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Expanding Axiom Genotyping Array Menu is 'Key' to Affymetrix's Strategy, Officials Say

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By Justin Petrone

Affymetrix intends to introduce new catalog Axiom genotyping products in the coming months while looking to place more of its GeneTitan and GeneAtlas instruments. The new chips will cater to researchers studying particular ethnic groups, according to company officials.

"A key part of our strategy for this year and forward is to expand the number of products for the Axiom platform," said Doug Farrell, Affy's head of investor relations. Farrell told investors at Morgan Stanley's Global Healthcare Conference in New York this week that Affy will seek to develop new products based on new content generated by the 1000 Genomes Project and other sources.

"Our philosophy has been to incorporate as much content as possible and to develop these chips along ethnic lines, to optimize content for the group [researchers] want to study," he said. "The alternative strategy is, for lack of a better term, carpet bombing, going to 2.5 million or 5 million SNPs."

He was referring to the HumanOmni2.5-Quad DNA Analysis BeadChip made by rival Illumina, as well as the planned Omni5.5-million-SNP chip, which the company has said it will launch next year.

"While [Illumina's approach] allows you access to a lot of content, if you are only interested in 500,000 SNPs, that's not a cost-effective way to do the study," Farrell said.

Affy disclosed its plans to debut population-themed Axiom arrays earlier this year. In August, the firm announced plans to launch later a new array for genome-wide association studies on Chinese populations (BAN 8/3/2010).

The planned offering, called the Axiom Genome-Wide CHB Array, is being designed from content in Affy's internally developed Axiom Genomic Database, which includes data from the 1000 Genomes Project as well as Han Chinese data made available through the International HapMap Project. The product is expected to launch later this year.

Farrell noted that Affy continues to add content to its database and that there is demand for custom whole-genome genotyping arrays. "For the first seven or eight years, arrays were based on 4 million HapMap SNPs," he said. "Total content is now up about 50 percent over the past 18 months or so and we wouldn't be surprised to see a pool of between 10 and 15 million SNPs to build these chips" in coming years.

While Affy looks to expand its Axiom product menu, the firm continues to convert users of its older cartridge-based arrays to its newer peg array format, where strips of the firm's arrays can be processed automatically in both the higher-throughput GeneTitan and the low-throughput GeneAtlas. Affy launched the GeneTitan, which can process 96 arrays at once, in 2009. This year, the firm launched GeneAtlas, which can process four samples at a time.

Farrell said that the $330,000 GeneTitan is designed for Affy's "high-end users," while GeneAtlas is seen as a tool for "geographic expansion" as Affy looks to place its technology in markets where it has previously been cost prohibitive.

Indeed, Farrell said that Affy has seen a number of GeneAtlases installed in Asian markets since its debut. Still, of the 2,000 instruments Affy has installed around the world, fewer than 100 are GeneTitans or GeneAtlases, Farrell said.

Affy has blamed some of the slow uptake of its next-generation instruments on weak performance in some regional markets. The company was forced to revise its second-quarter guidance in July, citing "delayed and lengthened capital equipment purchase cycles by academic research customers, particularly in Europe." Affy subsequently reported revenues of $72 million for Q2, 13 percent below its initial forecast (BAN 7/27/2010).

Chief Financial Officer Timothy Barabe said this week that Affy will recognize anticipated sales from placements of its instruments in Europe and other markets, but it does not expect the funding environment to change.

"We had some shortfall in instrumentation in Europe, but we think that will rebound," Barabe said at the conference. "We don't think these are permanent cancellations, but we do see that Europe has been affected by government spending slowdowns," he said. "Government spending is taking longer to reach our customers than it had in the past," he added. "We expect it to improve from levels of Q2 but it will still be sluggish."

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Another issue that hit Affy's top line in Q2 was an integration of its Panomics sales team into its global sales channels. Though Affy bought Panomics in 2008, its sales team remained independent until the second quarter of this year.

"Panomics' business was growing at a very high growth rate," said Barabe. "The second quarter showed a growth rate far below what we expected and we addressed it — we added sales force to that product line," he said. Affy now sees sales of Panomics QuantiGene and Procarta kits growing again. "We see it reversing, not quite to previous levels yet, but getting where it should be," Barabe said.

Cash Cows

Barabe also provided some insight as to where Affy is investing in R&D. While arrays for cytogenetics and diagnostics will receive Affy's R&D dollars, gene-expression research programs are less likely to receive major funding.

"Gene expression is what I would call a cash-cow business; that is a business where we have 60 percent market share, and we certainly want to protect that share and continue to protect the sales we get, but we won't be investing tremendous amount of R&D in that area," said Barabe. "Cytogenetics and diagnostics will receive more money," he said.

According to Barabe, Affy's executive team recently conducted an analysis of the firm's entire portfolio and R&D projects and will soon decide "which projects we continue to fund and which projects we cut." Affy may also look to make investments in other companies should they promise to drive adoption of its arrays in the clinic.

"Given our market cap [of $353 million], we will be extremely particular about any acquisitions," said Barabe. "More likely we will be making investments as opposed to acquisitions, plays here and there in the downstream diagnostics areas, in order to fund some of these promising companies and hope to solidify alliances if they prove successful," he said.

Affy currently lists 11 partners on its website that are developing tests on its platform. Some of these tests, such as Roche's AmpliChip or Medical Prognosis Institute's Drug Response Predictor, are pharmacogenetic or companion diagnostics to drugs being developed by pharmaceutical companies. Farrell said that Affy sees such diagnostics as an avenue to revive sales to pharma, a customer group that has in recent years shifted its R&D dollars away from discovery programs that use Affy's arrays, but could revisit the technology in light of the industry's growing interest in personalized medicine.

"Pharma for better or worse has become a more focused customer group, and the number of meaningful, important pharma customers is considerably smaller than it was a few years ago," Farrell said. Nevertheless, he noted, "the vast majority of new cancer drugs work for a subset of patients, and while there wasn't enthusiasm for that a few years ago, people see targeted drugs on the market generating very nice revenue streams, and that there tends to be more direct path through the [US Food and Drug Administration] where you have subset of patients with very compelling data and way to identify them," he said.

As far as pharma's R&D spending is concerned, such array-based tools will "pay for themselves," Farrell said during the call. "In spite of the [declining] macrospend [in pharma], we think we are in a sweet spot when it comes to [the industry's] microspend."

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