 2012.

The firm had initially pledged a submission by the middle of the year. Witney attributed the delay to an FDA request, which he declined to further discuss.

"We adjusted our clinical protocols to reflect [a] request from the FDA," he said.

Affy reduced its R&D spend in the first quarter to $13.3 million, an 18 percent drop-off from $16.3 million from a year ago. Its SG&A costs rose 3 percent to $27.9 million from $27.2 million.

The firm posted a net loss of $4.2 million, or $.06 per share, compared to a profit of $39,000, or break-even, from a year ago, beating analyst estimates of a net-loss-per-share of $.09.

Affy had $107 million in cash and cash equivalents and $700,000 in restricted cash at the end of the quarter.

The company also announced that it has reached a new deal to buy flow cytometry and reagent firm eBioscience.

Affy originally announced it would buy the San Diego-based company for $330 million in November, but because of a lawsuit, the deal hit a snag and Affy has had to restructure the purchase.

The acquisition will be funded with cash on hand, senior secured financing of $75 million, and additional financing options available to the firm, it said.

The senior secured financing includes an additional $15 million revolving credit facility and is being provided by a group of lenders led by administrative agent GE Healthcare Financial Services and Silicon Valley Bank.

The deal is expected to close in the second quarter.

"By amending the transaction, we are now able to realize the benefits of combining with eBioscience with significantly less senior secured debt than under the original greement," Witney said in a statement.

eBioscience had $71 million in revenues during 2011, Barabe said, adding the deal is anticipated to be accretive to Affy's cash EPS.