Affymetrix second-quarter total revenue decreases to $71.7 million

Affymetrix, Inc., (NASDAQ:AFFX) today reported its operating results for the second quarter of 2010. Total revenue for the quarter was $71.7 million, in line with previously announced expectations, as compared to total revenue of $81.6 million in the second quarter of 2009.

“Since the beginning of the second quarter, we have bought back approximately $96 million of our 3.5% convertible notes, strengthening our balance sheet and significantly reducing future interest payments”

For the second quarter of 2010, product revenue was $65.1 million, service revenue was $4.7 million, and royalties and other revenue were $1.9 million. This compares to second quarter 2009 product revenue of $67.2 million, service revenue of $12.2 million, and royalties and other revenue of $2.2 million.

The Company reported a net loss of approximately $5.5 million, or $0.08 per diluted share, in the second quarter of 2010, which includes a $1.7 million, or $0.02 per diluted share, gain on debt repurchase from the convertible notes buyback of $26.7 million of aggregate principal amount. This compares to a net income of $7.3 million, or $0.11 per diluted share, in the second quarter of 2009, which included a $17.4 million, or $0.25 per diluted share, gain on debt repurchase from the convertible notes buyback.

For the second quarter of 2010, cost of product sales was $27.5 million compared to $29.9 million in the same period of 2009, which included $4.6 million of manufacturing consolidation-related costs. Cost of services and other was $3.6 million compared to $7.6 million in the same period of 2009.

Product gross margin was 57.7 percent, as compared to 55.5 percent in the same period of 2009.

For the second quarter of 2010, operating expenses were $46.2 million as compared to operating expenses of $52.3 million in the second quarter of 2009.

"Despite the market and commercial challenges that impacted our second quarter results, we continued to make significant operational improvements, including expanding product gross margins and reducing our operating expenses by 12% year-over-year," stated Kevin M. King, president and CEO. "We remain confident and are committed to our strategy of expanding the business in the large and growing validation and routine testing markets."

"Since the beginning of the second quarter, we have bought back approximately $96 million of our 3.5% convertible notes, strengthening our balance sheet and significantly reducing future interest payments," said Tim Barabe, executive vice president and CFO. "Our balance sheet remains strong, with approximately $120 million in net cash, and we continue to be cash-flow positive from operations."

Since the beginning of the second quarter, the Company repurchased a total of $95.8 million of its 3.5% convertible notes maturing in January 2013 for $88.9 million. During the second quarter, the Company repurchased $26.7 million of notes at face value for $24.6 million, and since June 30, 2010, it repurchased an additional $69.1 million face value of notes for $64.3 million. At the end of the second quarter, the Company had approximately $220 million of outstanding convertible debt, and, as of July 15, 2010, following the additional notes repurchases, the Company had approximately $151 million of outstanding convertible debt.

Quarterly Highlights

• The launch of the Axiom™ Genome-Wide ASI Array, the first commercial product to provide maximum power for genome-wide association studies (GWAS) in East Asian populations. This array is the second catalog release for the Axiom Genotyping Solution, which includes a suite of population-optimized arrays for genomic studies that will be delivered in the next year.
• The launch of the Family Finder DNA test for connecting family members across all ancestral lines by Family Tree DNA, the first and largest genealogical DNA testing company. The test utilizes Affymetrix' Axiom genotyping technology and the GeneTitan^®System to confidently match a wide range of family relationships within five generations.
• The delivery of the first custom array designed for a 100,000-sample genotyping project to be performed using the Axiom Genotyping Solution. The array, optimized for European populations, was developed in conjunction with researchers from the Kaiser Permanente Division of Research and University of California, San Francisco (UCSF) as part of an NIH-funded project to create a new resource for studying disease, health, and aging.
• The signing of a Powered by Affymetrix™ (PbA) agreement by Signature Diagnostics, under which Signature obtains a worldwide license to use Affymetrix microarray technology to develop and commercialize diagnostic and prognostic colorectal cancer (CRC) tests. Signature plans to launch two microarray-based in vitro diagnostic (IVD) products by the fourth quarter of this year to enable earlier diagnosis and improved prognosis for CRC. Approximately 396,000 people are diagnosed with CRC annually in the five major European countries and the US, and millions more go undetected because of limitations in current diagnosis methods. Signature will launch the tests in Europe and plans to seek US regulatory approval in the future.
• The launch of Axiom custom genotyping arrays, the newest addition to the Axiom Genotyping Solution. Researchers can now leverage Affymetrix' Axiom Genomic Database, the world's largest collection of validated common and rare SNPs, to create custom arrays containing tens of thousands to up to 2.6 million SNPs. In the near future, this capability will expand to support custom array designs containing more than 5 million SNPs. This inherent flexibility allows researchers to conduct genome-wide association, replication, fine mapping, and candidate gene studies on a single platform.
• Launched QuantiGene^® ViewRNA Assay formats, which enable a new era of "in situ multiplex gene expression analysis" by allowing drug screening of native cells and advancing the pace of biomarker disease research and stem cell studies. QuantiGene ViewRNA Assays reliably quantitate gene expression while precisely localizing RNA trafficking within the cell at the single-copy level. The assays' high specificity, bright signals, multiplex capability, and use across broad sample types, including tissues and blood, provide researchers with a new level of in situ gene expression analysis.