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With Q1 Closed, Affy and Illumina Gear Up For 1M SNP Chip Launches as Paths Diverge

SNP genotyping rivals Affymetrix and Illumina last week each released their first-quarter earnings, with Illumina showing a healthy growth rate buoyed by its success in the genotyping market and Affymetrix, showing that it is still recovering from a difficult 2006, reporting that a profit last year turned into a loss this year.
Illumina said revenues for the three months ended March 31 increased 148 percent to $72.2 million from $29.1 million year over year. Affymetrix, meantime, reported that first-quarter revenues dropped 7 percent to $80.4 million from $86.4 million year over year.
Affy also reported a net loss of $4 million, down from a profit of $1.8 million in the year-ago period and said the disparity was the result of $5.4 million in restructuring charges related to the closure of its Bedford, Mass., manufacturing facility (see related article, this issue).
While many are likely to view Affy and Illumina as companies duking it out in the same markets, the firms’ conference calls discussing quarterly results suggest the companies are traveling in different directions.
Illumina, with its recently launched Genome Analyzer next-generation sequencer and its digital microbead-based BeadXpress system, said it is focused on integrating the three platforms to serve its growing base in the pharma and biotech markets.
Affymetrix, on the other hand, seems intent on building its foundation in the academic market by launching more affordable gene-level arrays while showcasing its technology for clinical applications through its recently opened clinical service laboratory.
Still, it is apparent that there are two things that will keep the companies joined at the hip in coming years: the launch of similar 1 million-SNP genotyping projects this summer, and a 3-year-old patent-infringement suit that is unlikely to be settled anytime soon.
A Million Reasons
The 1 million-SNP showdown in the whole-genotyping market could begin as soon as next month. Affy and Illumina have both pledged to launch their products in the second quarter, and according to Affy, its product, called the SNP Array 6.0, is already in the hands of early-access customers.
Kevin King, the firm's president of life sciences, said during last week's conference call that Affy is "on track” for the launch and said the firm believes its product will give it a boost in that market.
"Going forward, we are looking for market expansion from the 6.0 product," King said. ”Overall, this is a real game changer.”
Affy's 6.0 array will contain at least 1 million SNPs as well as other content, such as copy number variation. King said that its current high-density whole-genome genotyping project, SNP Array 5.0, allowed Affy to regain market share lost to manufacturing difficulties and a favorable response to Illumina's newly launched whole-genome genotyping chips.
"In the second half of last year we saw a shift in our favor," King said. "I am pretty sure the market on the whole-genome genotyping side is now split 50-50 between us and our main competitor," he added.
According to Affy’s first-quarter earnings statement, $60 million of its revenue came from consumables sales, of which 35 percent, or $21 million, was related to its genotyping business.
In its conference call Illumina also reported around $60 million in consumables sales, but did not break out how much of that was due to its genotyping business.
Like Affy, Illumina is planning to launch its Human 1M BeadChip this quarter. The chip also includes more than 1 million SNPs plus copy number variation content, including internally discovered CNVs from Illumina's partner DeCode Genetics.  Illumina CEO Jay Flatley said during the call that the Human 1M is in "the late stages of development" and that the firm hopes to launch it before the end of this quarter.
Both companies also devoted some conference-call time to their ongoing litigation. In March, a jury in the US District Court for the District of Delaware said Illumina's products infringe on Affy's intellectual property rights, and ordered the company to pay Affy a retroactive royalty of $16.7 million for sales of its SNP genotyping products between 2002 and 2005 (see BAN 3/20/2007). Affy sued Illumina in 2004.
Because the March ruling is only the first of several phases in the trial, Christian Henry, Illumina's chief financial officer, said during the call that Illumina would not pay Affy the damages until all phases in the trial were concluded. Illumina believes that other portions of the case could affect the phase one outcome, and will wait until the trial runs its course before following the court’s order, Henry said.
Affy CEO Steve Fodor said during his firm's call that he would not speculate on the final outcome of the suit.
"We are only at phase one right now and predicting the timing and consequences of a lot of legal procedures is a tough thing to do," he said.
Different Strokes
Depite their rivalries in the whole-genome genotyping market and in the courtroom, Affy and Illumina appear to be plotting different courses.

"Going forward, we are looking for market expansion from the [1 million-SNP array]. Overall, this is a real game changer."

Two recent events that exemplify Affymetrix's strategy are the recent launch of gene-level arrays for academic users with tight budgets, and the opening of Affymetrix’s Clinical Service Laboratory, which received Clinical Laboratory Improvement Amendments certification last week (see BAN 4/24/2007).
Fodor said that while Affy does not expect that the lab will generate a considerable about of revenue this year, "it does allow a path for us to run diagnostic assays in a CLIA environment prior to receiving regulatory approval."
The launch of the gene-level arrays belies Affy's commitment to its existing technology and its dependence on academic customers. King said that 65 percent of Affy's customers are academic while 35 percent are from industry. He said that unpredictable pharma spending over the past quarter had caused Affy to lean more on its reliable academic customers when making financial forecasts.
"We did see continued softening in the pharma side of our business as pharma customers have adjusted their spending to reflect reorganization, outsourcing, and consolidation of resources," King said of the first quarter. "Because of what we are seeing in pharma, we've adjusted our [financial outlook] to factor in more of the academic side of our business," he said.
Illumina, meantime, is trying to integrate its BeadChip platform, the Genome Analyzer sequencer, and the BeadXpress System into a single comprehensive offering.
Flatley said that Illumina expects its sequencing product to produce a "significant chunk" of Illumina's revenues this year. He added that Illumina's different R&D teams, including those that developed the sequencer and BeadXpress, are now working together to develop new products.
Flatley told BioArray News in November that he sees the sequencing platform as highly compatible with its array platform. Specifically, he said the platform “is targeted for sequencing and expression and so it adds a highly complementary capability to our existing application base..
“With sequencing, you discover the content, you understand the structure of the genome, and you discover things like SNPs and put them on a chip and do very high-throughput and fixed content genotyping,” he added. “So it’s a discovery engine, if you will” (see BAN 11/14/2006).

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