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In Flat Gene-Expression Market, Affymetrix Will Target Clinical Market and Frugal Labs

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Affymetrix CEO Stephen Fodor last week said the company plans to revitalize its gene-expression sales by courting more clinical users and introducing more affordable chips for researchers with tight budgets.
 
Speaking during the company’s fourth-quarter earnings conference call, Fodor said that the expression market in 2006 “was relatively flat. On the other hand, it is, again, a more maturing market in that our strategy in expression is to really push things towards clinical studies.
 
“We believe that the single most significant opportunity for growth in gene expression lies in the increased penetration of clinical markets, where sample volumes are traditionally high,” he said.
 
By all accounts, 2006 was a comparatively sluggish year for gene-expression array companies. Despite the publication of the Microarray Quality Control project in September, which was expected to alleviate researchers’ concerns about cross-platform comparability and reproducibility and ultimately drive growth of commercial expression arrays, the market for these products grew relatively slowly, culminating in GE Healthcare’s decision in December to shutter its CodeLink bioarray unit this spring.
 
These events have prompted companies to begin thinking of ways to turn what once was a high-growth space into something more long-term and sustainable. For its part, Affy hopes to refocus its efforts on revitalizing its presence in the gene-expression market after a year spent expanding manufacturing facilities, building its clinical laboratory, and playing in the highly competitive whole-genome genotyping market.
 
Turning Things Around
 
During the Q4 earnings call, Jamie Kole, the company’s vice president of finance, said that Affy’s academic customer base represented approximately 60 percent of product and product-related revenue in 2006. Industrial sales made up the remaining 40 percent (see sidebar for full Q4 results). 
 
Kole also said that consumables revenue for 2006 amounted to $251.3 million, about 70 percent of the firm’s total 2006 revenue of $355 million. According to Kole, the overall mix of consumables for the fourth quarter and for the year was about 65 percent from RNA analysis products, which are generally used in gene expression, versus 35 percent from Affy’s DNA analysis products, which are generally used for genotyping.
 
Kole also pointed out that “consumables will be the key growth driver for the company” this year.
 
With those numbers as a backdrop, Fodor said that Affymetrix can grow future sales by pushing existing arrays, such as its GeneChip Human Genome U133 Plus 2.0 array, to more clinical researchers while preparing a new portfolio of gene-level chips to target researchers that find microarray costs to be prohibitive. Fodor also said that Affy will be expanding its service provider program to stimulate wider use of its expression chips.
 
“The U133 product, certainly because of the thousands and thousands of samples that have been run out there in lots of peer-reviewed publications, is a cornerstone for clinical studies for the future,” he said. “We are, in fact, investigating ways that we can work with the regulatory agencies to see how to really turn that into a broad-based [clinical studies] product,” he added.
 
“For those still making their own arrays and struggling with data quality, we will be introducing new gene-level expression products early this year,” Fodor said. “These arrays will contain the more commonly referenced genes, and sell at a lower price point to help attract new customers.”
 
Fodor said that because the gene-level arrays are on a small format, they generate an attractive profit margin.
 
He also said Affy is “expanding our global network of service providers to stimulate market growth.” Affy service providers offer gene expression and genotyping products, and genome-wide methylation analysis on Affy’s tiling arrays. “We're seeing a growing interest in providing genotyping services, where the project-based nature of these studies makes outsourcing a cost-effective alternative for customers,” Fodor said.
 
Affy also hopes to court the clinical studies market with its 96-well-plate format. Fodor said during the call that the company has experienced increased customer demand for the offering and that it has been increasing its production. Affy first launched its 96-well product in autumn 2005.
 
During the call, Kevin King, Affy’s new president of life sciences, said that around 14 customers now have the 96-well-plate format and that Affy is shipping plates of human, mouse, and rat chips to those customers, although “all are not up and running yet.”
 
A Growth Opportunity?
 

“We believe that the single most significant opportunity for growth in gene expression lies in the increased penetration of clinical markets, where sample volumes are traditionally high.”

Illumina, for its part, said this month that it has seen some growth in its gene expression business, but attributed its success to gaining market share from other players, rather than from the expansion of the market itself.
 
“In terms of gene expression, the total market is not growing very significantly,” said Illumina CEO and President Jay Flatley during the firm’s fourth-quarter earnings call two weeks ago. Instead, he said the firm had gained customers in a variety of ways.
 
First of all, the company released second-generation human, mouse, and rat expression chips last year and launched an advertising campaign to lure customers to its platform. Flatley also touted a “halo effect” from the company’s flagship genotyping business.
 
In the wake of GE’s decision to scuttle CodeLink late last year, both Agilent Technologies and NimbleGen Systems told BioArray News last month that more flexible, lower cost, and higher density chips will help buoy interest in their expression array lines (see BAN 1/2/2007).
 
“The gene-expression market has been around for many years for microarrays and we’ve really been focused on getting the line toward a very mature customer profile,” Erik Bjeldanes, marketing manager of gene expression at Agilent Technologies, said at the time.
 
Gene-expression analysis is “not any longer the sexy, new application space, but more of a product line that is directed towards stability, cost per sample, throughput, and the more mature product line attributes,” he said.

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