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Enticed by Growth and Market Consolidation, Array Shops Shift Strategies in Asia-Pacific


Affymetrix's first international plant may be coming online sooner than expected.

Greg Schiffman, the array firm's chief financial officer, told investors during the firm's fourth-quarter conference call last week that Affy's decision to purchase an existing facility from a semiconductor company would allow it "to bring the plant online by the second half of 2006, accelerating production from the plant by almost a year from [its] original expectations."

According to Schiffman, Affy sees several benefits, including "the tax benefits of manufacturing in Singapore earlier," but also from being closer to a market that is increasingly important to Affy's business (see BAN 10/05/2005).

But for Affy, as well as its rivals, what is more important than serving a market that exists today is the possibility of selling to a market that most agree promises significant growth in the future.

"The Singapore plant is roughly double the size of our current array manufacturing plant, and [it] provides us with significant space [that] we can grow into over coming years," Schiffman said last week.

While Affy is making overtures toward Asia-Pacific in manufacturing, CEO Stephen Fodor said during the conference call that the company is also looking to beef up its sales and support in the region, particularly in China.

"The array space in China is highly fragmented and dominated by custom [and] homebrew local manufacturers, [but] the market is currently consolidating."

"We are expanding our customer base to application development and geographic expansion, including increased sales support in China," Fodor said. Affymetrix currently has a number of third-party distributors in China, most notably CapitalBio, which signed a distribution agreement with Affymetrix in April 2005, added Doug Farrell, Affy's head of investor relations (see BAN 4/27/2005).

Farrell said in an e-mail to BioArray News this week that Affy "recognizes China as a rapidly expanding technology center and [is] in talks to expand our distribution channels there."

A Golden Opportunity?

If there is a specific area in the Asia-Pacific market that array companies are jockeying to serve, it is the nascent Chinese market.

Jack Zhai, manager of expression arrays at Applied Biosystems, told BioArray News in May 2005 that diagnostics are probably the largest market segment in the Chinese microarray space, although most array companies are focusing their energies on serving the research markets there (see BAN 5/18/2005).

This week, Timothy Orpin, ABI's vice president of the Asia-Pacific market, agreed with Zhai's opinion, and said that the company is "continuously investing" in the Chinese market as it matures.

"The array space in China is highly fragmented and dominated by custom [and] homebrew local manufacturers," Orpin wrote in an e-mail to BioArray News, "[but] the market is currently consolidating."

Unlike Affymetrix, ABI has direct sales and support offices in Shanghai, Beijing, and Guangzhou, and Orpin said that the company has plans to increase its headcount by 30 percent this fiscal year, which for ABI began July 1.

Zhai told BioArray News in May that ABI had a 60-person sales force in China, so it is possible it could increase to 70 by the time ABI's fiscal year ends June 30, based on Orpin's estimate. Orpin added that ABI's total Asia-Pacific sales and support force currently numbers 250. Neither Zhai nor Orpin discussed how many of its Asia-Pacific sales and support force focus on selling the company's array-related products.

ABI won't be the only company raising its headcount in the Asia-Pacific region, though. Illumina CEO Jay Flatley told BioArray News last week in an e-mail that his company "certainly sees Asia as a great growth opportunity for Illumina."

"We have offices ... in the key spots -- Singapore, Japan, China -- and don't plan to add any more offices [in the] near term, [but] we will certainly be adding headcount to the existing infrastructure," he wrote.

Representatives of Agilent Technologies, which announced plans to expand its investment in the Chinese market in June 2005, did not respond to requests seeking comment by press time (see BAN 5/18/2005). Agilent has an R&D facility as well as a training center in Shanghai.

Though array companies are eager to position themselves in the Asian market for potential future financial reward, the actual figures coming in on growth remain sketchy at best.

Dan Clutter, NimbleGen's vice president of sales, told BioArray News in an e-mail this week that the company's business in Asia "tripled in 2005 over 2004 and we expect our business there to continue to grow at least as rapidly in 2006 over 2005."

According to Clutter, NimbleGen has had distribution channels in the Asian market since 2003, with distribution partners in China, Taiwan, South Korea, Japan, and Australia.

Other array companies, like Illumina and CombiMatrix, do not break out sales or growth figures per region. Information from companies that do divulge geographic market share, such as Affymetrix and Applied Biosystems, varies at the moment.

This year, for example Affy reported that 52 percent of its revenues in 2005 were earned in the North American market, 30 percent in Europe, 13 percent in Japan, and 5 percent in the rest of the world -- including most of the Asia Pacific region.

However, Affy's figures for Japan have remained at 13 percent since 2003, according to Farrell. In comparison, ABI reported in its fourth quarter results in July 2005 that revenues in Asia Pacific were $86 million for the year, a 9 percent increase over FY 2004. 2004 numbers for Affy were not available.

In that uncertain environment, some companies have decided to hand administration of their Asian offices over to other companies to focus on the more mature North American market. For example, CombiMatrix last week announced that it had transferred ownership of its wholly owned Japanese subsidiary CombiMatrix KK to Australian biotech InBio to focus on selling direct in the US (see Briefs).

"The [InBio deal] allows us to continue to focus our direct sales on the US market," Bret Undem, vice president of CombiMatrix, wrote BioArray News in an e-mail last week. "It also allows us to stay increasingly focused on our R&D and diagnostics [business] in the US where we see a lot of opportunities," he said.

— Justin Petrone ([email protected])

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