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Affy Posts Slight Rise in Q3 Revenues, Looks to Expand Share in GWAS Market

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This article was originally published on Oct. 22.

By Justin Petrone

Affymetrix last week posted a slight uptick in third-quarter revenue due in part to increased sales of its gene-expression products. Sales for the three months ended Sept. 30 increased 4 percent to $78.2 million, year over year.

In addition, Affy narrowed its net loss during the quarter to $8.8 million from $31.8 million in the year-ago period.

Though the third quarter brought a 12-percent increase in sales of RNA consumables, such as gene-expression arrays and Panomics QuantiGene assays, sales of DNA consumables, including whole-genome genotyping SNP arrays, were down 14 percent due to a "temporary slowdown in whole-genome association studies," Affy President and CEO Kevin King said in a conference call with analysts.

Chief Financial Officer John Batty said that RNA revenue inched up to $39.9 million from $35.6 million in the prior-year period, while DNA revenue declined to $20.6 million from $24 million during the same period last year. The product mix was about two-thirds RNA and one-third DNA, he said.

Despite the rise in sales, Affy investors were disappointed with the results. Shares of the firm's stock were trading at $7.25 on Thursday morning, down 18 percent from a close of $8.86 on Wednesday, the day Affy reported its earnings.

Though Affy met its guidance of between $78 million and $81 million in revenue for the quarter, it missed analyst forecasts of between $80 million and $81 million for Q3.

In addition, Leerink Swan analyst Isaac Ro said in a research note that Affy's fourth-quarter revenue guidance of between $82 million and $85 million is "a bit light" and below a pre-Q3 consensus of $86 million.

King attributed the falloff in genotyping revenues to a shift in genome-wide association studies, which he said are increasingly looking at rare variation associated with complex diseases. Previously, the firm's customers had been using its arrays to look at common variation associated with common diseases across populations, he said.

The firm's new Axiom genotyping offering, launched this month (see BAN 10/20/2009), should enable Affy to both "expand our market share in the whole-genome genotyping marketplace, but will also enable us to enter the targeted genotyping market," reviving DNA consumables sales, King said during the call.

King told analysts during the call that despite a slowdown in demand and competition from Illumina, Affy believes it still holds around half of the GWAS market.

"I think our competitors took some share from us in the later part of 2008 and I'd probably estimate it's close to 50 percent right now," he said.

King did not provide an estimate for the size of the global GWAS market. However, he did say that the Axiom platform will also compete in the targeted genotyping market, which he estimated to be worth around $250 million and growing at more than 20 percent annually.

Batty said that Affy believes the launch of the Axiom could spur more genotyping sales: "I think ... the opportunity for [GWAS] to begin to increase starts now with the launch of the Axiom product line." He attributed the potential to the customizable aspects of the platform, particularly Affy's database of validated variation content.

That database includes the results of an internal screen by the company of 8 million SNPs from the dbSNP database using its automated genotyping assay that generated genotypes for over 1,300 individuals, as well as additional content drawn from sources such as the 1000 Genomes Project.

Jay Kaufman, Affy's vice president of product marketing, told BioArray News last week that early-access customers at Kaiser Permanante and the University of California, San Francisco, are designing arrays using the database for a 100,000-sample GWA study of genetic and environmental influences on human health and aging. Kaufman said that Affy is currently creating the infrastructure to eventually make the database more broadly available to its customers.

During the call, King likened Affy's approach to iTunes, Apple's online media store. "Researchers can now create their own 'playlist' in the form of custom arrays that deliver maximum scientific value to their research," King said. He said future GWA studies will likely focus on distinct ethnic, disease, and health categories that will necessitate access to customizable platform.

"We believe that the market is going to produce somewhere in the order of [between] 20 million and 30 million variants across a wide range of ethnic, disease, and health-related groups, and people are not going to want to be put in a corner with respect to fixed content on fixed arrays," King said. "We think people are going to want to pick and choose their content as it relates to their studies."

According to King, Affy is on track to meet a full-year target of placing 35 GeneTitan instruments. The company launched GeneTitan last year for expression applications (see BAN 10/3/2008). The newly launched Axiom Array Plates are the first genotyping products to run on the instrument. Batty said that Affy shipped 21 systems and scanners during Q3, but did not specify how many systems placed were GeneTitans and how many were the firm's existing GeneChip Scanner 3000.

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A Matter of Density?

While Affy is betting that its Axiom offering will revive demand for its genotyping products, Illumina this week announced a roadmap for its Infinium whole-genome genotyping platform that could see the firm debut chips that enable researchers to look at up to 5 million variants per sample.

The company said that it intends to release an "intermediate" 2.5-million variant product that adds "rare variants to the strong backbone of content currently on the HumanOmni1-Quad BeadChip," which launched in May (see BAN 5/19/2009). The company said the chips will launch next year.

Researchers who begin studies using Illumina’s whole-genome genotyping products will also have access to supplemental arrays that build from the Omni content to the full 5-million-variant content chip, Illumina said.

During the Affy call, Morgan Stanley analyst Marshall Lewis asked if Illumina's density upgrades — which will offer access to around 700,000 SNPs per array, albeit in an automated, 24- or 96-strip format — might give it an edge over Affy's arrays.

"To have a competitive product at that density, should we be thinking … that you're going to have to sort of spread content over multiple pegs for that sort of a product and then how does that impact sample throughput?" Stanley asked.

King said that the "real driver" in GWA studies focused on rare variation is "going to be genetic power, which is really a function of cost and the number of samples," rather than just density. Affy's view is that "customers are going to want to pick and choose the content associated with the rare variant that they're interested in studying, and they're going to have to run many, many studies, and so cost per sample is a key factor."

King added that Affy is not limited to using only one peg of 700,000 markers per sample. "In the limit, I guess you could use the entire plate if you wanted, for a single sample," he said. He also said that the company has the ability to put more content on a single peg array. "We have significant room to grow here," he said.

King was also asked by Jon Groberg, an analyst for Macquarie Capital, whether it could be cost prohibitive for Affy to run some custom projects as the firm uses photolithography to manufacture its arrays. King said that Affy has been able to make custom expression arrays in the past for projects involving as few as 400 samples that have been profitable for the company.

"I'm not overly hung up on this as a barrier for us to reach a certain volume level in any way, shape, or form," King said of Affy's manufacturing process. "I think we'll do just fine with it."

During the call, King also provided an update on the GeneAtlas, an automated benchtop system Affy has developed for lower-throughput labs that will allow users to run experiments on strips of four arrays at a time (see BAN 6/9/2009).

King said that Affy is still aiming for an early 2010 launch for GeneAtlas, and that the firm is "targeting new customers" for the system, including those that are "unfamiliar to array-based technologies." He specifically mentioned Asia as a regional market where Affy could rely on distributors to sell the GeneAtlas to new clients.

Panomics

While Affy devoted much of its earnings call to talking about its new genotyping system, the company also provided an update on Panomics, the firm the company paid $73 million to acquire last year (see BAN 11/18/2008).

According to King, sales of Panomics products, which include assays for in situ RNA, RNA, DNA, protein, and cell analysis, contributed around $5 million to the firm's RNA business during the quarter.

He identified several product lines as contributing to growth in sales of Panomics assays. The "largest area" is RNAi high-throughput screening, he said. Pharmaceutical companies are using Panomics' QuantiGene ViewRNA assay, which enables transcriptional profiling of individual cells within a population.

King also identified Panomics' Procarta line of protein-analysis assays as generating "a lot of growth." Panomics currently offers antibody arrays, a Luminex-based Procarta assay for quantitation of cytokines, a Luminex-based SH2 Domain Plex assay for phosphoprotein profiling, transcription-factor DNA and protein interaction profiling assays, and other protein-analysis products, according to its website.

King said that Affy does not measure sales of Panomics products as a separate business because the firm is sharing resources within the company.

Q3 in Full

Affymetrix reported last week that its third-quarter revenues increased 4 percent while its net loss fell sharply.

The firm reported total revenues of $78.2 million for the three-month period ended Sept. 30, up from $75.2 million for the third quarter of 2008. Affy's product sales inched up to $66.2 million from $66 million year over year, while service revenues rose sharply to $9.9 million from $6.1 million. Its royalties and other revenues dropped to $2.1 million from $3.1 million.

The majority of its product revenue came from consumables sales, which were $62 million for the quarter. The firm shipped 21 instrument systems during Q3, bringing its cumulative systems shipped to around 1,890.

Affy's net loss dropped to $8.8 million compared to a net loss of $31.8 million for the third quarter of 2008. Last year's results included charges of $5.1 million for acquired in-process technology and $14.6 million in restructuring charges.

Affy's third-quarter R&D spending dropped to $18.8 million from $20.8 million, while its SG&A expenses increased to $30.6 million from $28.4 million.

The firm finished the quarter with $62.5 million in cash and cash equivalents. Affy officials said during the call that the firm expects fourth-quarter revenues of between $82 million and $85 million.

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