<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
_X_ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the period ended September 30,
1996
or
___ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to .
Commission File No. 0-28218
AFFYMETRIX, INC.
(Exact name of Registrant as specified in its charter)
CALIFORNIA 77-0319159
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3380 CENTRAL EXPRESSWAY, SANTA CLARA, CALIFORNIA 95051
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408)522-6000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No ___
COMMON SHARES OUTSTANDING ON OCTOBER 15, 1996: 22,486,597
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AFFYMETRIX, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements
Condensed Balance Sheets at September 30, 1996 and
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . 3
Condensed Statements of Operations for the Three and Nine
Months Ended September 30, 1996 and 1995. . . . . . . . . . 4
Condensed Statements of Cash Flows for the Nine Months
Ended September 30, 1996 and 1995 . . . . . . . . . . . . . 5
Notes to Condensed Financial Statements. . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition. . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Page 2 of 15
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AFFYMETRIX, INC.
CONDENSED BALANCE SHEETS
(Dollars in thousands)
September 30, December 31,
1996 1995
------------- ----------
ASSETS (unaudited) (Note)
Current assets:
Cash and cash equivalents $ 53,217 $ 2,481
Short-term investments 59,453 36,402
Accounts receivable 643 1,342
Inventories 1,518 670
Other current assets 630 260
------------- ----------
Total current assets 115,461 41,155
Net property and equipment 4,230 3,257
Other assets 170 140
------------- ----------
$ 119,861 $ 44,552
------------- ----------
------------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities $ 2,939 $ 2,745
Deferred revenue 1,970 2,340
------------- ----------
Total current liabilities 4,909 5,085
Noncurrent portion of capital lease obligation 795 948
Shareholders' equity:
Convertible preferred stock -- 70,439
Common stock 158,690 2,717
Deferred compensation (1,747) (2,360)
Accumulated deficit (42,793) (32,516)
Other 7 239
------------- ----------
Total shareholders' equity 114,157 38,519
------------- ----------
$ 119,861 $ 44,552
------------- ----------
------------- ----------
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes.
Page 3 of 15
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AFFYMETRIX, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
Revenue:
Product $ 401 $ -- $ 858 $ --
Contract and grant 2,250 861 5,508 2,927
-------- -------- -------- --------
Total revenue 2,651 861 6,366 2,927
Cost and expenses:
Cost of product revenue 382 -- 1,089 --
Research and development 4,533 3,321 12,843 8,742
General and administrative 2,058 607 5,608 2,319
-------- -------- -------- --------
Total operating expenses 6,973 3,928 19,540 11,061
-------- -------- -------- --------
Loss from operations (4,322) (3,067) (13,174) (8,134)
Interest income, net 1,743 321 2,897 336
-------- -------- -------- --------
Net loss $ (2,579) $ (2,746) $(10,277) $ (7,798)
-------- -------- -------- --------
-------- -------- -------- --------
Net loss per share:
Pro forma (1) $ (0.11) $ (0.16) $ (0.53) $ (0.44)
-------- ------- ------- --------
-------- ------- ------- --------
Historical $ (0.11) $ (0.35) $ (0.84) $ (1.00)
-------- -------- -------- --------
-------- -------- -------- --------
Shares used in computing net
loss per share:
Pro forma (1) 22,449 17,664 19,337 17,664
-------- -------- -------- --------
-------- -------- -------- --------
Historical 22,449 7,811 12,275 7,811
-------- -------- -------- --------
-------- -------- -------- --------
(1) Gives effect to the conversion of convertible preferred shares into common
shares upon the completion of the initial public offering in June 1996.
See accompanying notes.
Page 4 of 15
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AFFYMETRIX, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(Dollars in thousands)
Nine Months Ended
September 30,
-------------------
1996 1995
--------- -------
Cash flows from operating activities:
Net loss $(10,277) $(7,798)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,872 653
Amortization of investment premiums, net (544) (134)
Other 62 150
Change in operating assets and liabilities:
Accounts receivable 699 (330)
Inventories (848) --
Other current assets (370) (175)
Other assets (30) (42)
Accounts payable and other accrued liabilities 180 114
Deferred revenue (370) (24)
--------- -------
Net cash used in operating activities (9,626) (7,586)
Cash flows from investing activities:
Capital expenditures (1,959) (2,709)
Proceeds from the sale of available-for-sale securities 33,448 4,611
Proceeds from maturities of available-for-sale securities 42,909 2,540
Purchases of available-for-sale securities (99,096) (33,365)
--------- -------
Net cash used in investing activities (24,698) (28,923)
Cash flows from financing activities:
Issuance of preferred/common stock, net 85,199 33,039
Principal payments on capital lease obligation (139) (126)
--------- -------
Net cash provided by financing activities 85,060 32,913
Net increase/(decrease) in cash and cash equivalents 50,736 (3,596)
Cash and cash equivalents at beginning of period 2,481 6,659
--------- -------
Cash and cash equivalents at end of period $ 53,217 $ 3,063
--------- -------
--------- -------
See accompanying notes.
Page 5 of 15
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AFFYMETRIX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and nine month periods ended September
30, 1996 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996. For further information, refer to the
financial statements and notes thereto included in the Registration Statement on
Form S-1 filed on April 15, 1996, as amended, by Affymetrix, Inc. ("Affymetrix"
or the "Company").
DEVELOPMENT STAGE
Through March 31, 1996, the Company was in the development stage. In April 1996,
the Company commenced commercial sales of the GeneChip system and an HIV probe
array for research use. Therefore, the Company is no longer considered to be in
the development stage.
REVENUE RECOGNITION
Contract and grant revenue is recorded as earned as defined within the specific
agreements. Payments received in advance under these arrangements are recorded
as deferred revenue until earned. Direct costs associated with these contracts
and grants are reported as research and development expense. Product revenue is
recognized upon shipment. Certain reserves are also recorded upon product
shipment.
2. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
As of September 30, 1996, debt securities held by the Company are comprised of
U.S. Government obligations and U.S. Corporate debt securities. They are
classified as available-for-sale and are carried at fair value with unrealized
gains and losses reported in shareholders' equity.
Page 6 of 15
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3. INVENTORIES
Inventories consist of the following (in thousands):
September 30, December 31,
1996 1995
------------ ------------
Raw material $ 259 $ --
Work in process 12 --
Finished goods 1,130 670
------------ ------------
Total $1,518 $670
------------ ------------
------------ ------------
4. SHAREHOLDERS' EQUITY
The Company's initial public offering on June 6, 1996 generated net proceeds of
approximately $83.0 million from the sale of 6.0 million shares. On July 15,
1996, the Company's underwriters purchased 153,000 shares pursuant to the over-
allotment option, for additional net proceeds of $2.1 million. The Company had
22.5 million shares outstanding at September 30, 1996.
Page 7 of 15
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PART 1. FINANCIAL INFORMATION
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
This Management's Discussion and Analysis of Financial Condition and Results of
Operations as of September 30, 1996 and for the three and nine month periods
ended September 30, 1996 and 1995 should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the Company's Registration Statement on Form S-1 filed on
April 15, 1996, as amended.
The following discussion contains forward-looking statements. Such statements
are subject to risks and uncertainties that could cause actual results to differ
materially from those projected, including, but not limited to, uncertainties
relating to technological approaches, uncertainties related to cost and pricing
of the Company's products, dependence on collaborative partners and government
funding, uncertainties related to competition and the unpredictability of patent
protection. These and other factors are discussed below and in the Company's
quarterly report on Form 10-Q for the quarter ended June 30, 1996. These forward
looking statements speak only as of the date hereof. The Company expressly
disclaims any obligation or undertaking to release publicly any updates or
revisions to any forward-looking statements contained herein to reflect any
change in the Company's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement are based.
OVERVIEW
Affymetrix is developing GeneChip-TM- systems and related applications and
technologies for the acquisition, analysis and management of complex genetic
information. The business and operations of the Company were commenced in 1991
by Affymax N.V. ("Affymax") and were initially conducted within Affymax. In
March 1992, the Company was incorporated as a California corporation and wholly-
owned subsidiary of Affymax. In September 1993, the Company issued equity
securities through a private financing of approximately $21 million that reduced
Affymax' ownership to approximately 65%. In March 1995, Glaxo plc, now Glaxo
Wellcome plc ("Glaxo") acquired Affymax, including its then majority ownership
interest in Affymetrix. In August 1995, the Company issued equity securities
through a second private financing of approximately $39 million, reducing
Affymax' percentage ownership to approximately 46%. As a result of the Company's
initial public offering of approximately 6.0 million shares in June 1996, Glaxo
indirectly owns approximately 34% of Affymetrix.
The Company has a limited operating history that, to date, has focused primarily
on the development of its technology. Based on its GeneChip technology platform,
the Company is developing a portfolio of products for pharmaceutical and
biotechnology companies, academic research centers, and reference laboratories.
The Company commercially introduced its first product, the GeneChip system and
the HIV probe array for research use only, in April 1996.
Page 8 of 15
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Failure of the Company to successfully develop, manufacture and market
additional products over the next several years or to realize product revenues
would have a material adverse effect on the Company's business, financial
condition and results of operations.
RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Product revenue from the commercial launch of the GeneChip system and HIV probe
array was $401,000 and $858,000 for the three and nine months ended September
30, 1996, respectively, compared to no product revenue in the three and nine
months ended September 30, 1995. Contract and grant revenue increased to $2.3
million for the three months ended September 30, 1996 from $861,000 for the
three months ended September 30, 1995. Contract and grant revenue increased to
$5.5 million for the nine months ended September 30, 1996 from $2.9 million for
the nine months ended September 30, 1995. The increase was primarily due to an
increase in funding from the National Institute of Standards and Technology's
Advanced Technology Program grant and revenue earned from collaborative
partners.
Cost of product revenue was $382,000 and $1.1 million for the three and nine
months ended September 30, 1996, respectively, compared to no cost of product
revenue for the three and nine months ended September 30, 1995. Margins during
the three and nine months ended September 30, 1996 reflect scale-up costs of
production and certain reserves associated with the shipment of GeneChip
systems.
Research and development expenses increased to $4.5 million and $12.8 million
for the three and nine months ended September 30, 1996, respectively, compared
to $3.3 million and $8.7 million for the same periods ending September 30, 1995.
The increase in research and development expenses was attributable primarily to
the hiring of additional research and development personnel, cost of
instrumentation shipped to collaborative partners, and increased purchases of
research supplies. The Company expects research and development spending to
increase over the next several years as product development and core research
efforts expand.
General and administrative expenses increased to $2.1 million for the three
months ended September 30, 1996 compared to $607,000 for the three months ended
September 30, 1995. General and administrative expenses increased to $5.6
million for the nine months ended September 30, 1996 compared to $2.3 million
for the nine months ended September 30, 1995. The increase in general and
administrative expenses was attributable primarily to the hiring of additional
management personnel and legal and other professional fees incurred in
connection with the overall scale-up of the Company's operations and business
development efforts. General and administrative expenses are expected to
continue to increase as the Company expands sales and marketing and adds
management and support staff.
Net interest income was $1.7 million and $2.9 million for the three and nine
months ended September 30, 1996, respectively. This compares to net interest
income of $321,000 and $336,000 for the three and nine months ended September
30, 1995. The increase in net interest
Page 9 of 15
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income was primarily attributable to increased investment balances due to
equity financings in August 1995 and June 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company's cash, cash equivalents, and short-term
investments were $112.7 million compared to $38.9 million at December 31, 1995.
The increase is primarily attributable to the receipt of approximately $85.1
million in net proceeds from the Company's initial public offering, offset by
net cash outlays of $11.6 million related to operating and capital expenditures.
Net cash used in operating activities was $9.6 million for the nine months ended
September 30, 1996, as compared to net cash used in operating activities of $7.6
million for the nine months ended September 30, 1995. The increase in net cash
used in operating activities resulted primarily from increases in the Company's
net loss and inventories, and a decrease in deferred revenues, offset by a
decrease in accounts receivable and an increase in depreciation and
amortization, primarily amortization of deferred compensation. The Company's
investing activities, other than purchases, sales and maturities of available-
for-sale securities, consisted of capital expenditures, which totaled $2.0
million and $2.7 million for the nine months ended September 30, 1996 and 1995,
respectively. These capital expenditures included the scale-up of manufacturing
and investments in facilities and laboratory equipment. The net cash provided by
financing activities were $85.1 million for the nine months ended September 30,
1996 due to the Company's initial public offering. Net cash provided by
financing activities were $32.9 million for the nine months ended September 30,
1995 due to the Company's private placement of convertible preferred stock.
The Company anticipates that the existing capital resources will enable it to
maintain currently planned operations through at least 1998. However, this
expectation is based on the Company's current operating plan, which could change
and therefore the Company could require additional funding sooner than
anticipated. In addition, the Company expects its capital requirements to
increase significantly over the next several years as it expands its facilities
and acquires scientific equipment to support expanded manufacturing and research
and development efforts. The Company's long-term capital expenditure
requirements will depend on numerous factors, including: the progress of its
research and development programs; the development of commercial scale
manufacturing capabilities; it's ability to maintain existing collaborative
arrangements and establish and maintain new collaborative arrangements; the
costs involved in preparing, filing, prosecuting, defending and enforcing
intellectual property rights; the effectiveness of product commercialization
activities and arrangements; and other factors.
Page 10 of 15
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AFFYMETRIX, INC.
September 30, 1996
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
Exhibit 11.1 Statement of computation of net loss per share.
Exhibit 27.0 Financial data schedule.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the quarter ended September 30,
1996.
Page 11 of 15
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
November 8, 1996 AFFYMETRIX, INC.
By: /s/ Kenneth J. Nussbacher
-------------------------------
Kenneth J. Nussbacher
Executive Vice President and
Chief Financial Officer
Page 12 of 15
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AFFYMETRIX, INC.
EXHIBIT INDEX
September 30, 1996
Page
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Exhibit 11.1 Statement of computation of net loss per share. . . . . 14
Exhibit 27.0 Financial data schedule . . . . . . . . . . . . . . . . 15
Page 13 of 15
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EXHIBIT 11.1
AFFYMETRIC, INC.
STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
------- ------- ------- -------
Net loss $ 2,579 $ 2,746 $10,277 $ 7,798
------- ------- ------- -------
------- ------- ------- -------
Historical primary and fully
diluted number of shares:
Weighted average common
shares 22,449 408 9,807 408
Shares related to SAB
Topic 4D 0 7,403 2,468 7,403
------- ------- ------- -------
Shares used in computing net
loss per share 22,449 7,811 12,275 7,811
------- ------- ------- -------
------- ------- ------- -------
Net loss per share $ (0.11) $ (0.35) $ (0.84) $ (1.00)
------- ------- ------- -------
------- ------- ------- -------
Pro forma number of shares:
Weighted average common
shares 22,449 408 9,807 408
Shares related to SAB Topic
4D 0 7,403 2,468 7,403
Convertible preferred shares,
as if converted 0 9,853 7,062 9,853
------- ------- ------- -------
Shares used in computing pro
forma loss per share 22,449 17,664 19,337 17,664
------- ------- ------- -------
------- ------- ------- -------
Pro forma net loss per share $ (0.11) $ (0.16) $ (0.53) $(0.44)
------- ------- ------- -------
------- ------- ------- -------
Page 14 of 15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ITEM 1 OF
FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 53,217
<SECURITIES> 59,453
<RECEIVABLES> 643
<ALLOWANCES> 0
<INVENTORY> 1,518
<CURRENT-ASSETS> 115,461
<PP&E> 4,230
<DEPRECIATION> 0
<TOTAL-ASSETS> 119,861
<CURRENT-LIABILITIES> 4,909
<BONDS> 0
0
0
<COMMON> 158,690
<OTHER-SE> (44,533)
<TOTAL-LIABILITY-AND-EQUITY> 119,861
<SALES> 858
<TOTAL-REVENUES> 6,366
<CGS> 1,089
<TOTAL-COSTS> 1,089
<OTHER-EXPENSES> 12,843
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (10,277)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,277)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,277)
<EPS-PRIMARY> (0.84)
<EPS-DILUTED> (0.84)
</TABLE>
