Affymetrix Revenues Rebound as Biochip Sector Reports Strong Second Quarter

With market leader Affymetrix rebounding from a slide, and a slew of product development projects and collaborations, quarterly earnings reports largely indicate that the microarray and biochip sector is continuing to grow rapidly.

In the last week of July, Affymetrix reported second-quarter revenues of $49.5 million, a figure at the high end of the company’s earlier-reduced projections of between $44 million and $50 million.

The company said during its second-quarter conference call July 25 that it had completed the replacement program for its defective U74 murine arrays — which it initiated in early March after acknowledging that a portion of the sequence on the arrays had been laid down incorrectly — and was beginning to see renewed ordering of these arrays. The company also said large pharmaceutical customers who had stalled orders to reevaluate the Affymetrix genechip platform in light of the murine array problems had indicated they were ready to resume ordering chips.

“While it’s too soon to know if this trend will persist, many customers have commented on how high the bar has been raised for competitors, not only for microarrays but for all platforms that require sequence selection,” said Affymetrix president Sue Siegel.

Seigel added that while it’s hard to predict when the general economic downturn will end, the company’s GeneChip business is growing, with GeneChip revenue increasing 18 percent over the same period of last year.

“We believe that many of the factors that affected our performance recently are mostly behind us,” Siegel said.

Affymetrix meanwhile introduced its CustomExpress arrays, low-to-medium density arrays of 1,000 probes or less that can be ordered online through its NetAffx website, (see p.1), and began a collaboration with DeCode Genetics of Reykjavik, Iceland.

For the quarter, Affymetrix’s expenses increased to $61.8 million compared to $53.2 million for the year-ago quarter. The company said non-litigation expenses would begin to level off, but that expenses for litigation would not as long as the company remained in patent infringement litigation with Incyte genomics.

The company “remain[s] committed to investing aggressively in ongoing litigation as necessary,” said chief financial officer Ed Hurwitz. “In this regard, we expect litigation expenses to increase significantly over the next two to four quarters as we prepare for our case against Incyte, which is currently expected to go to trial in April next year.”

Nevertheless, the company said it still expected to become profitable some time in 2002.

While Affymetrix sees its quarter-end revenue upsurge as a validation of its own technology, it can also be seen as reflective of a sector-wide pattern of growth in the biochip and microarray sector.

Other array companies, including Ciphergen Biosystems, Luminex, and Lynx, all reported increases in microarray and biochip related revenue in their quarterly earnings statements.

Ciphergen Sees Surging ProteinChip Revenues in Second Quarter

Ciphergen, the current market leader in protein chips, said July 26th that it had completed its second straight quarter of greater than 70 percent revenue growth compared to the same periods in 2000.

The Fremont, Calif.-based company reported total revenues of $3.7 million, up from $2.1 million in the second quarter of 2000. The company shipped 22 ProteinChip systems during the quarter, and revenue from ProteinChips increased 64 percent to more than $750,000, the company said.

During the quarter, the company also sold its first ProteinChip tandem mass spectrometry interface, a system for linking Ciphergen’s protein affinity chips to mass spectrometers built by Applied Biosystems, to an undisclosed customer.

Ciphergen’s protein biochips contain six to eight surfaces treated with various affinity agents for capturing certain classes of proteins. The ProteinChip system allows researchers to automatically analyze the biochips using Surface Enhanced Laser Enhanced Desorption Ionization, a technique for ionizing the proteins and identifying them in a mass spectrometer.

Ciphergen chief financial officer Matt Hogan said the company is developing additional surface chemistries for its chips, as well as enhanced software systems to accompany the ProteinChip platform.

Additionally, the company said its recent $12 million acquisition of BioSepra, Invitrogen’s liquid chromatography business, would allow it to expand its proteomics platform.

The chromatography process solves a “key bottleneck” in proteomics, the production and purification of proteins, said CEO William Rich. The company plans to combine these chromatography capabilities with its protein chips to offer scientists a more comprehensive proteomics solution.

Ciphergen’s ProteinChip allows “purification protocols to be developed in hours or days instead of weeks and months,” said Rich. “Our on-chip protocols can be directly scaled up using BioSepra’s chromatography process.”

The company said revenues from this BioSepra acquisition would not begin to show up until 2002, and that it would have to incur additional expenses in setting up a development and marketing program for BioSepra products

However, the company said it expects to see its revenues continue to grow at 80 to 100 percent a year.

The company’s operating expenses also rose during the second quarter compared to the same period in 2000, from $8.1 million to $9.6 million, primarily because of higher research and development, and general and administrative expenses.

As of June 30, Ciphergen had $97.3 million in cash, compared to $103.2 million at the end of the first quarter of 2000.

Luminex Begins to See Fruits of Collaboration Strategy

Luminex, which has pursued a strategy of commercializing its LabMap bead array technology through numerous collaborations, has begun to see this tactic bear fruit as revenues more than tripled in the second quarter to $4.7 million, compared to $1.4 million for the second quarter of 2000.

The Austin, Texas, bead array company said it sold 174 of its benchtop Luminex 100 systems during the quarter, which can perform up to 100 simultaneous assays with LabMap. This brings the total number of systems placed to 678 since the company introduced this instrumentation platform in 1999.

The company placed 91 sheath delivery units, which allow users to run samples on the Luminex 100 continuously and unattended, during the quarter, realizing revenues of $535,000, and sold one of its new XYP high-throughput screening platforms for $108,000.

Additionally, Luminex said it garnered $711,000 in revenues from the sale of consumables for its LabMap microspheres. LapMap uses the microspheres to assay nucleic acids, antigen-antibody binding, enzymes, and other receptor-ligand interactions. Small lasers, digital processors, and software allow the system to perform up to 100 assays per drop of fluid.

The LabMap system “represents one of the most successful product launches in the history of our industry,” said Mark Chandler, CEO of Luminex, in the company’s second-quarter conference call.

During the quarter, Luminex added four new strategic partners for LabMap, including Research & Diagnostics systems, ARUP Laboratories, Lifecodes, and Tm Biosciences. All four will develop diagnostic applications for LabMap. Additionally, Luminex licensed microarray technology from Tm Biosciences, of Toronto.

Chandler added that the company expected to add an additional four to six strategic partners for the technology in the remainder of 2001, and to collaborate on a universal microarray with Tm Biosciences.

The company projected that third-quarter revenues would total between $6 million and $7 million, said Frank Reeves, the company’s chief financial officer.

Luminex reported that its expenses for the quarter rose slightly, to $5.9 million, from $5.3 million for the same period of last year. R&D expenses actually decreased to $1.8 million, from $2.4 million in the first quarter of 2000—a factor that Reeves attributed to high costs last year associated with the development of the XYP system.

Meanwhile, the company’s net losses widened to $4.4 million, from $3.6 million in the second quarter of 2000.

Aclara an Exception to Biochip Growth Trend with Downturn in Second-Quarter Revenues

In an exception to the rosy revenue reports emerging from the biochip sector, Aclara Biosciences said July 27 that its revenues dropped slightly during the second quarter of 2001, to $849,000 from $950,000 during the same period a year ago.

The decrease is a result of lower revenue from the company’s collaborations, the manufacturer of lab-on-a-chip microfluidic assay devices said.

But in keeping with the sector trend, Aclara did see an increase in revenue from products, namely its 96-channel Arteas microfluidic devices that replace microtiter plates and enable biochemical assays to be carried out at nanoliter volumes.

Additionally, it may not be fair to compare Aclara directly to other biochip companies like Affymetrix since the microfluidics-based assays which Aclara is developing — tests to detect the presence and quantify the amount of proteins in a liquid sample, as well as other products for gene expression analysis and nucleic acid sample processing — are not as mature as microarray technologies.

The company has continued to progress in developing these technologies, including a proprietary eTag technology for multiplexed gene expression analysis, said Aclara CEO Joseph Limber. “The GeneMate reader [for the company’s microfluidics assays] is also progressing as expected, and we continue to anticipate initial placements at test sites beginning in the third quarter of 2001. Finally, our LabCard chips for nucleic acid sample processing are progressing on schedule, and we continue to expect beta testing of this product to begin before the end of 2001.”

Meanwhile, the company’s operating expenses for the quarter dropped to $6.1 million from $9.3 million during the second quarter a year ago. Although the Mountain View, Calif.-based company spent $1.6 million more, or $5.5 million, on research and development than in the same quarter a year ago, this increase was offset by a $2.4 million credit arising from reevaluation in light of the company’s January settlement with microfluidics rival Caliper on misappropriation of trade secret litigation. The company acquired a $4.8 million charge in the first quarter, but cancelled out this charge with the second-quarter credit.

The company’s net loss dropped to $3.2 million for the second quarter of 2001, or 9 cents a share, down from $4.9 million, or 15 cents a share, during the second quarter a year ago.

Aclara remains well positioned to develop microfluidics devices for the life sciences, with $182.9 million in cash as of June 30.

— MMJ