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Affymetrix Cites Challenging Quarter as Results Fall Short of Expectations

NEW YORK (GenomeWeb News) – Affymetrix reported after the close of the market Tuesday that its first-quarter revenues increased around 19 percent year over year, falling in line with its pre-announcement from earlier in April but coming up short of revised Wall Street expectations.

The Santa Clara, Calif.-based array firm brought in total revenues of $77.9 million for the three months ended March 31, up from $65.2 million in the first quarter of 2012. The firm had said a few weeks ago that it would report revenues of approximately $78 million, short of the consensus Wall Street estimate of $83.3 million for the quarter.

The revenue figure released today also fell short of the revised consensus estimate of $80 million,

Affy said that its product sales for the quarter were $71.6 million, compared to $58.5 million for the first quarter of 2012. Its services and other revenue declined to $6.4 million from $6.8 million. The firm noted that eBioscience, which it acquired last June, provided $19 million in revenue for the quarter. Excluding the contribution of eBioscience, Affy's revenues were down around 10 percent year over year.

In a conference call following the release of the earnings, Affymetrix President and CEO Frank Witney expressed disappointment in the results but pointed to continued growth in the firm's Genetic Analysis business unit, which includes its cytogenetics and genotyping array products, as a sign the firm is "doing the right things" to return to growth and profitability.

"Though we're certainly disappointed in the short term, we feel good about the long term of the business," Witney said.

He noted on the call that sales for the Genetic Analysis business were up 16 percent, with cytogenetics sales up more than 40 percent, to around $22 million. The firm's Gene Expression business fell 29 percent to $23 million.

The Genetic Analysis and eBioscience businesses accounted for 53 percent of Affy's revenues in the quarter, while the firm's Gene Expression business now accounts for 29 percent of total revenues, Witney noted.

"The biggest hit for us in the Gene Expression business was in Japan, which was unexpected," he said. "If you looked at the other regions in North America and Europe, while they were weak, they're probably not too far off of what we had expected from a plan perspective. That, on top of the uncertainty in the North America funding environment, just makes it difficult to see exactly where we're going to be with gene expression over the next few quarters."

However, he said that "as expression becomes a smaller percentage of total revenue, we'll reach the point where our realigned portfolio will enable us to return the overall business to growth."

Instrument sales for the quarter declined 26 percent year over year to $3.5 million from $4.7 million. Excluding eBioscience, Affy's consumables sales were $49.1 million, down 9 percent from $53.8 million, CFO Tim Barabe said on the call.

During the quarter, Affy filed its CytoScan Dx offering with the US Food and Drug Administration. CytoScan Dx allows users to identify the genetic abnormalities causing diseases and disorders in postnatal cases. Witney said that the company's interactions with the FDA regarding the CytoScan Dx filing are "progressing well," but he did not elaborate.

Affy posted a net loss of $15.4 million, or $.22 per share, for Q1, compared to a net loss of $4.2 million, or $.06 per share, for the first quarter of 2012. On a non-GAAP basis, its loss per share was $.01, beating analysts' consensus estimate of $.01.

The firm's R&D spending declined 8 percent to $12.2 million from $13.3 million, while its SG&A spending increased 26 percent to $35.1 million from $27.9 million. It also reported restructuring charges of $4.8 million for the most recent quarter.

The firm had announced in January a restructuring, which included laying off more than 100 employees. At the time, the firm said that it would record a charge of around $7 million for the restructuring.

Affy finished the quarter with $38.2 million in cash, cash equivalents, and restricted cash.

Witney also noted that the firm has continued to pay down its senior debt, reducing it from $85 million to around $70 million over the past nine months.

Because of the uncertainty about future demand for its gene expression arrays, Witney said that the company is suspending its financial guidance for 2013. Still, he said that the firm expects to "generate double-digit revenue growth in our Genetic Analysis business unit" and low to mid-single-digit growth for the eBioscience and Life Science Reagents units, "evidence that our overall strategy is intact."

Shares of Affymetrix fell around 5 percent to $3.44 in early Wednesday trade on the Nasdaq.

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