<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, 1997
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)731-5000
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 SEPTEMBER 30, 1997: 22,700,521
<PAGE>
AFFYMETRIX, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
---------------------
Page
----
Item 1. Financial Statements
Condensed Balance Sheets at
September 30, 1997 and December 31, 1996 ................... 3
Condensed Statements of Operations for the Three
and Nine Months Ended September 30, 1997 and 1996 .......... 4
Condensed Statements of Cash Flows for the Nine
Months Ended September 30, 1997 and 1996 ................... 5
Notes to Condensed Financial Statements ...................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................ 8
PART II. OTHER INFORMATION
-----------------
Item 6. Exhibits and Reports on Form 8-K ............................... 11
SIGNATURES ............................................................... 12
EXHIBIT INDEX ............................................................ 13
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<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
(In thousands)
September 30, December 31,
1997 1996
------------- ------------
ASSETS (Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 12,076 $ 14,143
Short-term investments 73,143 94,839
Accounts receivables 3,845 1,888
Inventories 3,025 1,901
Other current assets 947 523
-------- --------
Total current assets 93,036 113,294
Net property and equipment 14,344 5,397
Other assets 787 169
-------- --------
$108,167 $118,860
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 9,786 $ 5,626
Noncurrent portion of capital lease obligation 567 741
Shareholders' equity:
Common stock 158,821 158,687
Deferred compensation (903) (1,460)
Accumulated deficit (60,182) (44,743)
Other 78 9
-------- --------
Total shareholders' equity 97,814 112,493
-------- --------
$108,167 $118,860
-------- --------
-------- --------
Note: The balance sheet at December 31, 1996 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.
-3-
<PAGE>
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
--------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Product $ 1,046 $ 401 $ 2,408 $ 858
Contract and grant 3,962 2,250 10,150 5,508
--------- ------- -------- --------
Total revenue 5,008 2,651 12,558 6,366
Costs and expenses:
Cost of product revenue 907 382 2,751 1,089
Research and development 6,725 4,533 19,804 12,843
General and administrative 3,980 2,058 9,426 5,608
--------- ------- -------- --------
Total operating expenses 11,612 6,973 31,981 19,540
--------- ------- -------- --------
Loss from operations (6,604) (4,322) (19,423) (13,174)
Interest income, net 1,297 1,743 3,984 2,897
--------- ------- -------- --------
Net loss $ (5,307) $(2,579) $(15,439) $(10,277)
--------- ------- -------- --------
--------- ------- -------- --------
Net loss per share (1) $ (0.23) $ (0.11) $ (0.68) $ (0.53)
--------- ------- -------- --------
--------- ------- -------- --------
Shares used in computing net loss
per share (1) 22,648 22,449 22,612 19,337
--------- ------- -------- --------
--------- ------- -------- --------
</TABLE>
(1) For the nine months ended September 30, 1996, shares used in computing
net loss per share include convertible preferred shares as if they had
been converted due to the Company's initial public offering in June 1996.
See accompanying notes.
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<PAGE>
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1997 1996
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(15,439) $(10,277)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,337 924
Amortization of investment premiums, net (24) (544)
Amortization of deferred compensation 557 948
Loss on disposal of equipment -- 62
Change in operating assets and liabilities:
Accounts receivable (1,957) 699
Inventories (1,124) (848)
Other current assets (424) (370)
Other assets (618) (30)
Accounts payable and accrued liabilities 4,137 (190)
--------- --------
Net cash used in operating activities (13,555) (9,626)
Cash flows from investing activities:
Capital expenditures (10,284) (1,959)
Proceeds from the sale of short-term investments 90,227 33,448
Proceeds from maturities of short-term investments 12,237 42,909
Purchases of short-term investments (80,673) (99,096)
--------- --------
Net cash provided by/(used in) investing activities 11,507 (24,698)
Cash flows from financing activities:
Issuance of common stock 134 85,199
Principal payments on capital lease obligation (153) (139)
--------- --------
Net cash (used in)/provided by financing activities (19) 85,060
--------- --------
Net (decrease)/increase in cash and cash equivalents (2,067) 50,736
Cash and cash equivalents at beginning of period 14,143 2,481
--------- --------
Cash and cash equivalents at end of period $ 12,076 $53,217
--------- --------
--------- --------
</TABLE>
See accompanying notes.
-5-
<PAGE>
AFFYMETRIX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
NOTE 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 entries) considered necessary for a fair
presentation have been included. Operating results for the three and nine
month periods ended September 30, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997. For
further information, refer to the financial statements and notes thereto
included in the Annual Report on Form 10-K for the year ended December 31,
1996 and the Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997 and June 30, 1997, filed by Affymetrix, Inc. ("Affymetrix" or the
"Company").
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, other than cost of goods sold, are reported as
research and development expense. Product revenue is recognized upon
shipment. Certain reserves are also recorded upon product shipment.
NOTE 2 - CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
As of September 30, 1997, 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.
NOTE 3 - INVENTORIES
Inventories consist of the following (in thousands):
September 30, December 31,
1997 1996
------------ ------------
Raw material $ 828 $ 358
Work in process 129 178
Finished goods 2,068 1,365
------ ------
Total $3,025 $1,901
------ ------
------ ------
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<PAGE>
AFFYMETRIX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
NOTE 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
5, 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 approximately 22.7 million shares outstanding at September 30,
1997.
NOTE 5 - RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, EARNINGS PER SHARE, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share. The adoption of FAS 128 will
not result in a change to previously reported earnings per share information.
NOTE 6 - SUBSEQUENT EVENTS
On October 17, 1997 the Company filed a registration statement on Form S-3
with the Securities and Exchange Commission for an underwritten public
offering of up to 1,725,000 shares of common stock. On November 4, 1997 the
Company withdrew the offering.
-7-
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations as of September 30, 1997 and for the three and nine month
periods ended September 30, 1997 and 1996 should be read in conjunction with
the Management's Discussion and Analysis of Financial Condition and Results
of Operations included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 and the Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1997 and June 30, 1997.
All statements in this discussion that are not historical are forward-looking
statements. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially for Affymetrix, Inc. ("Affymetrix"
or the "Company") from those projected, including, but not limited to,
uncertainties relating to technological approaches, product development,
manufacturing and market acceptance, uncertainties related to cost and
pricing of Affymetrix products, dependence on collaborative partners,
uncertainties relating to sole source suppliers, uncertainties relating to
FDA and other regulatory approvals, competition, risks relating to
intellectual property of others and the uncertainties of patent protection.
These and other risk factors are discussed in Affymetrix' Registration
Statement on Form S-3 filed with the Securities and Exchange Commission
("SEC") on October 17, 1997, and in periodic reports filed with the SEC,
including the Company's annual report on Form 10-K for the year ended
December 31, 1996 and quarterly report on Form 10-Q for the quarter ended
June 30, 1997. Affymetrix 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 Affymetrix' expectations
with regard thereto or any change in events, conditions, or circumstances on
which any such statements are based.
OVERVIEW
Affymetrix has developed and intends to establish its GeneChip-Registered
Trademark- system as the platform of choice for acquiring, analyzing and
managing complex genetic information in order to improve the diagnosis,
monitoring and treatment of disease. The Company's GeneChip system consists
of disposable DNA probe arrays containing gene sequences on a chip, reagents
for use with the probe arrays, a scanner and other instruments to process the
probe arrays, and software to analyze and manage 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. Beginning in September 1993, the Company issued equity
securities which diluted Affymax' ownership in Affymetrix. In March 1995,
Glaxo plc, now Glaxo Wellcome plc ("Glaxo"), acquired Affymax, including its
ownership interest in Affymetrix. As of September 30, 1997 Glaxo owned
approximately 33% of Affymetrix.
-8-
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Product revenue was $1.0 million and $2.4 million for the three and nine
months ended September 30, 1997, respectively, compared to $0.4 million and
$0.9 million in the three and nine months ended September 30, 1996,
respectively. Contract and grant revenue increased to $4.0 million for the
three months ended September 30, 1997 from $2.3 million for the three months
ended September 30, 1996. Contract and grant revenue increased to $10.2
million for the nine months ended September 30, 1997 from $5.5 million for
the nine months ended September 30, 1996. The increase was primarily due to
achievement of certain milestones with certain collaborative partners and
increases in funding from the Advanced Technology Program and NIH National
Center for Human Genome Research grants.
Cost of product revenue was $0.9 million and $2.8 million for the three and
nine months ended September 30, 1997, respectively, compared to $0.4 million
and $1.1 million for the three and nine months ended September 30, 1996,
respectively. Margins fluctuated during the three and nine month periods, and
are expected to fluctuate in the future, due primarily to costs related to
manufacturing production scale-up activities.
Research and development expenses increased to $6.7 million and $19.8 million
for the three and nine months ended September 30, 1997, respectively,
compared to $4.5 million and $12.8 million for the three and nine months
periods ending September 30, 1996, respectively. The increase in research and
development expenses was attributable primarily to the hiring of additional
research and development personnel and associated 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
continue to expand.
General and administrative expenses increased to $4.0 million and $9.4
million for the three and nine months ended September 30, 1997, respectively,
compared to $2.1 million and $5.6 million for the three and nine months
periods ending September 30, 1996, respectively. The increase in general and
administrative expenses was attributable primarily to the hiring of
additional management personnel, professional fees (primarily legal fees) and
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 decreased to $1.3 million for the three months ended
September 30, 1997 from $1.7 million for the three months ended September 30,
1996. Net interest income increased to $4.0 million for the nine months
ended September 30, 1997 from $2.9 million for the nine months ended
September 30, 1996. The decrease in net interest income for the comparative
three months was primarily due to a decrease in cash balances available for
investment. The increase in net interest income for the comparative nine
months was primarily attributable to increased cash and investment balances
arising from the Company's initial public offering in June 1996.
-9-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company's cash, cash equivalents, and
short-term investments were $85.2 million compared to $109.0 million at
December 31, 1996. The decrease is primarily attributable to expansion of
core research, manufacturing and capital spending, and growth in general and
administrative expenses.
Net cash used in operating activities was $13.6 million for the nine months
ended September 30, 1997, as compared to $9.6 million for the nine months
ended September 30, 1996. The increase in net cash used in operating
activities resulted primarily from increases in the Company's net loss and
accounts receivables, offset by an increase in accounts payable and accrued
liabilities. The Company's investing activities, other than purchases, sales
and maturities of available-for-sale securities, consisted of capital
expenditures, which totaled $10.3 million and $2.0 million for the nine
months ended September 30, 1997 and 1996, respectively. These capital
expenditures included investments in facilities and laboratory equipment and
scale-up of manufacturing.
On October 17, 1997 the Company filed a registration statement on Form S-3
with the Securities and Exchange Commission for an underwritten public
offering of up to 1,725,000 shares of common stock. On November 4, 1997 the
Company withdrew the offering.
The Company anticipates that its 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 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; initiation or expansion of research
programs; the development of commercial scale manufacturing capabilities; its
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.
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<PAGE>
AFFYMETRIX, INC.
September 30, 1997
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
*+10.30 Supply Agreement among F. Hoffmann-La Roche Ltd., Hoffmann-
La Roche Inc., Syntex (U.S.A.) Inc., and Affymetrix, Inc.,
effective as of August 15, 1997.
11.1 Statement of computation of net loss per share.
27.0 Financial data schedule.
* Previously filed as Exhibit 10.1 to the Company's Registration Statement on
Form S-3 filed on October 17, 1997.
+ Confidential Treatment previously requested.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended September 30,
1997
-11-
<PAGE>
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 13, 1997 AFFYMETRIX, INC.
By: /s/ Edward M. Hurwitz
----------------------------
Edward M. Hurwitz
Vice President and
Chief Financial Officer
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<PAGE>
AFFYMETRIX, INC.
EXHIBIT INDEX
September 30, 1997
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
*+10.30 Supply Agreement among F. Hoffmann-La Roche Ltd.,
Hoffmann-La Roche Inc., Syntex (U.S.A.) Inc., and
Affymetrix, Inc., effective as of August 15, 1997.
11.1 Statement of computation of net loss per share.
27.0 Financial data schedule.
* Previously filed as Exhibit 10.1 to the Company's Registration Statement on
Form S-3 filed on October 17, 1997.
+ Confidential Treatment previously requested.
-13-
<PAGE>
EXHIBIT 11.1
AFFYMETRIX, INC.
STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- -----------------------------
1997 1996 1997 1996
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss ............................................... $ (5,307) $ (2,579) $ (15,439) $ (10,277)
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Historical primary and fully diluted number of shares:
Weighted average common shares..................... 22,648 22,449 22,612 9,807
Shares related to SAB Topic 4D..................... 0 0 0 2,468
----------- ---------- ----------- -----------
Shares used in computing net loss per share............. 22,648 22,449 22,612 12,275
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Net loss per share ..................................... $ (0.23) $ (0.11) $ (0.68) $ (0.84)
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Pro forma number of shares:
Weighted average common shares..................... 22,648 22,449 22,612 9,807
Shares related to SAB Topic 4D..................... 0 0 0 2,468
Convertible preferred shares, as if converted...... 0 0 0 7,062
----------- ---------- ----------- -----------
Shares used in computing pro forma loss per shares...... 22,648 22,449 22,612 19,337
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Pro forma net loss per share............................ $ (0.23) $ (0.11) $ (0.68) $ (0.53)
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
<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, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 12,076
<SECURITIES> 73,143
<RECEIVABLES> 3,845
<ALLOWANCES> 0
<INVENTORY> 3,025
<CURRENT-ASSETS> 93,036
<PP&E> 14,344
<DEPRECIATION> 0
<TOTAL-ASSETS> 108,167
<CURRENT-LIABILITIES> 9,786
<BONDS> 0
0
0
<COMMON> 158,821
<OTHER-SE> (61,007)
<TOTAL-LIABILITY-AND-EQUITY> 108,167
<SALES> 2,408
<TOTAL-REVENUES> 12,558
<CGS> 2,751
<TOTAL-COSTS> 2,751
<OTHER-EXPENSES> 29,230
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,984
<INCOME-PRETAX> (15,439)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,439)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,439)
<EPS-PRIMARY> (0.68)
<EPS-DILUTED> (0.68)
</TABLE>
