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Agilent Technologies Microarrays: Startup Unit Gained Market Traction in Fiscal Year 03

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In the main lobby of Agilent Technologies’ corporate headquarters in Palo Alto, Calif., a small glassed-in display showcases some of the historical artifacts of a company whose roots trace back to the beginnings of Silicon Valley.

Last week, the display included some ancient instruments and a crate of dust-covered beer bottles — alongside a 48-slide microarray carousel, and some of the company’s 1-inch by 3-inch pre-printed microarray slides.

The old instruments speak of a long corporate history even though Agilent was only formed in 1999 as a spin-out from Hewlett-Packard, the company that grew out of a humble residential garage and which many credit with creating the Silicon Valley legend of scientific entrepreneurship. The crated beers are said to have been discovered stashed in the original Palo Alto garage where HP founders Bill Hewlett and Dave Packard began in 1938, put away just in case an ale was needed for a celebration.

The microarray carousel and arrays are new to this place of honor, having been placed there around the end of the company’s 2003 fiscal year on Oct. 31. The company’s results, reported to the financial community last week, were celebrated Friday with a company-sponsored beer bust, an event held to mark a successful financial quarter after the pain of a year of restructuring and the attrition of 7,000 employees from the now 29,000-employee firm.

Might those glassed-in microarrays be emblematic of the company’s hope for the future, and a sign of Agilent’s clear embrace of a product line that is three years old? Well, observers can contrast the display in headquarters with the oblique mention of the product line in CEO Ned Barnholt’s remarks in the Nov. 20 conference call with the Wall Street analysts. Still, there have been other times when the CEO has shown a microarray when giving a television interview.

Gaining Market Share?

Agilent is the No. 2 producer of pre-printed microarrays behind microarray pure-player Affymetrix, which expects to end its fiscal year with approximately $300 million in sales. Lehman Brothers, in a report issued this week, estimates revenues of $60 million for Agilent’s microarray unit. But while Affymetrix has been a publicly owned company since 1996, Agilent is a relative newcomer, with its first microarray product announced in 2001.

However, using ink-jet technology and what it describes as an open platform based on standard microscope glass slide formats for its arrays, Agilent is gaining traction in a marketplace dominated by home-brew technology, which holds an estimated 50 percent market penetration. Agilent estimates its share of the $800 million microarray market at approximately 8 percent, compared to Affymetrix’s 37 percent.

The company manufactured some 100,000 arrays in FY ‘03, Barney Saunders, Agilent’s vice president and general manager for Bio-Research Solutions, told BioArray News last week. After averaging sales of 20,000 per quarter in the first three periods of its year, the company sold 38,000 arrays in the fourth quarter, Saunders said. Additionally, the company reports its installed base of scanners at 200, compared to over 860 for Affymetrix, which reported sales of more than 400,000 of its GeneChip microarrays in 2002.

Saunders said that 25 percent of the microarray unit’s revenues are attributable to service (installation, training, and maintenance) and compliance.

Agilent in FY ‘03 introduced a new line of arrays that use 60-mer oligonucleotides as probes and launched eight catalog arrays in this format during the year.

In June, Agilent rolled out a two-slide set of arrays containing the company’s choice of probes for the entire human genome. Just weeks later, the company announced that it had customers beta-testing a double-printed single slide containing probes for the entire human genome.

Additionally, the company introduced an RNA linear amplification kit, new hybridization kits, as well as software that allows feature extraction for any 1x3 micro array slide.

The Factory

The Agilent microarray fabrication facility, located in Santa Clara, this year earned ISO 9000 accreditation in the fourth quarter, an industry standard for quality assurance that is documented in more than 600 pages of standard operating procedures.

The fab can easily handle additional demand, said Saunders: “There is plenty of room for more capacity, just by adding new writers,” he said. “There is room for several more.”

Agilent has no plans for relocating production and the specialized labor it requires is readily available in the Bay area, he said.

Targeting Profitability?

The microarray unit has not reached profitability, Saunders said, and Agilent does not discuss a target date for reaching that financial goal.

“Agilent has always taken a long-term approach,” he said. “We have made huge progress in the last three years, and we have grown from a handful of customers to 400-plus today. We are well on track for meeting our objectives in this sector.”

The Future

Agilent is making a “significant investment” in microarray research and development, Saunders said, but declined to provide an amount.

“Agilent Labs has a large group of scientists in life sciences and gene expression,” he said. He pointed to the hiring of Darlene Solomon as vice president and director of Agilent Laboratories as evidence of that commitment. Solomon is on advisory boards for the National Science Foundation and the Defense Advanced Research Projects Agency. She reports to Barnholt.

The company has scientists at its facilities at Deer Creek, Calif., developing products and platform architectures, another group at Little Falls, Del., working on consumables and services, as well as scanners; and a group in Germany developing microfluidics.

“We will win market share with the introduction of new products,” he said. “We have to make good products to win.”

— MOK

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