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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE PERIOD ENDED MARCH 31, 1997
/ / 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)
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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)
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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 MAY 9, 1997: 22,612,457
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AFFYMETRIX, INC.
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets at March 31, 1997 and December 31, 1996........................... 3
Condensed Statements of Operations for the Three Months Ended March 31, 1997 and 1996...... 4
Condensed Statement of Cash Flows for the Three Months Ended March 31, 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.............................................................. 10
SIGNATURES............................................................................................ 11
EXHIBIT INDEX......................................................................................... 12
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2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AFFYMETRIX, INC.
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
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<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
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(UNAUDITED) (NOTE)
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ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 28,255 $ 14,143
Short-term investments.............................................................. 74,725 94,839
Accounts receivable................................................................. 2,463 1,888
Inventories......................................................................... 1,741 1,901
Other current assets................................................................ 439 523
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Total current assets.............................................................. 107,623 113,294
Net property and equipment............................................................ 6,741 5,397
Other assets.......................................................................... 139 169
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$ 114,503 $ 118,860
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities...................................... $ 6,314 $ 5,230
Deferred revenue.................................................................... 104 396
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Total current liabilities......................................................... 6,418 5,626
Noncurrent portion of capital lease obligation........................................ 690 741
Shareholders' equity:
Common stock........................................................................ 158,734 158,687
Deferred compensation............................................................... (1,270) (1,460)
Accumulated deficit................................................................. (49,666) (44,743)
Other............................................................................... (403) 9
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Total shareholders' equity........................................................ 107,395 112,493
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$ 114,503 $ 118,860
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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
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AFFYMETRIX, INC.
CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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THREE MONTHS ENDED
MARCH 31,
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1997 1996
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Revenue:
Product............................................................................... $ 420 $ --
Contract and grant.................................................................... 2,388 1,416
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Total revenue....................................................................... 2,808 1,416
Cost and expenses:
Cost of product revenue............................................................... 865 --
Research and development.............................................................. 5,812 4,177
General and administrative............................................................ 2,492 1,649
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Total operating expenses............................................................ 9,169 5,826
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Loss from operations.................................................................... (6,361) (4,410)
Interest income, net.................................................................... 1,438 489
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Net loss................................................................................ $ (4,923) $ (3,921)
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Net loss per share...................................................................... $ (0.22) $ (0.22)
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Shares used in computing net loss per share(1).......................................... 22,575 17,664
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(1) For the three months ended March 31, 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.
4
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AFFYMETRIX, INC.
CONDENSED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
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THREE MONTHS ENDED
MARCH 31,
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1997 1996
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Cash flows from operating activities:
Net loss.............................................................................. $ (4,923) $ (3,921)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization....................................................... 592 566
Amortization of investment premiums, net............................................ (189) (24)
Change in operating assets and liabilities:
Accounts receivable................................................................. (575) 706
Inventories......................................................................... 160 (799)
Other assets........................................................................ 114 (164)
Accounts payable and other accrued liabilities...................................... 1,084 732
Deferred revenue.................................................................... (292) (187)
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Net cash used in operating activities............................................. (4,029) (3,091)
Cash flows from investing activities:
Capital expenditures................................................................ (1,746) (701)
Proceeds from the sale of short-term investments.................................... 22,925 1,466
Proceeds from maturities of short-term investments.................................. 5 2,156
Purchases of available-for-sale securities.......................................... (3,039) (2,004)
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Net cash provided by investing activities......................................... 18,145 917
Cash flows from financing activities:
Issuances of common stock........................................................... 47 46
Principal payments on capital lease obligation...................................... (51) (45)
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Net cash (used in)/provided by financing activities............................... (4) 1
Net increase/(decrease) in cash and cash equivalents.................................... 14,112 (2,173)
Cash and cash equivalents at beginning of period........................................ 14,143 2,481
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Cash and cash equivalents at end of period.............................................. $ 28,255 $ 308
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See accompanying notes.
5
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AFFYMETRIX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
(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 adjustments) considered necessary for a fair presentation
have been included. Operating results for the three month periods ended March
31, 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, 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-Registered Trademark- 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 March 31, 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.
3. INVENTORIES
Inventories consist of the following (in thousands):
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MARCH 31, DECEMBER 31,
1997 1996
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Raw material........................................................ $ 457 $ 358
Work in process..................................................... 108 178
Finished goods 1,176 1,365
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Total........................................................... $ 1,741 $ 1,901
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6
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AFFYMETRIX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
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 22.6 million shares outstanding at March 31, 1997.
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.
6. CONTINGENCIES
In March 1997, Hyseq Inc. filed a suit against Affymetrix in the United
States District Court alleging that Affymetrix infringes on United States Patent
No. 5,202,231 and 5,525,464 issued to Drs. Drmanac and Crkvenjakov. In the
opinion of management, the outcome of the action will not have a material effect
on the Company's financial position.
The Company routinely receives communications from third parties asserting
patent or other rights alleged to cover the Company's products and technologies.
Based upon the Company's evaluation, it may take no action or seek to obtain a
license. There can be no assurance that a license will be available under such
rights on terms the Company considers reasonable, or that litigation will not
ensue.
7
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PART I. 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 March 31, 1997 and for the three month periods ended March
31, 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.
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 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 the Company's 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, uncertainties of patent protection and uncertainties related
to litigation. These and other risk factors are discussed herein and in the
report filed with the Securities and Exchange Commission on Form 10-K for the
year ended December 31, 1996. These forward-looking statements speak only as of
the date hereof. The Company expressly disclaims any obligation or undertaking
to released 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
statements are based.
OVERVIEW
Affymetrix is developing GeneChip 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 Wellcome") 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 Wellcome indirectly owned approximately 34% of Affymetrix.
Currently, Glaxo Wellcome owns approximately 33% of Affymetrix.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Product revenue from the commercial launch of the GeneChip system and HIV
probe array was $420,000 for the three months ended March 31, 1997, compared to
no product revenue in the three months ended March 31, 1996. Contract and grant
revenue increased to $2.4 million for the three months ended March 31, 1997 from
$1.4 million for the three months ended March 31, 1996. The increase was
primarily due to an increase in funding from the National Institutes of Health
and National Institute of Standards and Technology's Advanced Technology Program
grants and milestone revenue earned from collaborative partners.
8
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Cost of product revenue was $865,000 for the three months ended March 31,
1997, compared to no cost of product revenue for the three months ended March
31, 1996. Cost of product revenue during the three months ended March 31, 1997
reflect costs of production associated with the shipment of GeneChip systems.
Research and development expenses increased to $5.8 million for the three
months ended March 31, 1997, compared to $4.2 million for the same period ending
March 31, 1996. 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 expand.
General and administrative expenses increased to $2.5 million for the three
months ended March 31, 1997 compared to $1.6 million for the three months ended
March 31, 1996. 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 $1.4 million for the three months ended March 31,
1997. This compares to net interest income of $489,000 for the three months
ended March 31, 1996. The increase in net interest income was primarily
attributable to increased investment balances resulting from the initial public
offering in June 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company's cash, cash equivalents, and short-term
investments were $103 million compared to $109 million at December 31, 1996. The
decrease is primarily attributable to expansion of core research, manufacturing
spending and growth in general and administrative expenses.
Net cash used in operating activities was $4.0 million for the three months
ended March 31, 1997, as compared to net cash used in operating activities of
$3.1 million for the three months ended March 31, 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
other accrued liabilities. The Company's investing activities, other than
purchases, sales and maturities of available-for-sale securities, consisted of
capital expenditures, which totaled $1.7 million and $701,000 for the three
months ended March 31, 1997 and 1996, respectively. These capital expenditures
included investments in facilities and laboratory equipment and scale-up of
manufacturing.
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.
9
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AFFYMETRIX, INC.
MARCH 31, 1997
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 March 31,
1997.
10
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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.
AFFYMETRIX, INC.
May 9, 1997 By: /s/ KENNETH J. NUSSBACHER
-----------------------------------------
Kenneth J. Nussbacher
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
11
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AFFYMETRIX, INC.
EXHIBIT INDEX
MARCH 31, 1997
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Exhibit 11.1 Statement of computation of net loss per share............................................. 13
Exhibit 27.0 Financial data schedule.................................................................... 14
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12
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EXHIBIT 11.1
AFFYMETRIX, INC.
STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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THREE MONTHS ENDED
MARCH 31,
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1997 1996
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Net loss.................................................................................... $ (4,923) $ (3,921)
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Historical primary and fully diluted number of shares:
Weighted average common shares............................................................ 22,575 408
Shares related to SAB Topic 4D............................................................ 0 7,403
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Shares used in computing net loss per share................................................. 22,575 7,811
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Net loss per share.......................................................................... $ (0.22) $ (0.50)
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Pro forma number of shares:
Weighted average common shares............................................................ 22,575 408
Shares related to SAB Topic 4D............................................................ 0 7,403
Convertible preferred shares, as if converted............................................. 0 9,853
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Shares used in computing pro forma loss per share........................................... 22,575 17,664
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Pro forma net loss per share................................................................ $ (0.22) $ (0.22)
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13
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ITEM 1 OF
FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 28,255
<SECURITIES> 74,725
<RECEIVABLES> 2,463
<ALLOWANCES> 0
<INVENTORY> 1,741
<CURRENT-ASSETS> 107,623
<PP&E> 6,741
<DEPRECIATION> 0
<TOTAL-ASSETS> 114,503
<CURRENT-LIABILITIES> 6,418
<BONDS> 0
0
0
<COMMON> 158,734
<OTHER-SE> (51,339)
<TOTAL-LIABILITY-AND-EQUITY> 114,503
<SALES> 858
<TOTAL-REVENUES> 2,808
<CGS> 865
<TOTAL-COSTS> 865
<OTHER-EXPENSES> 5,812
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,923)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,923)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,923)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
