Global genetic devices maker, Affymetrix Inc.
's ( AFFX )
first-quarter 2013 adjusted loss per share of 1 cent was wider than
the Zacks Consensus Estimate of break-even earnings. The adjusted
loss excludes one-time items such as acquisition, restructuring and
amortization-related expenses. However, it was narrower than the
year-ago adjusted loss per share of 3 cents.AFFYMETRIX INC (AFFX): Free Stock Analysis
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Reported net loss (including one-time items) in the quarter was
$15.4 million (or a loss of 24 cents per share) versus a loss of
$4.2 million (or a loss of 6 cents per share) in the previous year
Revenues increased 19.5% (including the eBioscience acquisition)
year over year to $77.9 million. eBioscience, which the company
acquired in June 2012 contributed $19 million to total sales in the
first quarter. However, results were lower than the Zacks Consensus
Estimate of $82 million by 4.9%.
The company is facing severe headwinds in its Gene Expression
business, offset by strong growth in the Genetic Analysis business
and modest contribution from eBioscience. Additionally, the tight
U.S. academic funding environment is also a problem.
Revenues from products were up 22.4% year over year to $71.6
million in the quarter. Product revenues included consumable sales
of $49.1 million, down 8.7%, and instrument sales of $3.5 million,
down 25.5%. It also included $19 million from the eBioscience
acquisition. Services and other revenues also dropped 5.9% to $6.4
million, down 20% sequentially.
Gross margin for the first quarter declined to 51% from 58% in the
year-ago period. However, adjusted gross margin remained flat year
over year at 59%.
Operating expenses increased to $52.2 million in the quarter
compared with $41.3 million, a year ago. Adjusted operating
expenses were $43.6 million versus $39.3 million in 2011. Operating
expenses were higher due to charges related to the eBioscience
acquisition, offset by net savings in Affymetrix Core operating
expense, amounting to $4.4 million, on the back of restructuring
and headcount reduction.
Selling, General and Administrative (SG&A) expenses were
higher at 45.1% of sales versus 42.8% in the year-ago quarter,
mainly due to expenses associated with eBioscience. Excluding
eBioscience, SG&A decreased 7% year over year.
Research and Development (R&D) expenses, as a percentage of
sales, fell to 15.7% from 20.4% in the year-ago period, due to
reduced headcount and variable compensation expenses along with
lower IT and facilities costs and lower spending on supplies and
Affymetrix ended the first quarter of 2013 with cash and cash
equivalents of $37.5 million, down 65% year over year. In the
quarter, the company redeemed all of the remaining $3.9 million of
its 3.5% convertible notes (due in 2038). Affymetrix also prepaid
an additional $3.2 million of its senior-secured debt, reducing the
total balance outstanding to $70.1 million.
In the quarter, Affymetrix entered into a major contract with UK
Biobank, a long-term epidemiological research, investigating
500,000 DNA samples, to study complex human diseases affecting
public health. The Axiom Genotyping Solution from Affymetrix will
be used to generate superior-quality genotypes, which in turn will
provide researchers with valuable data to study genetic factors in
Affymetrix has also entered into a partnership with Aqua Gen and
the Center for Integrative Genomics (CIGENE) at the Norwegian
University of Life Sciences (UMB) in the first quarter. As per the
agreement, Affymetrix will genotype more than 900,000 markers per
sample from the Atlantic salmon to implement genomic selection and
enhance the salmon breeding program at Aqua Gen.
Further, the company has submitted a 510(k) to the U.S. Food and
Drug Administration (FDA) for its CytoScan Dx whole genome
cytogenetics test. The test is intended to identify chromosomal
copy number variants (CNVs) and loss of heterozygosity associated
with intellectual disability, developmental delay, dysmorphic
features and congenital anomalies.
We remain disappointed with Affymetrix's dismal first quarter
results. Research and development spending by Affymetrix's
customers have fallen considerably due to a weak macroeconomic
environment coupled with stringent government actions including
budget cuts. Additionally, unexpected softness in the gene
expression business worries us.
Although Affymetrix's plan to focus on expanding in the
translational science, molecular diagnostics and applied markets is
beneficial in the long-term, we remain on the sidelines given the
Further, modest contribution from eBioscience has failed to
impress us. Increasing pricing pressure in the U.S. along with
operational hazards in Japan dampened the growth rate. However,
management is confident that it is capable of increasing
eBioscience's market share going forward, on the back of new
We currently have a Zacks Rank #4 (Sell) on the stock. While we
prefer to avoid Affymetrix until we see signs of improvement in the
company's performance, other companies like Osiris
Therapeutics ( OSIR ),
Cleveland BioLabs ( CBLI ) and
Athersys ( ATHX ), all carrying a
Zacks Rank #1 (Strong Buy), are expected to do well in the