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At Investor Conference, Array Chiefs Discuss Cyto Chip FDA Filings, ENCODE, Applied Markets

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When it comes to the state of the microarray market in 2012, two of the segment's three remaining large players apparently see the major indicators the same way.

For Illumina CEO Jay Flatley and Affymetrix CEO Frank Witney, the future commercial potential of the maturing technology lies in applied markets, including cytogenetics, agricultural biotechnology, and direct-to-consumer services, rather than in the large array-driven genome-wide association or gene expression studies of years ago.

Speaking to investors at the Piper Jaffray Healthcare Conference, held last week in New York City, Flatley and Witney also agreed that the recent findings of the Encyclopedia of DNA Elements, or ENCODE, consortium, would impact the use of arrays for research going forward.

In terms of constitutional cytogenetics, Illumina and Affy both are close to submitting approval packages to the US Food and Drug Administration, with Affy eyeing a first quarter 2013 date and Illumina pledging to have its offering cleared by the middle of next year.

In a webcast presentation, Flatley said that the company is "through the clinical trials" for the firm's HumanCytoSNP-12 DNA Analysis BeadChip Kit. "This will be our first array product that we get approved through the FDA and expect it to be through the FDA sometime around the middle of next year," Flatley said.

He said that the firm's submission will contain bioinformatics capabilities obtained in September through its $88 million acquisition of Cambridge, UK-based BlueGnome. Specifically, Flatley said that Illumina will integrate its cytogenetic chips with BlueGnome's BlueFuse analysis software. He added that the company is already beginning to work with BlueGnome on its next generation of cyto arrays, but did not elaborate.

Affy elected to not have its Piper Jaffray presentation webcast. However, Piper Jaffray analyst William Quirk released a research note summarizing Affy's comments at the event. According to that note, Affy is "close" to completing its clinical trials for CytoScan HD, its cyto-focused array offering, and plans to file the test with the FDA early next year. Witney noted that the trials "went smoothly" and that the company was "confident" in the results.

Witney also provided some information on the state of the cyto market, stating that about half of the constitutional cytogenetic tests being performed today are being run on arrays, while the balance of users continue to rely on legacy karyotyping methods. He added that arrays are used more widely in cytogenetics in the US than they are outside of the country.

As Flatley said his firm would submit its offering to the agency "shortly," Piper Jaffray's Quirk speculated that the latter company "could beat Affy to market" with an FDA-cleared cyto offering. Quirk made a similar projection in a note released following Affy's third quarter earnings call last month (BAN 11/6/2012).

'Multiple Segments'

Though Affy and Illumina's overall businesses are different, with Illumina a major player in the next-generation sequencing market and Affy, following the recent acquisition of eBioscience, among the larger providers of flow cytometry reagents, both Witney and Flatley portrayed the dynamic facing their array businesses in a similar way, with growth in applied markets offsetting declines in mature research markets, such as GWAS and expression array studies.

Flatley said that Illumina sees its array business as having "multiple segments," and said there is "no question" that the association studies market is moving toward sequencing, a trend he said was supported by the ability of the ENCODE consortium to assign biochemical functions to around 80 percent of genome sequences. The ENCODE project filled in large gaps left by studies that focused only on protein-coding sequences, which account for about 2 percent of the genome (BAN 9/18/2012).

"There is information in other parts of the genome and we can't capture that all on arrays and that will drive our sequencing business in a positive way and probably hurt our array business," said Flatley of the ENCODE findings.

Though he did not address ENCODE specifically, Affy's Witney similarly acknowledged pressures on its gene expression business, "with the growing presence of sequencing, a mix shift to lower cost products and pricing pressure continuing to weigh on the segment."

While that may signal a continued decrease in whole-genome genotyping and whole-genome expression array-driven studies, historically among the most lucrative array market segments for both firms, Flatley and Witney portrayed their array businesses as shifting in new and profitable directions.

Flatley specifically described Illumina's sales of DTC arrays as being "very good." The company's chips are now being used by three of the largest organizations that provide genetic genealogy services, including Ancestry.com, Family Tree DNA, and National Geographic (BAN 7/13/2012). Illumina also manufactures the chips used in 23andMe's and DeCode Genetics' DTC offerings.

"I think the revenues would surprise you," said Flatley of the firm's sales to DTC firms, naming 23andMe and Ancestry.com in particular. "It's a very powerful technology and I think we will see continued use in those segments," he said.

In addition, Flatley said the firm continues to see demand for its line of whole-exome genotyping arrays, which, since they were launched last year, have become the most ordered array product in the firm's 14-year-history (BAN 5/15/2012). He said that, given the demand, Illumina is building a second version of the exome array, but did not discuss its content or when it could become available.

Affy also sees potential for its arrays in the applied markets. According to Quirk's notes, its genetic analysis business, which mostly consists of revenues generated by its genotyping chips such as CytoScan HD, now makes up 60 percent of its total revenues. The company has also diversified its whole-genome genotyping array menu to include population-focused chips, allowing it to capture business in regional markets, such as China, as well as enable studies of non-European populations (BAN 4/26/2011).

As for its legacy expression business, the company still views its array offering as "profitable," and Affy is making "selective investments to stabilize/slow declines" such as expansion of its technology to profile expression in formalin-fixed, paraffin-embedded samples, which Affy believes will "increase the clinical relevance" of that business, Quirk wrote.

While Illumina and Affy compete directly in the array market, the companies apparently hold similar political views, at least regarding the most recent US presidential election. According to Quirk's notes, both Illumina and Affy viewed President Barack Obama's victory as benefiting their businesses and the industry in general, with the "current administration perceived as more favorable to NIH budgets."

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