Affymetrix on a Roll after Solid Q3: Plans to Reveal Oligo Probe Sequences

While would-be competitors Incyte and Corning hand out pink slips, Affymetrix has been having a red-letter month.

The company not only reported a solid third quarter last week, it also announced a major new deal to convert Millennium, the industry’s largest apostle of do-it-yourself nylon arrays, over to the GeneChip platform. Then it settled a four-year patent battle with Hyseq, and announced a joint venture with Hyseq’s newly formed spinoff Callida Genomics to develop a universal sequencing array. As a consequence, the company’s stock price has shot up to the $30-per-share range this week, after plummeting to just shy of $14 per share in the week after September 11.

Affymetrix has decided to share this cornucopia of good news, opting to give customers a present many have wanted for a long time: the sequences on its oligonucleotide probes. By the beginning of next year, Affymetrix will provide these sequences to users through its NetAffx internet portal, company officials told BioArray News during the TIGR Genome Sequencing and Analysis Conference (GSAC) last Friday in San Diego.

“Our strategy at the company is about opening up our platform,” said Affymetrix director of investor relations Anne Bowdidge. “Going forward, you’re going to see more and more from us in terms of opening up the system.”

This oligo openness follows the company’s announcement in late August that it would be introducing a new algorithm, and would be publishing that algorithm in a major journal. The algorithm, which the company explained in detail in a technical paper posted on its website (www.affymetrix.com) this week, has already been submitted to a couple of statistics-oriented journals, and the company expects it to be published by the end of the year, said Affymetrix product manager Peter Dansky.

While these moves might be risky for a company seeking to validate its technology, Affymetrix’s third-quarter revenue announcement and its recent deals with Millennium and Hyseq, along with the exits of competitors Corning and Incyte from the sector, indicate the company is solidifying its position of dominance in the prefabricated microarray universe.

Company Begins to Cash in on GeneChips in Q3

 Affymetrix reported third- quarter revenues of $55.4 million last week, a flat number compared to the same period of last year ($55.8 million). But the company’s product revenues, especially those from GeneChips, have increased markedly in the past year. The company shipped 70,000 GeneChips during the quarter, up from 50,000 for the same period last year. Additionally, the company shipped 10,000 replacement chips during the quarter to compensate customers for U74 murine arrays that contained defective sequence, finishing off its replacement program. Affymetrix also shipped 48 GeneChip systems during the quarter, bringing its total installed base to 540 systems.

“We are pleased in the growth of the GeneChip business,” Bowdidge said.

Even the murine arrays seem to have bounced back, the company’s chief financial officer Gregory Schiffman said during a conference call. Schiffman predicted that the company would continue to install an average of three to four GeneChip systems per week during the next quarter, and would see 25 percent revenue growth next year over projected 2001 revenues of $190 million, achieving profitability in the second half of 2002.

The current rise in GeneChip sales can be seen as a result of the company’s disciplined strategy to focus marketing efforts on Gene-Chips and let do-it-yourself arraying business fall by the wayside.

While sales of spotting equipment comprised 10 percent of the company’s revenues in 2000, this year, GeneChip product-related revenues have accounted for nearly all of the product revenue. The company is about to release a high-throughput 427 arrayer, but the marketing effort for the arrayer will be a “limited launch,” said Affymetrix president Sue Siegel.

“We should expect the spotting business not to be a material part of our business on a go-forward basis,” Siegel said during the company’s third-quarter conference call.

Instead, the company will continue to grow its GeneChip business, betting all its chips on the belief that more and more do-it-yourself users will convert over to oligo-based prefabricated arrays.

The company first publicly announced this strategy in June, at a time when it was suffering financially from the effects of its defective U74 murine array debacle. At the time, the strategy seemed a little optimistic.

But with the new Millennium deal, in which this Cambridge, Mass.-based biotech company will switch over to the Affymetrix platform almost completely within the next year to 18 months, the company’s strategy seems to be vindicated.

Affy vs. Anthrax?

 And now for something completely different: As a coda to the company’s earnings announcement, CEO Steve Fodor said Affymetrix was “in discussion” with different organizations on the use of GeneChips in detection of biowarfare agents. “We have the capabilities and Affymetrix is really prepared to help out in this matter,” Fodor said.

Analysts expressed doubt at this ad hoc addition to the third-quarter earnings announcement, positing that Affy’s technology might be too costly for use as a disposable detection device for agents such as anthrax.

But Bowdidge pointed out that the company has the capability to make arrays that can interrogate any pathogen with a DNA or RNA sequence signature. “We have made, and are making arrays, that can speciate bacterial and viral pathogens, including some products in development with our diagnostics partner, bioMerieux, and in peer-reviewed published articles. Affymetrix has sufficient manufacturing capacity to make such arrays broadly available to federal and local defense and public agencies,” she said.

— MMJ