Global genetic devices maker, Affymetrix Inc. (AFFX - Analyst Report) reported third quarter 2012 adjusted loss of 3 cents per share, narrower than the Zacks Consensus Estimate of a loss of 4 cents a share. Adjusted earnings exclude one-time items such as acquisition, integration and amortization-related expenses along with impairment charges associated with the West Sacramento facility.
Reported net loss in the quarter was $17.9 million (or 25 cents per share) versus a loss of $9.8 million (or a loss of 14 cents per share) in the year-ago quarter, mainly due to acquisition and integration-related expenses associated with eBioscience.
Revenues increased 24.4% year over year to $79.6 million, which lagged the Zacks Consensus Estimate of $81 million marginally. Revenues included roughly $17.6 million from the eBiocience acquisition. Excluding eBioscience, revenues dipped 2% on a constant currency basis, as weak Gene Expression array sales offset higher revenues from the Genetic Analysis business and the Panomics portfolio.
Revenues from products were up 27.5% year over year to $72.7 million in the quarter, which included consumable sales of $50.5 million (excluding eBioscience), down 4.5%. However, instrument sales grew 12.2% to $4.6 million. The eBioscience unit grew 1% year over year in terms of constant currency to $17.6 million. Services and other revenues inched down 1.4% to $6.9 million.
Gross margin declined to 52.4% from 56.8% in the year-ago period, due to inventory step-up amortization cost of $4.5 million, associated with the eBioscience acquisition, and amortization of intangibles worth $1.6 million. Product gross margin declined to 53% from 57% in the prior-year quarter.
Operating loss was $11.1 million in the quarter compared with a loss of $5.9 million, a year-ago, mostly due to expenses related to the eBiosciense acquisition and the CytoScan clinical trials. This was partially offset by savings in headcount and facilities costs.
Selling, general and administrative (SG&A) expenses were higher at 45.6% of sales versus 42.1% in the year-ago quarter, Research and Development (R&D) expenses, as a percentage of sales, fell to 20.7% from 24% in the year-ago period, due to reduced headcount-related expenses partially offset by higher spending on clinical trials.
Affymetrix ended the third quarter of 2012 with cash and cash equivalents of $29 million, down 10.5% year over year.
During the quarter, Affymetrix inked a ‘Powered by Affymetrix’ (“PbA”) Program agreement with Singapore-based molecular diagnostics company, PathGEN Dx Pte. Ltd. Per the terms of the deal, PathGEN Dx will adopt a contract manufactured GeneChip microarray from Affymetrix and use its own proprietary PathGEN PathChip kit along with an automated software package to develop an in-vitro diagnostic (“IVD”) test for pathogen detection.
Affymetrix also launched the SensationPlus FFPE Amplification and 3’ IVT Labeling Kit (SensationPlus FFPE Reagent Kit) in the quarter. It is an advanced form of the company’s Genisphere technology.
Furthermore, the company expanded its license agreement with Siemens Healthcare Diagnostics, whereby, among other things, Affymetrix has the exclusive right to develop and market in situ QuantiGene ViewRNA products in the in vitro diagnostic market.
Affymetrix is a leading provider of microarray-based products and services to the global research community. Along with Illumina Inc. (ILMN - Analyst Report), it is one of the two major providers of microarray technologies, primarily used in the field of genetic research. Affymetrix holds a leading position in the gene expression products and services market.
Affymetrix is expanding its customer base through new product launches and strategic alliances and has reorganized its business to drive future profitability. Moreover, the company is pursuing a number of strategies (including acquisitions and expansion into new markets) aimed at expanding its top line.
However, Research and development (R&D) spending by Affymetrix’s customers have fallen considerably due to a weak macroeconomic environment coupled with stringent government actions including budget cuts.
Moreover, a declining Euro as well as a difficult global academic funding backdrop is adversely affecting the gene expression and eBioscience unit, thereby constricting the company’s top-line growth. We also remain cautious regarding integration-related risks associated with the e-Bioscience acquisition.
We are currently Neutral on the stock, which carries a short-term Zacks #3 Rank (Hold rating).