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eBioscience Contribution Pushes Affymetrix Q2 Revenues up 20 Percent

NEW YORK (GenomeWeb News) – Affymetrix said after the close of the market on Wednesday that its second-quarter revenues climbed 20 percent year over year as product sales increased 27 percent on the addition of the eBioscience business.

Investors reacted positively to the results, sending Affy's shares up nearly 11 percent to $4.20 in Thursday morning trade on the Nasdaq.

The Santa Clara, Calif.-based microarray firm said that for the three months ended June 30, total revenues increased to $79.5 million from $66.4 million a year ago, edging out the average Wall Street estimate of $78.5 million.

Product sales grew 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.

Product revenues for the recently completed quarter included $18.8 million from its eBioscience business, compared to $1.4 million a year ago, the company said. Affy did not close on its purchase of eBioscience until late June 2012, near the end of Q2 2012.

Affy's core consumables revenues slid to $51.2 million from $53.3 million a year ago, while instrument revenues increased to $4.2 million from $3.8 million.

"We were encouraged by the second quarter revenue results across all our business units as compared to the first quarter of the year, including another quarter of strong growth in our Genetic Analysis business and improved results in our Expression business," Affy President and CEO Frank Witney said in a statement. "From a geographic perspective our business strengthened in both Europe and North America while Japan remained soft."

Affymetrix officials said on a conference call following the release of the Q2 results that the firm has divided its business into four units: genetic analysis, gene expression, life science reagents, and eBioscience.

The bulk of the firm's genetic analysis revenues are generated by sales of its cytogenetics-related products, such as its CytoScan platform, as well as its Axiom genotyping products.

Witney said that cytogenetics sales grew 15 percent year-over-year and contributed 12 percent of the firm's total Q2 revenues. For full-year 2012, that business accounted for about a tenth of Affymetrix's revenues.

"The continued expansion of our CytoScan product line was driven in part by our 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," Witney said.

The firm's Axiom genotyping sales grew 20 percent year over year. Witney noted that Affymetrix recently launched a 384-sample multi-well format platform called Axiom-384HT that is targeted primarily to agricultural biotechnology customers. The firm will also soon launch a kitted version of its OncoScan product for genotyping formalin-fixed, paraffin-embedded samples. OncoScan has to date been offered only as a service.

Affymetrix's legacy gene expression business continues to decline though not as intensely, said Witney. Expression revenues fell 18 percent in Q2 versus 29 percent in the prior year period. Witney portrayed the firm's expression business as "stabilizing," especially in North America and Europe, while demand continues to slide in Japan. He said the firm has begun an "aggressive marketing campaign" around its Human Transcriptome Array, "which we believe can further help to stabilize our expression business."

Moreover, the addition of eBioscience has made the company 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.

"This continued stabilization of our revenue demonstrates that our acquisition of eBioscience has significantly reduced our dependence on gene expression," he said.

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. He added that Affy is taking steps to revive eBio's North American business.

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.

Figures for Q2 2012 include adjustments made during the quarter ended Sept. 30, 2012 "upon finalization of certain assets acquired and liabilities assumed" from its purchase of eBioscience. Figures for the year-ago period have been recast as a result.

On an adjusted basis, EPS for Q2 2013 was $.04, beating the consensus Wall Street estimate of a loss of $.01 per share.

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.

Gavin Wood, the firm's new chief financial officer, said on the call that Affy 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 return 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," he said.