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Citing Management Turnover, 'Energized' Sales Channels, Analyst Christens Affymetrix a 'New Company'

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There is "still a lot to like" about Affymetrix, according to Peter Lawson. The Mizuho Securities analyst released a note this week in which he summarized recent discussions with the management of the Santa Clara, Calif.-based microarray vendor, and reiterated the investment firm's ratng of Buy for Affymetrix's stock with a price target of $12.

While Affymetrix has struggled in recent years for a number of reasons – decreases in its legacy gene expression business brought about by transitions to next-generation sequencing, stiff competition in various array markets – Lawson came away from recent investor meetings with the sense that the firm has remained "under-appreciated," given changes in management and new business developments.

Many of Lawson's insights match statements made by a number of Affymetrix executives at the American Society of Human Genetics' annual meeting, held in Boston in October.

"We essentially view [Affymetrix] as a new company with renewed focus," Lawson wrote in the report. "The senior management team has been turned over, as has the commercial team; the sales and commercial channels are energized."

While Affymetrix has not publicly discussed all of its newer appointments, it did tap Gavin Wood as a replacement for outgoing chief financial officer Tim Barabe in May, and promoted Siang Chin to general counsel in March. The greatest change in recent years, arguably, was the appointment of Frank Witney as CEO in 2011, following the resignation of Kevin King.

Lawson said that Affymetrix's new management "appears comfortable" with its business as it transitions from an academic focus to translational medicine and applied markets. He cited specific opportunities for the firm in agricultural biotechnology, cancer research, and among biobanks. One strength of the firm's technology, according to Lawson, is actually its array manufacturing process. Since it relies on masks to fabricate its arrays, the company can make arrays containing the same content in perpetuity if so required.

Lawson called this a "competitive advantage [in] the emergence of long-term projects that require a high degree of lot-to-lot consistency, such as biobank projects and agbio." Affymetrix recently said that it was selected to provide arrays to genotype 100,000 samples on behalf of the US Department of Veterans Affairs as part of the VA's Million Veteran Program. Earlier this year, it also announced that it would provide the chips to genotype the 500,000 samples in the UK Biobank.

Affymetrix management also told Lawson that a quarter of the firm's new leads are for agbio-related projects. The company earlier this year introduced a new 384-sample format, called Axiom-384HT, specifically targeted to the agbio market.

Cancer is another area of focus that is "paying off" for Affymetrix, Lawson added. He said that the firm's CytoScan chromosomal microarray offering, which can be used in both constitutional and oncology research, is now a $30 million business that could contribute $35 million to the firm's revenues next year. Affymetrix submitted a CytoScan package to the US Food and Drug Administration for clearance earlier this year. While the company has not projected a date for when it might achieve clearance for the array's clinical use in pediatric constitutional cases, Lawson said that FDA clearance would help CytoScan's adoption.

Another driver in oncology is the firm's OncoScan product for profiling formalin-fixed, paraffin-embedded samples. Affymetrix launched a kitted version of OncoScan, which had been available as a service for years, in August.

Overall, Lawson forecast "low single-digit growth" for Affymetrix in 2014, with a "continued focus on profitability, and consistent quarter-to-quarter execution."

Any merger or acquisition activity would be "small tech adds," he noted. Affymetrix last made an acquisition in 2012, when it paid $300 million to buy San Diego-based flow cytometry and immunoassay reagent provider eBioscience.

'The face of genotyping'

When a number of Affymetrix executives spoke with BioArray News at ASHG in October, they delivered similar messages.

Andy Last, executive president of the firm's genetic analysis and clinical applications business unit, claimed that the firm had "changed the face of genotyping in the past 15 months," with the introduction of products like the Axiom-384HT, making the firm's offering more attractive to agbio customers.

"That is massive throughput at substantially lower costs," Last said at the time. "Things that people thought about three years ago, they can now do," he said. Last also claimed that Affymetrix provides turnaround times on custom designs "that were impossible a few years ago." As an example, the company was able to generate the first arrays for the UKBB effort within the same month the chip's design was finalized.

"Now you can say I want this, and we'll design it for you and have it to you in four to six weeks," Last said. Like Lawson, Last also stressed the advantage's of the company's masked-based array fabrication processes. "We guarantee that every SNP will be on the array that you want on the array, just by the nature of the process," said Last.

In his research note, Lawson also noted that the company's future growth would be driven by geographic expansion.

David Weber, Affymetrix's EVP of global commercial operations, similarly told BioArray News that the company has been "focusing a lot of efforts on emerging markets," citing new organizations in China and in South America.

He also noted that the firm had developed a Chinese-population specific version of its CytoScan product that would be available in that market to take advantage of the opportunities there. According to Weber, the company could hypothetically make population-specific versions of CytoScan available in other markets in the future.

"It's a big opportunity, probably applicable in select markets around the world, but the Chinese market is so big, so we are starting there," said Weber. "Where appropriate, we will take that product into other markets, too."

During a GenomeWeb site visit to Affymetrix's Shanghai office last year, regional representatives similarly touted CytoScan as a flagship product for the Chinese market, calling its potential "enormous."

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