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After Profitable Q4, Affymetrix Sees Bovine Chip, Thermo Fisher Deal Driving Growth

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This story was first posted on Jan. 13.

By Justin Petrone

Affymetrix last week reported $85 million in preliminary revenue for the fourth quarter of 2010 — a 6 percent increase over $78.6 million in the fourth quarter of 2009.

The firm noted the Q4 2010 revenue includes a $4.8 million milestone payment from an undisclosed diagnostic partner. It attributed the revenue growth to demand for its next-generation genotyping platform.

The Santa Clara, Calif.-based vendor also launched a new array for bovine testing and announced that Thermo Fisher Scientific will distribute its benchtop GeneAtlas system in North America.

CEO Kevin King said in a statement that Affy made "significant progress" in 2010 thanks to its "disciplined focus on operations, which has significantly lowered our break-even point." The company expects to post positive operating income and net income for both the fourth quarter and the second half of 2010 when it reports its Q4 and full-year results on Feb. 2.

The company also said that it has repurchased $53 million in 3.5 percent convertible notes. It repurchased more than $150 million of the notes in 2010 and now has about $95 million in outstanding convertible debt. Affymetrix said it expects to have a year-end net cash balance of around $140 million.

According to King, Affy's Q4 sales were driven by demand for its genotyping arrays. Speaking at the JP Morgan Healthcare Conference in San Francisco this week, King said that first-year adoption of the company's Axiom genotyping offering was "very successful." Roughly 40 percent of Affymetrix's genotyping sales came from the Axiom product line, he noted. The company launched the platform at the end of 2009 (BAN 10/20/2009).

King added that "roughly half" of Axiom products sold were custom designs. The company has previously touted its ability to create custom genotyping arrays as an advantage in the market, though its closest rival, Illumina, also maintains a number of options for clients pursuing custom projects (BAN 1/19/2010). "This is a real validation of change taking place in the marketplace relative to off-the-shelf arrays versus customization, and we believe the market is moving towards customization more quickly."

King estimated the genotyping market to be around $700 million. He said that Affy enjoys a 54 percent share in the "discovery segment," but retains a low share in the validation segment, though its cut of the latter is experiencing "high growth" due to decreasing costs for its legacy GeneChip arrays and demand for its newer QuantiGene kits.

King added that the firm has not lost business to the adoption of next-generation sequencing instruments.

"There is a lot of talk about next-generation sequencing taking this business away," King said. "We are very comfortable with our revenue base here," he said. He added that Affy has done "numerous head-to-head comparisons against NGS using microarrays" and while NGS "provides unique value add that arrays cannot address when you are looking at discovery," his company's experience is that "arrays still win in terms of cost and workflow" and provide the "same exact information that NGS is providing."

Looking forward, King predicted that Affy's microRNA arrays, custom genotyping chips, and QuantiGene assays will drive growth in 2011.

Expanding into Ag-bio

Another market that has caught Affy's interest is ag-bio. The company this week launched its Axiom Genome-Wide BOS 1 Array, which it claims has "34 percent higher genetic coverage than the current leading array because of its unique design." Affy did not name the leading chip on the market, but Illumina sells three products for bovine research: its BovineHD Genotyping BeadChip, which contains over 777,000 markers covering more than 20 different breeds; its Bovine SNP50 genotyping BeadChip, which contains 56,000 markers across the bovine genome; and its GoldenGate Bovine3K Genotyping BeadChip, which contains 2,900 for cattle selection.

Affy's new offering includes 648,000 SNPs selected in collaboration with the Affymetrix Bovine Consortium, a group that includes the University of Missouri, the US Department of Agriculture’s Agricultural Research Service, the Roslin Institute and ARK-Genomics, the University of Edinburgh, Technical University of Munich, and the University of Liverpool.

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Affy also has made 3 million validated SNPs identified by the consortium available to users via its Axiom Bovine Genomic Database. The database is available to all breeders and researchers who also want to design their own customized arrays through the company's Axiom myDesign Genotyping Array service, according to the firm. One early adopter of the BOS 1 Array is Neogen subsidiary GeneSeek.

King said at JP Morgan that Affy has made products available for plant studies "for years" but is now "moving into the [animal-breeding] markets," which he estimated to be between $500 million to $1 billion in size. The firm envisions arrays replacing existing methods used by breeders to select cattle for mating.

"Breeders have typically been using phenotypic breed selection, which is often expensive, costs up to $50,000, is time consuming in that it takes up to six years to complete and … only 10 percent of bulls meet selection criteria," he noted.

Fisher Distribution Deal

While Affy is keen to expand into ag-bio this year, it is also looking to see wider adoption of its next-generation array systems, the GeneTitan and GeneAtlas. King said that the installed base of high-throughput GeneTitan systems grew 80 percent in 2010 compared to 2009 figures. Affy launched the system, which allows users to process strips of up to 96 arrays at a time, two years ago, and it "continues to get adopted in gene expression and genotyping applications with great success," he said (BAN 10/7/2008).

Though Affy has had "some success" with its benchtop GeneAtlas system, which supports the automated processing of up to four arrays at a time, the company this week signed a distribution agreement with Thermo Fisher Scientific to distribute the GeneAtlas and its related consumables in the US and Canada.

"Quite frankly, we did not have a broad enough reach in the marketplace to reach the 200,000 plus microbiologists and biochemists" who might be interested in the GeneAtlas, King said. He said that the Fisher deal will "drive adoption of the product into labs that haven't had access to microarray technology."

Dan Pantano, president of Thermo's Fisher Scientific subsidiary, said the arrangement with Affy will broaden the company's "extensive genomic research portfolio" and allows it to "offer a full suite of solutions from discovery research through to validation." Affy launched GeneAtlas last year (BAN 6/9/2009).


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