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WIKI ANALYSIS
Affymetrix (NYSE: AFFX) is a biotechnology company that develops and markets research tools in the molecular biology field. Its main product line is the GeneChip microarray platform, an analysis tool in genomics research. Affymetrix pioneered the genomics research industry as the first company to develop the GeneChip microarray platform, which is now used widely in many research institutions as an essential part of genetic analysis.
The GeneChip microarray platform has three components: the analysis instrument, reagents, and the disposable one-time-use probe array. Affymetrix sells the reusable portions of this platform, including the reagents and the analysis instrument, at low margins but sells the one-time-use consumable probe arrays at a high margin. Almost all of Affymetrix's sales revenue originates from the sales of disposable probe arrays, since they must be replaced after every research experiment procedure.
Affymetrix is heavily reliant on orders from research institutions to generate sales revenue. As a result, fluctuations in the research funding for these institutions, a large percentage of which come from NIH grants, would affect Affymetrix's sales revenue greatly. In addition, Affymetrix produces its GeneChip probe arrays using publicly available genetic sequencing information, which is updated daily and changed frequently due to new discoveries in the field. This exposes all of Affymetrix's products to the risk of becoming obsolete and unusable if the firm fails to update its products.
Affymetrix experienced a recent manufacturing problem due to supply restrictions on an important component of the GeneChip system, which caused product delivery delays and quality problems. The effects of this setback are evident in AFFX recent poor performance. However, Affymetrix's recent patent infringement lawsuit against major competitor Illumina (ILMN) has resulted in a $90 million settlement decision in favor of Affymetrix, which should offset these recent losses. [1]
Business Financials
Affymetrix is a market-leading firm that specializes in developing and selling genomics research analysis equipment. To preserve its market-leading position and guard against strong competitors delivering similar products, Affymetrix maintains various collaborative relationships with key suppliers and research organizations.
Major Products
Affymetrix's staple product is its GeneChip microarray platform, which is used to analyze genes in many research labs. The platform works using a disposable probe array, which contains pre-arranged genetic components, to interact with the DNA in a laboratory experiment. The probe array is then placed in necessary reaction reagents, and the end product is analyzed by the scanning instrument and software. The end data produced from the analysis instrument tells researchers the DNA content that they are testing for use in sequencing and identification of genes.
This platform has three main components:
- Probe Arrays: This is the disposable portion of the platform, a one-time-use probe chip consisting of nucleic acid sequences set out in a convenient pattern to be used in analyzing DNA.
- Instruments: This category includes the scanner and software used to process and analyze genomic data using the probe arrays.
- Reagents: This includes the pre-made reagents used with the probe array experiments.
Affymetrix markets its GeneChip products throughout the world, selling directly to pharmaceutical, biotechnology, diagnostics, and consumer products companies as well as academic, governmental, and private research institutions.
A breakdown of sales revenue for the various components of GeneChip products is shown in the table below. Affymetrix's decision in July 2006 to lower selling prices for their current genotyping probe arrays contributed to the decrease in sales revenue from 2005 to 2006; the company believes the price decrease will allow researchers to run more samples and therefore purchase more units in the future. Due to the stronger competition Affymetrix faces today compared to when it first started manufacturing the GeneChip product, this strategic choice in lowering prices may give Affymetrix an advantage over its competitors.
| Product | Sales Revenue in 2006 | % Change (05-06) | Sales Revenue in 2005 | % Change (04-05) | Sales Revenue in 2004 |
|---|---|---|---|---|---|
| Probe Arrays | $170.4 | -14% | $198.0 | 18% | $168.2 |
| Reagents | $43.3 | 2.0% | $42.4 | 34% | $31.7 |
| Instruments | $47.1 | -25% | $62.6 | -19% | $77.3 |
| Total Product Sales | $260.7 | -14% | $303.0 | 9% | $277.3 |
New Products in Development
In the past few years, Affymetrix has actively engaged in research to develop two genotyping products, one for DNA and one for RNA. [5] Significant sales revenue is expected from these new products when they enter the market. [6]
Collaborative Partners
- Commercial Collaboration Partnerships: Affymetrix is working with other biotechnology companies in the commercialization of its GeneChip products. One major partner is Roche Pharmaceuticals (RHHBY), which helps Affymetrix to develop new GeneChip diagnostic tests for diseases. Another partner is Perlegen Sciences, Inc. which markets GeneChip products. A third key partnership is with Sysmex Corporation, which markets GeneChip products in Asia. [7]
- Research Partnerships: Affymetrix works with various research institutions throughout the world, including the Broad Institute of Harvard and Massachusetts Institute of Technology, the National Cancer Institute, and CapitalBio Corporation of Beijing, China. In these partnerships, the research institutions develop potential new technologies for Affymetrix as well as conducting genomics research with Affymetrix equipment. [8]
Acquisitions
In October 2005, Affymetrix acquired all shares of ParAllele BioScience, Inc. for $122.4 million, allowing the firm to incorporate ParAllele's novel biochemical approach in analyzing human genome variations. Using this technology, Affymetrix may be able to accelerate the development of new products due to faster and more accurate genomic data results. [9]
Affymetrix is also planning to acquire USB Corporation, which carries an extensive array of biochemical and molecular biology reagents. Affymetrix is planning to incorporate the products of USB Corporation to complement the development and commercialization of the reagents in GeneChhip products. [10]
Trends and Forces
- AFFX Revenues Depend on Research Funding: A large portion of Affymetrix's client base consists of researchers funded by the National Institute of Health (NIH). As a result, a decrease in federal funding of research will cause a decrease in sales of research equipment and negatively impact AFFX's performance. [11] Although the NIH grant budget doubled from 1998-2003, its growth from 2003-2007 remained at 2-3%, which could significantly limit in AFFX's revenue growth [12].
- Affymetrix Must Constantly Adapt to Changes in Genetic Sequence Information: Genetic sequence information is stored and updated in various public databases throughout the world. Because of the large number of researchers working on identifying new genetic information, these databases are updated continually to incorporate the results of new discoveries. The efficacy of GeneChip products, which are designed according to information from these genetic databases, depends on the accuracy of information from these databases. Furthermore, Affymetrix faces a significant challenge to incorporate every new change in the continually updating database. Changes in known genetic sequencing information affect Affymetrix's sales revenue, as its GeneChip products rely completely on this information. [13]
- Manufacturing Ability Is Restricted by Suppliers: Although Affymetrix manufactures GeneChip products in its own facilities, certain raw materials and components used in the synthesis of probe arrays are available only from single vendors. Delayed delivery or a decrease in quality of these materials would impair Affymetrix's ability to produce probe arrays or other components of the GeneChip system to meet the needs of its clients. Notably, essential imaging materials essential to the production of each GeneChip product is supplied by only one manufacturing facility. [14]
- International Sales Are Affected by the Weakness of the Dollar.: Affymetrix's products are currently marketed heavily in Europe and Asia, and international revenues make up 52% of the company's total revenues. Therefore, fluctuations in foreign currency exchange, trade regulations, and less adequate intellectual property rights protection mechanisms in foreign countries are all factors that could affect the company's overall profitability [15]
Competition and Market Share
The GeneChip products that Affymetrix specialize in are directed towards three areas of research use: genetic expression monitoring, DNA analysis, and molecular diagnostics. In each category, Affymetrix faces increasing competition from various other biotech firms that produce similar products and target the same market. After Affymetrix pioneered the GeneChip system, many biotech firms expanded their product lines to include similar systems with the same functionality. Affymetrix's products compete directly with these products. Like Affymetrix, the competitor firms also generate most of their revenue from the sales of consumable probe arrays.
| Company | Sales Revenue | Market Share |
|---|---|---|
| Affymetrix | $260.7 | 12.8% |
| Agilent Technologies (A) | $484.5 | 23.9% [16] |
| Applied Biosystems (ABI) | $539.9 | 26.6% [17] |
| Illumina (ILMN) | $184.6 | 9.09% [18] |
| Beckman Coulter (BEC) | $560.7 | 27.6% [19] |
Note that the sales revenue figures are those of divisions of other companies that compete directly with Affymetrix's specialty.
Notes
- ↑ News from Smartbrief.com, January 11, 2008.
- ↑ AFFX 2006 SEC Filing 10-K, Item 7, Pg. 45
- ↑ AFFX 2006 SEC Filing 10-K, Item 7, Pg. 45.
- ↑ AFFX 2006 SEC Filing 10-K, Item 7, Pg. 45
- ↑ AFFX 2006 SEC Filing 10-K, Item 1, Pg. 9.
- ↑ AFFX 2006 SEC Filing 10-K, Item 1, Pg. 9
- ↑ AFFX 2006 SEC Filing 10-K, Item 1, Pg. 15
- ↑ AFFX 2006 SEC Filing 10-K, Item 1, Pg. 17
- ↑ AFFX 2006 SEC Filing 10-K, Item 8, Pg. 75
- ↑ AFFX Press Release, Dec 18, 2007.
- ↑ AFFX 2006 SEC Filing 10-K, Item 1a, Pg. 28
- ↑ National Institute of Health FY08 Performance Detail, Pg. 4.
- ↑ AFFX SEC Filing 2006 10-K, Item 1a, Pg. 27
- ↑ AFFX SEC Filing 2006 10-K, Item 1a, Pg. 19
- ↑ AFFX SEC Filing 2006 10-K, Item 8, Pg. 79
- ↑ Agilent SEC 10-K Filing 2006, Item 7, Pg. 51
- ↑ ABI 2006 SEC 10-K Filing, Item 8, Pg. 130
- ↑ ILMN 2006 SEC 10-K Filing, Item 6, Pg. 34
- ↑ BEC 2006 SEC 10-K Filing, Item 7, Pg. 33
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