Affymetrix seems to have come down with a case of Elanitis. Down a good ten per cent today in spite of a recent, reasonably good earnings report. It was in the high 30s just a week or two ago, now it's struggling to hold $25. Methinks we are being presented with a buying opportunity. My digging suggests that that Perlegen deal is far more legitimate than Enron's deals, and probably more legitimate than Elan's, too. Shorts who read too fast over on the Yahoo! message board, though, claim AFFX pumped $100 million into Perlegen and imply AFFX sells products to Perlegen at inflated prices to pump revenues. Both are wildly inaccurate. AFFX sells the wafers at cost. It expensed a few million a year ago for R&D related to Perlegen before a Zaffaroni group, along with Lombard, Odier, & Cie, put up the $100 million. Below are some snips from the most recent 10-K and 10-Q concerning Perlegen, as well as some links to Perlegen and the financing. In the next post, I'll put up a few abstracts to demonstrate what Perlegen is up to.
Here's the PR about the formation of Perlegen:
sec.gov
From the 10-Q:
>>Revenue from Perlegen Sciences, Inc. ("Perlegen") is recognized at cost upon shipment of the wafers and transfer of title to Perlegen. Software revenue is recognized upon completion of performance obligations, which is generally upon installation. Reserves are provided for anticipated warranty expenses at the time the associated revenue is recognized. Revenue related to extended warranty and software maintenance arrangements is deferred and recognized over the applicable periods. Revenue from subscription fees earned under EasyAccess agreements is recognized ratably over the term of the agreement subject to adjustments for anticipated reductions provided for in certain agreements for late delivery of probe arrays. Payments received in advance under these arrangements are recorded as deferred revenue until earned.<<
Indeed, the revenue line is broken out for Perlegen revenue, as is the COGS line. The amounts offset.
From the 10-K:
>>On March 30, 2001, Perlegen completed a private financing with third party investors raising $100 million, which reduced Affymetrix' ownership position in Perlegen to approximately 53%. Affymetrix and certain of its affiliates have placed a portion of their holdings (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 from the date of the financing. As the Company's investment in Perlegen has no basis for accounting purposes Affymetrix has not recorded its proportionate share of Perlegen's operating losses in its financial statements since the completion of Perlegen's financing. Pursuant to a supply agreement with Perlegen, the Company sells whole wafers to Perlegen at the Company's fully burdened cost of manufacturing. Revenue and cost of revenue for the quarter and nine months ended September 30, 2001 were $3.1 million and $5.9 million, respectively, and are reflected in the accompanying condensed consolidated statements of operations.<<
>>The increase in research and development expenses was primarily attributable to the hiring of additional research and development personnel, including headcount associated with the support for Perlegen through the end of the first quarter of 2001 when Perlegen became an independent operating company. Affymetrix recorded $4.5 million in research and development expenses associated with Perlegen in the first quarter of 2001.<<
Here's the link to the financing, as well as the Perlegen home page. They have no link for publications, so I dug a few out for the next post . . .
perlegen.com
perlegen.com
Cheers, Tuck |
