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Affymetrix's Q2 Revenues Jump 20 Percent on Cyto, Genotyping Demand, eBio Addition

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This story was originally posted on Aug. 1.

Affymetrix posted a 20 percent rise in second-quarter revenues last week, largely due to a contribution from its eBioscience business, but also driven by double-digit growth in genotyping array sales.

For the three months ended June 30, the Santa Clara, Calif.-based firm reported total revenue of $79.5 million, compared to $66.4 million in the prior year period. Affymetrix's Q2 earnings include $18.8 million from eBio, the San Diego flow cytometry and immunoassay reagents vendor that Affymetrix acquired at the end of the second quarter last year.

Excluding eBio, Affymetrix's core consumable sales were $51.2 million, down from $53.3 million in 2012. Though Affymetrix's organic revenue was down by about 2 percent year over year, Gavin Wood, the firm's new chief financial officer, said on an earnings call that the Q2 results have given Affymetrix "confidence that we are driving the business back towards overall revenue growth."

During the call, CEO Frank Witney similarly cited increases in sales across three of Affymetrix's four business units — genetic analysis, eBio, and life science reagents — as a sign of the firm's "stabilization." And while the firm's legacy expression business continues to decline, Witney noted that its expression sales decreased 18 percent in Q2 compared to 29 percent in the second quarter of 2012.

Moreover, he said, the addition of eBio has made Affymetrix less reliant on expression revenues. Witney noted that expression accounted for 31 percent of the firm's revenues in Q2 compared to 45 percent of revenues in Q2 2012.

Altogether, Witney said the firm is "encouraged" by its second quarter results.

'Building momentum'

Affymetrix's genetic analysis business in general consists of its genotyping array products, and the firm discussed the unit in terms of two segments: chromosomal microarrays, intended for clinical cytogenetics as well as research; and Axiom genotyping arrays, intended for high-sample-volume human and agricultural research.

Last year, sales of cyto arrays, Affymetrix's CytoScan product in particular, accounted for 10 percent of the company's overall revenues. Witney said that figure was 12 percent in Q2.

According to Witney, cyto sales grew 15 percent during the quarter, driven by the firm's "efforts to increase our market penetration in Europe and Asia, where we are building momentum, as well as continued penetration in our major US cytogenetic sites."

At the beginning of the year, Affymetrix submitted CytoScan to the US Food and Drug Administration to be cleared for clinical use (BAN 2/19/2013). Witney said that the company is in "active and frequent discussions with the agency," but that the firm "cannot forecast the timing for clearance."

Illumina also submitted a cyto array to the FDA earlier this year.. The firm also continues to discuss the submission with the agency (BAN 6/18/2013).

Sales of Affymetrix's genotyping arrays grew 19 percent year over year, driven by adoption of its Axiom products, but offset by declines in demand for its SNP 6.0 array.

Witney discussed two product launches on the call. The firm has already launched its Axiom-384HT product, a 384-sample, multi-well format, positioned for use in agricultural research, but not exclusively. The other is a kitted version of OncoScan array for genotyping of formalin-fixed, paraffin-embedded samples. Affymetrix has to date offered the array as a service.

Earlier this year, Affymetrix signed an agreement to provide genotyping arrays to the UK Biobank as part of UKBB's effort to genotype its 500,000-sample collection (BAN 3/26/2013). Witney said that the array design for the project has been finalized and that the firm expects to begin running samples at the end of the year. It will recognize the majority of the revenue from the project in 2014.

Soft in Japan

Affymetrix managed to staunch the decline of its legacy expression business in Q2, and saw sequential growth in expression chip sales in both North America and Europe. At the same time demand for expression arrays continues to slip in Japan, once a reliable market. The firm saw similar declines in Japan in Q1 (BAN 5/7/2013).

Witney said that Affymetrix's business in Japan has been centered on sales of expression arrays in the past, and that the firm "continues to see softness" in the country and "does not expect significant improvement in this market for the remainder of the year."

To bolster Japanese sales, the company is attempting to build demand for its cyto and Axiom products. One analyst on the call referenced Japan's ¥10.3 trillion ($117 billion) economic stimulus package, which includes ¥721 billion earmarked for scientific research (BAN 3/12/2013 ).

Witney said that Affymetrix has not yet "characterized the magnitude of the opportunity," but noted that there are monies being made available for certain types of projects in the genotyping space ... and these are opportunities that we're engaging with customers on."

In terms of the overall expression market, Witney said that the company is "not projecting a bottom" for its revenue decline, and that it will continue to sell products, such as its new Human Transcriptome Array, "which we believe can further help to stabilize our expression business."

Researchers from Stanford University led the development of the array, which Affy launched as a commercial product two years ago (BAN 8/16/2011).

According to Witney, the firm has implemented a "broad and an aggressive marketing campaign" for HTA, positioning it as a complementary tool to RNA-seq and its OncoScan assay.

eBio and LS

Sales of eBio's flow cytometry and immunoassay reagents pushed e-Bio-related revenues up 5 percent in Q2 year over year. But while eBio revenues grew 12 percent in Europe and 23 percent in Asia, they fell 5 percent in North America, due to "tighter academic spending and pricing pressure," Witney said.

To revive North American sales, the company is rolling out new products. The firm recently launched QuantiGene FlowRNA, which combines Affymetrix's QuantiGene ViewRNA, in situ hybridization assays that enable the localization and visualization of RNA in cells or tissues, with eBioscience's flow cytometry capabilities.

"Early feedback is very positive, and we are leveraging our eBioscience commercial channel to help drive growth of this exciting assay, which can be run on the large installed base of flow cytometers around the world," said Witney.

Affymetrix's fourth business unit, life science reagents, consists mainly of products sold by USB, the Cleveland, Ohio-based firm it acquired five years ago. Life science reagents generated about $8 million in Q2, up four percent year over year, the only unit for which the firm provided a revenue figure.

Witney said he expects the business will continue to grow in the low single digits.

Elsewhere in Q2

Affymetrix's product sales grew 27 percent to $74.2 million from $58.5 million a year ago, while services and other revenues shrank 33 percent year over year to $5.3 million from $7.9 million.

Though the firm's core consumables revenues declined in Q2, its instrument revenues increased to $4.2 million from $3.8 million.

For the quarter, Affy posted a net loss of $6.1 million, or $.09 per share, compared to a profit of $23.6 million, or $.33 per share, in the year-ago period.

During the second quarter of 2012, Affy realized an income tax gain of nearly $37 million, compared to an expense of $521,000 in Q2 3013.

Affy lowered its R&D spend 12 percent year over year to $12.0 million from $13.6 million, and reduced its SG&A costs 17 percent to $33.5 million from $40.5 million.

The company finished the quarter with $43.7 million in cash and cash equivalents. According to Wood, the firm made a $3.2 million payment toward its senior secured debt in the quarter, and made another $3.2 million payment last week.

Witney said that the firm was eager to pay down its debt as part of its planned returned to profitability, and because of the 6.4 percent interest rate on the debt.

"It is expensive money and that's one of the reasons we're trying to chip away at that so aggressively," said Witney.

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