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Affy Says Q4 Revenues Up 13 Percent on 'Solid Increase' in Genotyping Sales

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This article was first published Feb. 5.

By Justin Petrone

Affymetrix last week said fourth-quarter sales swelled 13 percent on increased adoption of its next-generation genotyping platform for genome-wide association studies, as well as "strong" sales of products for copy number studies, custom genotyping, and biomarker discovery and validation.

The Santa Clara, Calif.-based company also said it exceeded internal goals for placing its automated, high-throughput GeneTitan system, which it launched at the end of 2008. By the end of the fourth quarter, the firm had placed 45 systems worldwide, 10 more than expected.

Total revenue for the three months ended Dec. 31, 2009, rose to $88.8 million from $78.6 million for the same period last year. Product revenue rose 22 percent to $81 million from $66.6 million; consumable sales increased to $71.9 million from $10.4 million; and instrument sales grew to $9.1 million from $5.1 million. Affy said it shipped a total of 42 systems and scanners in Q4.

In separate notes released last week ,analysts praised Affy's "strong" quarter, but noted that the firm still faces "intense competition." Leerink Swan's Isaac Ro wrote that, while Affy beat estimates, "visibility remains limited on the future state of the array market. It has yet to be seen what happens with volumes as customers await further content from the 1000 Genomes Project."

Thomas Weisel Partners' Peter Lawson noted that while the quarter was "strong as management continues to turn the business around and [National Institutes of Health] funds remain a significant driver for potential upside," the investment firm "remains on the sidelines, awaiting more sustainable positive trends" and believes "intense competition remains in the marketplace."

RNA and DNA

Affy divides its business into two components: RNA, traditionally dominated by its expression arrays, and DNA, traditionally dominated by its genotyping chips. This product mix has evolved in recent years as Affy integrates products gained through acquisitions, such as Panomics. Affy's product mix continues to be about two-thirds RNA and one-third DNA.

While RNA sales continue to compose the bulk of its revenues, Affy's DNA business is growing the quickest. Chief Financial Officer John Batty said during the firm's earnings call that DNA revenue rose 30 percent in Q4 to $25 million from $19.3 million during the same period last year. RNA revenue, in turn, grew 8 percent to $44.9 million from $41.5 million in Q4 '08.

CEO Kevin King said during the call that a "good portion" of Affy's RNA business growth came from sales of "new products for biomarker discovery and products used for biomarker validation." The surge in DNA sales was the result of "solid increases" in demand for products for GWAS, copy-number variation studies, custom genotyping, and reagents sales.

King said that Affy in particular is seeing adoption of its Cytogenetics Research Solution, where researchers use its Cytogenetics Whole-Genome 2.7M Array and accompanying software to detect genomic aberrations. "We're definitely seeing growth in the cytogenetics area," King said.

He divided the marketplace into three subsegments: cancer research, neonatal research, and prenatal genetic research. And while Affy's cytogenetics offerings are intended solely for research, King said the company envisions eventual clinical use.

"There’s no doubt that in the long run, our products will be [US Food and Drug Administration] cleared," King said. "As you know we already have an instrumentation platform that is FDA cleared. Some of our chips are FDA cleared for different applications.

"We’ve done all of the legwork in our reagent manufacturing compliance from a [Good Manufacturing Practices] standpoint and ... we like to think we’re good friends with the FDA and have met them on this topic as well as many other topics around multi-variant type testing," he said. "In the long run, that’s the direction that we’ll certainly head into."

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Illumina, a rival that also sells arrays to the cytogenetics market, said recently that it has already submitted a cytogenetics package to the FDA as part of its preliminary device-excemption process (see BAN 1/26/2010). Illumina's submission to the FDA includes its iScan system and its HumanCytoSNP-12 chip HumanOmni1-Quad arrays.

In terms of the GeneTitan system, King said Affy has received "positive" customer feedback on its performance. "We already have customers with multiple installations and we are growing a funnel of opportunities for 2010," he said.

The company also recently began shipping its benchtop GeneAtlas system to early-access customers. Affy said it expects to fully commercialize GeneAtlas this quarter.

Axiom

GeneTitan and GeneAtlas both support Affy's ArrayPlate format, which allows automated processing of strips of arrays. Intended for mid- to higher-throughput labs, the GeneTitan allows users to simultaneously process 16, 24, or 96 arrays per plate. By comparison, GeneAtlas, designed for lower-throughput labs, enables users to process strips of four arrays simultaneously.

Key to Affy's offering, though, is an internally developed database of content that enables researchers to design custom genotyping projects.
Batty said that Affy now has 6 million validated SNPs within its database, 2.8 million of which have been selected from the data released by the 1000 Genomes Project and validated by Affy. Affy first launched its offering, called Axiom, in October (see BAN 10/20/2009).

The first catalog genotyping product to run on the platform was the Axiom Genome-Wide Human Array Plate, which is optimized to study Caucasian populations.

In addition to content selected from public databases of human variations and historical HapMap data, the arrays on the plate include more than 81,000 SNPs from the 1,000 Genomes Project and more than 30,000 coding and non-synonymous SNPs.

At the time of Axiom's launch, Affy announced an agreement with the Kaiser Permanente Research Program on Genes, Environment, and Health, and the University of California, San Francisco. Terms of the deal called for Kaiser and UCSF to use the Axiom platform to conduct genome-wide analysis of DNA samples from 100,000 Kaiser volunteers in Northern California.

While arrays with pre-defined content have in the past composed the bulk of Affy's sales, the company now sees the content made available via its database as an advantage in the genotyping space.

"I think the database is going to be important as we go forward," said Batty. "It's not a proprietary database, it is something that customers can access and use and work with us to shape their studies."
He said that customers are adding their own content to the database and that "the industry may very well wrap its mind around this as being the definitive database for variation."

This new content flexibility has caused the firm to view the genotyping market in a new way, according to Batty. With Axiom, the "lines are really beginning to blur with respect to what we called in the past GWAS and targeted genotyping," Batty said.

"With the advent of these large databases, customers are beginning to say, 'I really want to customize my content,' and whether they call it a GWAS study or they call it a [targeted genotyping] study, I think that definition is going to go away.
"It’s a genotyping study. And I think the main driver here is you believe in the customize content," he added.

Batty said that the current genotyping market is divided between researchers doing large disease or population-based studies, those doing follow-up studies to discovery projects, and those doing larger targeted genotyping studies. The latter is the result of a decrease in cost and rise in throughput.

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Looking Forward

During the call, Affy officials also discussed the firm's plans for 2010. King said in particular that gene expression continues to be a "important market segment" for the company. He said that major sequencing initiatives are "creating demand for new expression array designs." He noted that the firm has launched more than a dozen new array designs in the past year, and that Affy "expects this trend to continue in the future."

Batty provided an update on the company's digitally encoded, microparticle-based liquid array platform, which it acquired with its purchase of Bay Area startup True Materials in 2008 (see BAN 8/12/2008).

"We’ve completed all of our research efforts for the liquid array program," Batty said. "We have the ability to derivatize, if you will, just about any type of assay to that surface," he said.

He said Affy is now at the point where it is developing specific products for target markets. "We haven’t disclosed what they are, but those are in development and we think they’re going to be quite dramatic when they get out," he said.

Affy officials also commented on the firm's acquisition strategy. After a busy 2008, when it acquired reagents maker USB, True Materials, and Panomics, Affy has yet to make another buy though it has said that it is looking for more opportunities.

King said that Affy's strategy is to move downstream into validation and routine testing, and, "from a business-development point, that’s where our head is largely placed."

King said the firm continues to "look at our core markets for tuck-in or other types of consolidation opportunities," but the "major opportunities for growth" are "downstream, and those are ones that we’re spending the bulk of our time understanding what our next move should be."

Part of Affy's desire to move downstream is to recapture business from pharmaceutical customers that have cut back on discovery programs that made use of its arrays in favor of validation programs. Affy is interested in having its products used more in drug development, not just drug discovery, King said.

"I think those revenue streams tend to be more stable," he said of drug-development programs. "I think those revenue streams are associated with many, many more samples, albeit at lower price points."

Q4 in Full

Fourth-quarter revenues for the three-month period ended Dec. 31, 2009, increased 13 percent to $88.8 million from $78.6 million year over year. The company said the growth was driven by a 30-percent increase in sales of its genotyping products.

Analysts had estimated the firm would generate $82.9 million in revenue during the period.

Net income for the quarter was $2.8 million, compared to a $318.7 million net loss during the fourth quarter of 2008 created by a $239.1 million charge for impairment of goodwill.

R&D spending dropped to $17 million from $25.4 million for the quarter, while SG&A for the quarter was nearly flat at $34.5 million.

For full-year of 2009, Affy reported revenues declined 20 percent to $327.1 million from $410.3 million for the year before. However, the full-year number also beat analysts' estimate of $321.1 million.

Product revenues for the year increased 3 percent to $279.2 million from $270.4 million while service revenues increased 23 percent to $39.6 million from $32.1 million in 2008.

Net loss during the year shrank to $23.9 million compared to a net loss of $307.9 million for 2008.
R&D spending fell roughly 8 percent to $77.4 million from $84.5 million year over year, while SG&A expenses rose around 3 percent to $130.8 million from $127.1 million.

Affymetrix finished the year with $65.6 million in cash and cash equivalents.

Affy predicted first quarter revenues of around $78 million, roughly in line with last year's results for the same period. King said that the firm expects to "generate improved revenue growth and to be profitable for" 2010.

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