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Affymetrix Q4 Revenues Drop 23 Percent; Misses Analysts' Estimates

NEW YORK (GenomeWeb News) – Affymetrix's fourth-quarter revenues fell 23 percent year over year, missing analysts' estimates, the company reported after the close of the market on Wednesday.

For the quarter ended Dec. 31, 2011, the Santa Clara, Calif.-based microarray firm said that it posted $65.1 million in revenues, down from $84.9 million a year ago, and short of Wall Street expectations of $65.6 million.

Product revenues for the most recent quarter came in at $58.7 million, comprised of $54.9 million in consumables and $3.8 million in instruments. DNA and other revenues were $23.3 million while RNA revenues were $31.5 million, CFO Tim Barabe said during a conference call after the release of Affy's earnings.

Affy recorded $5.1 million in service revenues and $1.3 million in royalties and other revenues.

Its R&D costs in the quarter rose 8 percent year over year to $16.7 million from $15.5 million, while SG&A spending increased a fraction of 1 percent to $28.8 million from $28.7 million.

A profit of $4 million, or $.06 per share, in the fourth quarter of 2010 turned into a loss of $14.7 million, or $.21 per share, in Q4 2011. Wall Street estimated a loss of $.07 per share.

Highlights during the quarter included an agreement with the Broad Institute to chart the genomic changes in more than 20 cancer types. It also signed a deal with Genisphere for RNA amplification and labeling, and a memorandum of understanding with BGI to co-develop and co-market microarrays for the agriculture and livestock research markets.

In November, Affy announced a deal to buy flow cytometry and immunoassay reagent firm eBioscience for $330, but the deal has been delayed and the company recently said it will need to restructure the financing for the deal after reaching a settlement agreement over a lawsuit related to the acquisition.

On the conference call, Affy President and CEO Frank Witney said that the firm remains excited about the pending deal but declined to speculate on the chances that the company would successfully complete it.

After the earnings release, several analysts issued notes in which they expressed pessimism that the deal will go through.

Peter Lawson of Mizuho Securities, for example, is removing the deal from his estimates for 2012, while Quintin Lai of R.W. Baird said, "At this time, we think it is prudent to assume that [Affymetrix] will likely move forward independently of eBioscience."

The original financing arrangement includes a commitment from GE Capital, Healthcare Financial Services, and Witney said that GE has not terminated its commitment letter and that Affy is in continuing discussions with GE and eBiosciences.

Affy's exclusivity period to acquire eBioscience lasts through March 31, Witney added, and the company is not pursuing other M&A deals.

In the meantime, the delay has had some effect on Affy's other efforts. The company has talked about trying to expand its footprint in geographies outside of the US and recently has started to do so in Brazil and China. On the call Witney said that Affy has had to delay those efforts, though, as it tries to resolve the eBioscience situation.

For full-year 2011, Affy posted revenues of $267.5 million, down 14 percent from $310.7 million in 2010, and just short of consensus analyst estimates of $268 million.

The firm had $241.3 million in product revenues, including $225 million in consumable revenues and $16.3 million in instrument revenues. DNA and other revenues came in at $98.7 million, and RNA revenues were $126.3 million, Barabe said.

Service revenues came in at $20.2 million, while royalties and other revenues were $6 million.

Affy reduced R&D spending during the year to $63.6 million, a 6 percent decrease year over year from $67.9 million in 2010. Barabe said the goal is to bring R&D spending to 20 percent of revenues in the near term with a longer term goal of 15 percent of revenues.

Affy's SG&A spending was down 5 percent to $109.6 million from $114.8 million a year ago.

The company had a net loss of $28.2 million, or $.40 per share, in 2011, compared to a net loss of $10.2 million, or $.15 per share, a year ago. Wall Street had estimated the loss at $.17 per share.

Affy ended 2011 with $201.9 million in cash and cash equivalents.

For full-year 2012, the company is giving guidance of flat revenues to low-single digit growth. Witney said that year-over-year growth is expected to begin in the second half of the year.

Witney called 2011 challenging but said that the firm moved to strengthen its organization by adding industry leaders to its commercial team and restructured its business, an effort that included a reorganization into three business units and a reduction in the company's R&D headcount.

Genetic expression remains Affy's most challenged business. On the conference call Witney said that the business, which constitutes about 45 percent of Affy's total revenues, is expected to decline between 5 and 10 percent in 2012.

The genetic analysis and clinical diagnostics business unit, meanwhile, is Affy's "most robust growth opportunities," and is projected to grow at least 20 percent in 2012, Witney said.

The third business unit is life science reagents, which has seen mid-single digit growth and now makes up about 12 percent of product sales.

The company is "aggressively attacking market segments where our technologies bring significant value, such as clinical validation," Witney said in a statement. "In addition, we are pleased with the progress of our clinical program, particularly our CytoScan [research-use only] cytogenetics product."

In trading early Thursday on the Nasdaq, shares of Affy were down 7 percent at $4.86.

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