NEW YORK (GenomeWeb News) – Affymetrix reported after the close of the market on Wednesday that its fourth-quarter revenues declined 27 percent year over year and that it took an impairment charge of $239.1 million, leading to a large loss for the quarter and year.
Affy brought in revenues of $78.6 million for the three-month period ended Dec. 31, compared to $107.6 million for Q4 2007. The firm had cautioned in October that its fourth-quarter revenue would be essentially flat with its third-quarter revenues of $75.2 million.
Of its total revenues in the quarter, $61.5 million came from sales of consumables, $5.1 million came from instrument sales, $8.5 million came from services, and $3.5 million was derived from royalties and other revenues. Affy noted that it shipped 23 of its flagship GeneChip systems during the quarter, bringing its total systems shipped to 1,813.
Affymetrix CEO Kevin King said that despite the market challenges, Affy's revenues came in slightly ahead of the firm's expectations.
Affy has experienced continued weakness in sales of gene expression products to pharma customers, but company officials believe that transitioning customers to its whole transcript assays and arrays gives it a "significant competitive advantage" over traditional gene expression tools. King also noted that the RNA research products from the firm's acquisition of Panomics are "going to help us greatly in the expression side."
He said that Affy's strategy is focused on "moving into spaces where pharma is spending probably more money or as much money as they have in the past, now that really is in drug development.
"Most of the impact that we felt in the past was in drug research, a lot of this has to do with standalone genomic centers, and as we reported on the last call, four out eight of those genomics centers had closed," said King. "So we think we are positioning a portfolio of products to be in more of a sweet spot of where pharma needs to spend in drug development."
During the year, Affy launched its next-generation microarray platform, the GeneTitan System, a fully automated instrument that offers array processing from hybridization to data analysis. King said during the call that the firm is migrating its existing gene expression and genotyping products to the new platform, which it hopes will drive sales to medium and high-throughput labs.
The Santa Clara, Calif.-based company posted a net loss of $318.7 million, or $4.65 per share, for the quarter compared to a profit of $12.8 million, or $.17 per share, for the fourth quarter of 2007. The most recent quarter included a $239.1 million charge for impairment of goodwill. It also includes a restructuring charge of $14.3 million compared with a restructuring charge of $2.4 million in the fourth quarter of 2007.
Affy had warned when it released its third-quarter results that a decline in its stock price had caused its market value to fall below its net equity value, "which will require it to assess whether an impairment of its intangible assets has occurred." The firm said at the time that it expected to complete this impairment analysis during the fourth quarter.
The firm currently has a market capitalization of around $276 million.
Affy's R&D costs increased 44 percent year over year to $25.4 million from $17.6 million, while its SG&A expenses dropped around 4 percent to $34.4 million from $35.7 million.
For full-year 2008, Affy generated revenues of $410.2 million compared to $371.3 million for 2007. Those results include $90 million Affy received from Illumina during the first quarter of 2008 related to a legal settlement.
Affy's consumable revenue for the year was $248.9 million, its instrument revenue was $21.5 million, its service revenue was $32.1 million, and its royalties and other revenues were $107.7 million — which includes the payment from Illumina.
The company's 2008 net loss was $307.9 million, or $4.49 per share, versus a profit of $12.6 million, or $.17 per share, for 2007. Its R&D spending increased 16 percent to $84.5 million from $72.7 million, and its SG&A expenses decreased 8 percent to $127.2 million from $138.5 million.
Affy finished the year with $113.3 million in cash and cash equivalents.
Affy officials said that due to the current economic environment and the uncertain role it will have on the firm's business they would only give guidance for the next quarter and not for full-year 2009. The firm expects first-quarter revenues to between $72 million and $75 million.
While Affy's results beat analysts' lowered expectations for the quarter, Leerink Swann analyst Isaac Ro said in a research note, "We continue to think the core array-based franchise will be challenged as customers increasingly allocate their limited research budgets to [next-generation sequencing] and other novel technologies."
Likewise, Thomas Weisel Partners analyst Peter Lawson said in a note, "We believe Affymetrix possess competitive product offerings, but sluggish gene expression markets, pullbacks in pharma spending and intense competition keep us highly cautious."
In Thursday trade on the Nasdaq, shares of Affy tumbled 20 percent to close at $3.15.