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Affymetrix Inc. (AFFX): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

Posted: 12/2/2013 7:00:00 AM
Referenced Stocks: AFFX

Affymetrix posted a robust 75% rise in adjusted earnings to $0.07 for the 2014-second quarter and topped the Zacks Consensus Estimate by $0.04. It was the fifth consecutive quarter in which Affymetrix was able to maintain its earnings momentum after a period of continued losses. The company's restructuring plan to focus on high growth markets is finally paying off as demonstrated by the bottom line growth in the quarter. Despite a tight academic funding environment, new products and acquisitions along with accretive agreements should propel growth. As such, we continue with our Outperform recommendation and set a target price of $11.00.


Affymetrix, located in Santa Clara, CA, is a leading provider of microarray-based products and services to the global research community. The company utilizes its DNA chip technology in areas of gene expression, analysis, and clinical application to help treat infectious diseases, cancer, and other ailments. Affymetrix has 1,100 employees globally and has a sales and distribution network across U.S., Latin America, Europe and Asia.

Following the eBioscience acquisition in Jun 2012, Affymetrix reports via two reportable operating segments: Affymetrix Core (72.2% of revenues in the first half of 2014) and eBioscience (27.8%).

Affymetrix Core: This segment is divided into four business units viz. Expression (29.3% of total segment revenues in the first half of 2014), Genetic Analysis and Clinical Applications (53.0%), Life Science Reagents (11.3%) and Corporate (6.4%). The Expression business develops gene expression products and services, including in vitro transcription ("IVT") arrays and the QuantiGene line. The Genetic Analysis and Clinical Applications franchise offers genotyping and cytogenetics products, such as the Axiom genotyping platform and the CytoScan cytogenetics arrays with clinical research applications. The Life Science Reagents unit manufactures and sells reagents, enzymes, purification kits and biochemicals used by life science researchers. Lastly, the Corporate unit is comprised primarily of incidental revenue from royalty arrangements and field revenue from services provided to customers of the Company.

eBioscience: This segment offers a vast selection of antibodies, enzyme-linked immunosorbent assays (ELISAs) and proteins for life science research and diagnostics. It is an industry leader in flow cytometry (a technique for analyzing microscopic particles) and immunoassay reagents for immunology and oncology research and diagnostics.

Affymetrix sells its products directly as well as through its distributors to biotechnology and pharmaceutical companies as well as to academic and government laboratories. Its products are sold worldwide with the domestic market being the major contributor to revenues. Affymetrix has technology collaborations with a number of instrumentation and reagent companies including Beckman Coulter, Life Technologies Corporation, Luminex Corporation and Qiagen GmbH. Through its Powered by Affymetrix, or PbA Program, the company permits commercial entities to license the company's technologies to develop custom product solutions based upon its arrays, instrumentation and software.


Affymetrix focuses on realigning its product portfolio, stabilizing its core business, positioning the company for growth and increasing its profitability in an effort to offset a downswing in its underlying business. Accordingly, management categorized its restructuring efforts into 3 phases:

Phase I (2011-2012): In this phase the company realigned its portfolio with the acquisition of eBioscience and the launch of Cytoscan.

Phase II (2013-2014): In this stage, management plans to improve profitability, strengthen balance sheet and develop new products. Affymetrix's priorities in this phase is to achieve profitability, repay senior secured debt, successfully commercialize newer product lines (CytoScan, Axiom and QuantiGene lines, as well as eBioscience products) and invest in new product offerings. In addition, the company will train and refocus its global commercial organization to expand reach to customers in the translational medicine, molecular diagnostics and applied markets.

Phase III (2015-2016): Finally, Affymetrix's goal is to have a strong balance sheet that will provide the company flexibility to make strategic acquisitions. In addition, it aims to grow revenues with developed product lines and new product offerings in the translational medicine, molecular diagnostic and applied markets.

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