April 25 /PRNewswire/ -- Affymetrix, Inc., (Nasdaq: AFFX - news) today reported results for the first quarter of 2001. For the quarter ended March 31, 2001, total revenue increased 36% to $54.9 million, up from revenue of $40.2 million for the quarter ended March 31, 2000. Product sales increased 38% to $50.5 million for the quarter ended March 31, 2001 up from $36.7 million in the comparable period of 2000. The increase in product sales during the first quarter of 2001 over the comparable period in 2000 primarily was the result of increased sales of GeneChip® probe arrays and increased placements of GeneChip systems.
Other revenues, which include licensing fees, royalties and research revenue, were $4.4 million for the quarter ended March 31, 2001, compared to $3.6 million for the quarter ended March 31, 2000. The increase in other revenue was attributable primarily to the expansion of licensing initiatives, offset by decreases in research revenue.
Total costs and expenses increased to $67.8 million for the quarter ended March 31, 2001, from $47.9 million for the comparable period in 2000. For the quarter ended March 31, 2001, total costs and expenses, excluding charges for merger related costs and amortization of acquired intangible assets and deferred compensation, increased to $63.1 million, compared to $45.5 million in 2000. The increase in operating expenses for the quarter compared to the respective quarter in 2000 resulted primarily from the Company's expansion of commercial activities, $0.8 million in incremental warranty expense associated with the replacement of mouse genome arrays sold in the first quarter of 2001, increases in research and development activities, including approximately $4.5 million associated with Perlegen Sciences, Inc. (Perlegen) and legal costs of approximately $1.9 million related to the Oxford Gene Technology Limited (OGT) settlement.
Excluding charges for merger related costs and amortization of acquired intangible assets and deferred compensation, Affymetrix reported a net loss of $6.0 million, or $0.11 per diluted share for the quarter ended March 31, 2001, compared to a net loss of $3.9 million, or $0.07 per diluted share, for the comparable period in 2000.
Including charges for merger related costs and amortization of acquired intangible assets and deferred compensation, Affymetrix reported a net loss of $10.8 million, or $0.19 per diluted share for the quarter ended March 31, 2001, compared to a net loss of $6.3 million, or $0.12 per diluted share for the comparable period in 2000.
Affymetrix' GeneChip business continued to set records in the first quarter. More than 50 GeneChip systems were sold, bringing the worldwide installed base to more than 450 units. GeneChip array sales also reached record levels, exceeding 70,000 units in the quarter. These accomplishments were particularly noteworthy in light of the distractions and impact that major transactions and product development issues had on the Company this quarter. Contributing to the strong instrument and array sales growth were the expansion of existing agreements as well as the signing of new ones. Momentum in the Company's BiotechAccess(TM) program was especially strong where new agreements were signed with Arena Pharmaceuticals, Inc., atugen AG, Lexicon Genetics Incorporated, Oxford BioMedica plc, PPD Discovery, the drug discovery subsidiary of PPD, Inc., Renovo Ltd., and Sangamo BioSciences, Inc. These new agreements bring the total number of BiotechAccess agreements to more than 15, just two quarters after the introduction of the program.
Product sales in the quarter were adversely impacted by the Company's decision to replace the Murine U74 genome array set that had probe design errors. Upon discovering this problem, Affymetrix immediately focused its priorities on replacing the affected arrays and ensuring that other products were not similarly impacted. The Company has not found similar issues with its other products and it has recently begun shipping replacement arrays to customers.
Affymetrix implemented the mouse genome array replacement program to ensure the continuity of customers' research using our products. The program highlighted to customers the complexity of sequence selection and array design and the Company's scientific commitment to this challenging area. The Company believes this program has been extremely successful and will create significant long-term benefits. Nearer term, the decision is expected to continue to adversely impact product sales, with the majority of this impact anticipated in the second and third quarter of 2001 as replacement arrays are shipped and used by customers. By year-end, the Company believes that this issue will no longer have a material impact and the Company will emerge in a stronger competitive position.
Lower than anticipated demand for the Company's do-it-yourself spotted array instrumentation in the quarter also contributed to lower than expected product sales. The Company believes that multiple factors are influencing customer demand, including faster than anticipated changes in customer preferences for buying rather than making DNA arrays. The Company plans to address this changing market through a new specialized sales force and the introduction of a new, higher throughput arrayer instrument and improved software. Until these products are introduced later this summer, the Company anticipates sales of its do-it-yourself instrumentation will continue to be adversely impacted by these market trends.
Affymetrix also made several strategic announcements during the quarter that are expected to set the stage for an acceleration in the Company's business. Most notable of these announcements were the settlement of litigation with OGT and the completion of the financing of Perlegen. The Company anticipates that each of these transactions will generate significant cost savings and strategic benefits.
The settlement of all outstanding litigation with OGT, announced in March, removed a significant legal overhang that has been facing the Company for many years. The Company expects that the elimination of the risk, management distraction and expense burden resulting from this issue will enable it to focus more resources on building its business. The Company also believes that the settlement will benefit the Company's licensing program, as several of the Company's potential licensees have cited this litigation as a relevant factor influencing their interest in obtaining a license from Affymetrix.
The second major strategic announcement Affymetrix made in the quarter was the completion of a $100 million private financing of Perlegen, previously a wholly owned subsidiary of Affymetrix. Perlegen was formed with the objective of applying Affymetrix' unique whole wafer technology to rapidly scan 50 different human genomes to find and understand patterns of genetic variations and their association with disease and human conditions. With the completion of its financing, Perlegen now has the resources to accelerate this unique opportunity. As a consequence, Affymetrix plans to accelerate its expansion of manufacturing capabilities at its West Sacramento, California plant in order to meet Perlegen's anticipated wafer needs.
Affymetrix believes it will benefit in three principal ways from Perlegen's success: (1) through its equity ownership (2) through a series of cross-licenses that will give Affymetrix exclusive rights to sell DNA arrays containing certain patterns of variations or ``haplotypes'' identified by Perlegen and (3) by creating a major new customer that will help advance the development of the next generation of high density arrays and sample preparation techniques.
The completion of the financing reduces Affymetrix' ownership position in Perlegen to approximately 53%. Affymetrix and certain of its affiliates have placed a portion of this shareholding (approximately 8%) into a voting trust, relinquishing certain voting rights and control such that Affymetrix will account for Perlegen's financial results using the equity method. As the Company's investment in Perlegen has no basis for accounting purposes, the Company does not expect to record its proportionate share of Perlegen's losses in its financial statements.
The Company's financial results may vary significantly from quarter to quarter due to fluctuations in the demand for the Company's products, the timing of new product introductions and deliveries made during the quarter, the timing of research, license fees and royalty revenues and increases in spending, including expenses related to the Company's ongoing lawsuits.
Investors may listen to Affymetrix' management discuss this announcement and provide guidance on future financial results for 2001 by dialing domestic: 800-215-0816; international: 212-346-6426 on Wednesday, April 25, from 1:15- 2:00 p.m. PT. A replay of this call will be available from 3:15 p.m. PT on April 25 until 3:15 p.m. PT on May 4. The replay number for domestic callers will be 800-633-8284, and for international callers will be 858-812-6440, reservation number 18604465. A live Webcast of the conference call and a replay will also be available at www.affymetrix.com. The conference call, replay and Webcast are open to all interested parties. |
