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At JP Morgan, Affy Provides Update on Cyto FDA Submission, New Genotyping Products, Restructuring

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SAN FRANCISCO — Illumina will not be the only array vendor submitting a cytogenetics-focused array to the US Food and Drug Administration for clearance this quarter. Affymetrix CEO Frank Witney told investors at the JP Morgan Global Healthcare Conference here this week that the company is on track to submit its CytoScan array to the agency in Q1.

Both companies had vowed to submit arrays for postnatal constitutional cytogenetics to the FDA by the end of last year. Illumina appeared close to meeting that goal, but CEO Jay Flatley said earlier this week that the company had delayed its submission (BAN 1/8/2013). With Witney's update, it appears that two of the major providers of cyto arrays will submit their chips to the agency at the same time.

Witney discussed Affy's FDA filing in the context of the company's overall status. In addition to discussing various opportunities for its genotyping, gene expression, life science reagents and eBioscience business units, Witney also commented on the company's 2012 preliminary financial results and provided additional detail on a restructuring plan that will see the Santa Clara, Calif.-based company trim 100 employees, or 8 percent of its staff, in order to reduce costs and return the firm to profitability.

Obtaining FDA clearance is part of that plan. While larger laboratories that already offer CytoScan as a laboratory-developed test will not be impacted by the clearance, company executives said that the agency's go-ahead will allow it to approach smaller labs and to market it for clinical use in other regional markets.

"A lot of labs that cannot go through the certification and validation [associated with introducing an LDT] will now have an FDA-cleared product they can offer themselves," said Andy Last, director of Affy's genetic analysis business. Clearance in the US also "becomes a baseline for adoption around the world," said Last, who spoke during the firm's breakout session. In some countries, such as China, products cannot be submitted for regulatory clearance as clinical assays before they achieve such clearance in their country of origin (BAN 11/27/2012).

Affy will also be able to market CytoScan for clinical use once it achieves clearance, noted Doug Farrell, the firm's head of investor relations, during the breakout session. The company currently markets the chips as research devices that are used as components of labs' LDTs.

Affy's CytoScan offering is one of the growth drivers in its genetic analysis business unit, which also includes its Axiom genotyping products and is the company's "fastest growing" unit, Witney said. According to Witney, sales of the company's Axiom arrays grew 50 percent last year, largely due to an increased demand for targeted genotyping chips. Illumina CEO Jay Flatley also noted this week that demand for his company's targeted genotyping arrays increased compared to the prior year.

Currently, Affy customers can run 96 Axiom genotyping arrays at a time on the GeneTitan instrument, but Witney said that the company will soon introduce a higher-throughput product that will allow users to process 384 arrays, each containing up to 50,000 customer-selected markers, on the GeneTitan, "increasing the throughput by a factor of four."

The Axiom-384 product will be available later this quarter to beta customers in North America and Europe, Witney said, adding that the availability of a higher-throughput offering will allow the firm to generate more business from human health and agricultural biotechnology customers who are interested in processing more samples.

Affy's gene expression business continues to be its weakest, Witney said. While the business is "still viable," with gene-expression arrays being sold for translational applications, Affy expects its gene expression sales to decline about 10 percent this year. Despite this, Affy "will continue to invest in a prudent way" in gene expression in order to "maintain the business as best we can." An updated human transcriptome gene expression array is slated for launch in the second quarter, Witney noted.

Phase 2

Gene expression array sales currently generate 41 percent of Affy's overall revenues, but with the inclusion of eBioscience, the San Diego flow cytometry and liquid chromotography reagents provider the firm acquired last year, gene expression will generate 32 percent of revenues in 2013, with eBio generating 22 percent, and genetic analysis products generating another 30 percent, according to Witney. Affy's life science reagents and other activities should contribute the remaining 16 percent of revenues this year, he said.

Affy earlier this week announced preliminary fourth-quarter revenues of $84 million, and Witney said at the conference that the firm expects to generate revenues of about $330 million in 2013, roughly flat with what its 2012 numbers would have been had eBio been part of the company since the beginning of the year.

However, management is keen to restore the company to growth in the coming years and is executing against the second phase of a plan to achieve that goal, Witney said. Whereas the first phase of Affy's plan included the acquisition of eBio and expanding its presence in the translational medicine and clinical diagnostics markets, the second phase calls for trimming the firm's cost structure to return it to profitability, and the third phase calls for expansion into higher-growth markets.

Part of the current second phase of Affy's plan includes the reduction in headcount. Witney said that Affy would take a $7 million charge in the first quarter related to the announced layoffs. Most of the cuts were within Affy's array-related businesses, he said, and not within eBio, which became part of Affy in June.

By reducing its number of staffers by 8 percent and undertaking other cost-saving measures, Witney said that the firm anticipates operating expenses of about $180 million in 2013, which together with its projected $330 million in full year revenues, would provide Affy with positive operating income for the full year.

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