<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 3, 1999.
Registration No. 333-82685
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
AFFYMETRIX, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 77-0319159
(State or Other Jurisdiction (I.R.S. Employer
of Identification
Incorporation or Organization) Number)
</TABLE>
3380 CENTRAL EXPRESSWAY
SANTA CLARA, CA 95051
(408) 731-5000
(Address, Including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------
VERN NORVIEL
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
AFFYMETRIX, INC.
3380 CENTRAL EXPRESSWAY
SANTA CLARA, CA 95051
(408) 731-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
The Commission is requested to send copies of all communications to:
------------------------------
COPIES TO:
ROBERT V. GUNDERSON, JR., ESQ.
CARLA S. NEWELL, ESQ.
ROBERT C. SEPUCHA, JR., ESQ.
GUNDERSON DETTMER STOUGH VILLENEUVE FRANKLIN & HACHIGIAN, LLP
155 CONSTITUTION DRIVE
MENLO PARK, CALIFORNIA 94025
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) UNIT(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per share..... 1,000,000 shares $89.5625 $89,562,500.00 $26,868.75(3)
</TABLE>
(1) Pursuant to Rule 416 of the Securities Act, this Registration Statement also
covers such indeterminable additional shares as may become issuable as a
result of any stock splits, stock dividends or similar transactions.
(2) The price of $89.5625 per share, which was the average of the high and low
prices of the Common Stock on the Nasdaq National Market on September 1,
1999, is set forth solely for the purpose of calculating the registration
fee in accordance with Rule 457(c) of the Securities Act of 1933, as
amended.
(3) A registration fee of $16,089.25 was paid in connection with the original
filing on July 12, 1999. The remaining fee, $10,779.50, was paid in
connection with this filing.
------------------------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 3, 1999
AFFYMETRIX, INC.
COMMON STOCK
------------------------
Investing in our common stock involves various risks. You should read "Risk
Factors" starting on page 6.
------------------------
The selling stockholder listed on page 24 is offering and selling 1,000,000
shares of our common stock under this prospectus.
The selling stockholder may offer its Affymetrix stock through public or
private transactions, on or off the Nasdaq National Market, at prevailing market
prices, or at privately negotiated prices.
Our common stock is traded on The Nasdaq National Market under the symbol
"AFFX." On September 1, 1999, the average of the high and low prices of our
common stock on The Nasdaq National Market was $89.5625 per share.
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
The date of this prospectus is September , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
The Business of Affymetrix................................................................................. 4
Recent Developments........................................................................................ 5
Risk Factors............................................................................................... 6
Forward-Looking Statements................................................................................. 23
Use of Proceeds............................................................................................ 23
Selling Stockholder........................................................................................ 24
Plan of Distribution....................................................................................... 25
Description of Capital Stock............................................................................... 25
Legal Matters.............................................................................................. 26
Experts.................................................................................................... 26
Where You Can Find More Information........................................................................ 27
</TABLE>
<PAGE>
THE BUSINESS OF AFFYMETRIX
We have developed and intend to establish our GeneChip 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. Our 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.
Our principle executive offices are located at 3380 Central Expressway,
Santa Clara, CA 95051 and our telephone number is (408) 731-5000.
------------------------
This prospectus includes trademarks of Affymetrix and other corporations.
------------------------
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RECENT DEVELOPMENTS
On May 12, 1999, we entered into an amendment to our standard
industrial/commercial single-tenant lease with Harry Locklin. This amendment
extended the term of our lease to April 30, 2003. A copy of this amendment is
attached as an exhibit to this prospectus.
On June 4, 1999, Oxford Gene Technology, or OGT, filed suit against us in
the United States District Court for the District of Delaware and in the United
Kingdom alleging infringement of United States Patent 5,700,637 and European
Patent 0-373-203, respectively. On June 17, 1999, we filed a complaint in the
United States District Court for the Northern District of California asking for,
among other things, a declaration that we have a valid license to use the
patents and that, in light of this license, we are not infringing on these
patents. For more information about these and other lawsuits we face, you should
read "Risk Factors--Our Business May Be Harmed by Significant Outstanding
Litigation."
On June 5, 1999, an asset transfer agreement with Beckman Coulter became
effective, giving us access to various assets, including licenses to United
States Patent 5,700,637 and European Patent 0-373-203. We disclosed a
transaction with Beckman that contemplated this asset transfer in our public
filings with the Securities Exchange Commission in August 1998.
On June 9, 1999, we loaned Susan E. Siegel, our senior vice president,
marketing and sales, $150,000. A copy of her promissory note is attached as an
exhibit to this prospectus.
On June 16, 1999, we filed an amended and restated certificate of
incorporation in Delaware. The amended certificate changed the authorized number
of shares of our stock. In particular, the amended certificate increased the
authorized number of shares of our common stock from 50 million shares to 75
million shares. In addition, the certificate decreased the authorized number of
our preferred stock from 27.5 million shares to 5 million shares.
On June 28, 1999, we entered into an addendum to our lease with Solar
Oakmead for the property located at 424-430 Oakmead Parkway in Sunnyvale,
California. The addendum extended our lease to December 31, 2002. A copy of this
addendum is attached as an exhibit to this prospectus.
On July 8, 1999, our board of directors elected Adrian Hennah to fill the
one vacancy on the board. On the same day, the board of directors approved an
amendment to our 1996 nonemployee directors stock option plan. A copy of the
amendment is attached as an exhibit to this prospectus.
On August 2, 1999, Glaxo Wellcome plc sold 1,000,000 shares of our common
stock. On August 5, 1999 Glaxo Wellcome Americas, a wholly owned subsidiary of
Glaxo, elected to convert its 1,634,522 shares of our Series AA convertible
redeemable preferred stock into 1,257,229 shares of our common stock at a
conversion price of $40 per share. Following the completion of these
transactions, Glaxo's beneficial ownership of our capital stock fell from
approximately 32% to approximately 31%.
On August 25, 1999, our board of directors elected Stephen P.A. Fodor as
chairman and chief executive officer. The same day, Mr. Fodor resigned as our
president. In his place, the board of directors elected Susan E. Siegel as
president. In addition, John Diekman, our former chairman, became vice chairman
of the board of directors.
In September of 1999, we commenced operations out of our facility in
Sacramento, California.
5
<PAGE>
RISK FACTORS
WE ARE IN THE EARLY STAGES OF DEVELOPMENT AND COMMERCIALIZATION
For the most part, our technologies are still in the early stages of
development and we have just begun to incorporate our technologies into
commercialized products. Our GeneChip system has thus far been sold solely for
research use, and the majority of these sales have been for our expression-
monitoring application. In order to further develop and commercialize the
expression-monitoring, genotyping and disease management applications of our
GeneChip system and other potential products, we will need to make significant
additional investments, including funding efforts in bioinformatics, new
product, software and instrument design, manufacturing scale-up and quality
testing to ensure our products perform correctly and are cost-effective. In
addition, while our initial research product sales have either not required
regulatory approval or have been regulated only as analyte specific reagents, we
expect that we and our collaborators will need to obtain additional regulatory
approvals in the future. Obtaining such approvals, could be costly and
time-consuming and we can not be sure we will be able to obtain all necessary
approvals. Even if we develop our products for commercial use and obtain all
necessary regulatory approval, however, we may not be able to develop products
that:
- Are accepted by the research, diagnostic or other marketplaces;
- Are accurate and effective;
- Meet applicable regulatory standards in a timely manner;
- Are protected from competition by others;
- Do not infringe the intellectual proprietary rights of others;
- Can be manufactured in sufficient quantities or at a reasonable cost; or
- Can be marketed successfully.
Any failure to develop such products would seriously harm our business,
financial condition and results of operations.
WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR LOSSES IN THE FUTURE
We have experienced significant operating losses each year since our
inception and expect these losses to continue for the next several years. For
example, we experienced net losses of approximately $12.2 million in 1996, $22.5
million in 1997 and $23.1 million in 1998. As of December 31, 1998, we had an
accumulated deficit of approximately $92.7 million. Our losses have resulted
principally from costs incurred in research and development and from general and
administrative costs associated with our operations. These costs have exceeded
our revenues and interest income, which, to date, have been generated
principally from product sales and technology access fees, collaborative
research and development agreements, government research grants and from cash
and investment balances. We expect to incur substantial additional operating
losses for at least the next two years as a result of increases in expenses for
manufacturing, marketing and sales capabilities, research and product
development and general and administrative costs. We may never achieve
profitability. Among other things, our ability to manage the transition to a
commercially successful company will depend upon our ability to:
- Establish our commercial manufacturing capability for probe arrays and
consistently achieve acceptable yields from those facilities;
- Cost-effectively manufacture components of the GeneChip system;
- Develop our marketing capabilities cost-effectively;
6
<PAGE>
- Establish sales and distribution capabilities cost-effectively;
- Enter into supply agreements with customers desiring to use our products;
- Develop products that are accepted by the marketplace;
- Create a product mix that is appealing to pharmaceutical and biotechnology
companies, academic research centers and clinical reference laboratories;
- Avoid infringing on the intellectual property rights of others;
- Enforce our intellectual property rights against others;
- Obtain necessary regulatory approvals; and
- Hire and retain qualified key personnel.
In addition, any delays in receipt of any necessary regulatory approvals or
any adverse developments with respect to our ability to enforce our intellectual
property relative to our competitors could seriously harm the successful
commercialization of our technologies.
OUR QUARTERLY OPERATING RESULTS ARE VOLATILE AND UNCERTAIN AND OUR FAILURE TO
MEET PUBLIC MARKET ANALYSTS' EXPECTATIONS WOULD HARM THE MARKET PRICE OF OUR
COMMON STOCK
Our quarterly operating results depend upon:
- The volume and timing of orders for GeneChip products;
- The timing of probe array, instrument and software deliveries and
installations;
- Our manufacturing capabilities;
- Variations in product yields and gross margins;
- Variations in revenue recognized under our supply and collaborative
agreements, including license fees, product sales, design fees,
milestones, royalties and other contract revenues;
- Our mix of products sold;
- The timing of new product introductions by us; and
- Variations in expenses incurred in connection with the operations of our
business, including legal fees, manufacturing facility start-up costs and
capital expenditures.
Our quarterly operating results may also fluctuate significantly depending
on factors out of our control, including:
- The introduction of new products by our competitors;
- Regulatory actions;
- Market acceptance of the GeneChip system and other potential products;
- The cost, quality and availability of reagents and components required to
manufacture or use our products;
- Changes in commercial and government funding of research using our
products; and
- Third-party reimbursement policies.
Because our revenues and operating results are volatile and difficult to
predict, we believe that period-to-period comparisons of our results of
operations are not a good indication of our future performance. It is likely
that in some future quarter or quarters, our operating results will be below the
expectations of public market analysts or investors. In such event, the market
price of our common stock may fall significantly.
7
<PAGE>
WE CURRENTLY HAVE LIMITED MANUFACTURING CAPACITY AND CONTINUE TO EXPERIENCE
VARIABILITY IN MANUFACTURING YIELDS
We are currently manufacturing limited quantities of probe arrays for
internal and collaborative purposes and for sale to the research market. We
currently have one manufacturing facility located in Sunnyvale, California. The
actual number of probe arrays we are able to sell or use depends on the
utilization of the capacity at this facility and the yield of probe arrays that
pass quality control testing as well as the number of probe arrays manufactured
on each wafer. Furthermore, portions of our production capacity are limited to
certain types of probe arrays. We have experienced and continue to experience
variability in the manufacturing yield of our GeneChip products which has
adversely impacted, and may continue to adversely impact, our gross margins and
business. We have also experienced and anticipate that we will continue to
experience difficulties in meeting anticipated customer and internal demand for
certain of our probe array products. Our inability to deliver products in a
timely manner could seriously harm our relationship with our customers and our
business, financial condition and results of operations.
OUR MANUFACTURING FACILITY MAY BE PRONE TO NATURAL DISASTERS
Our manufacturing equipment requires significant capital investment. We
presently rely on a single manufacturing facility for our probe arrays, fluidics
stations and software. This manufacturing facility is subject to natural
disasters such as earthquakes and floods. Earthquakes are of particular
significance since the manufacturing facility is located in an earthquake prone
area. Although we have built a second manufacturing facility, which we expect to
mitigate earthquake risks when it becomes operational in the second half of
1999, in the event that our existing manufacturing facilities are affected by
accidental or natural disasters, we could be unable to manufacture products for
sale or our capacity could be significantly decreased until the facilities are
replaced or restored to operation. If manufacturing operations were curtailed or
ceased it would seriously harm our business, financial condition and results of
operations.
WE HAVE A LIMITED HISTORY IN MANUFACTURING OUR PRODUCTS AND WE MAY ENCOUNTER
PROBLEMS AS WE INCREASE OUR MANUFACTURING EFFORTS
There are certain aspects of our manufacturing processes that are not fully
understood and that may not be readily scalable to allow for production of probe
arrays in larger volumes. As a result, manufacturing and quality control
problems will arise as we attempt to scale-up our manufacturing facilities. We
may not be able to scale-up these facilities in a timely and cost-effective
manner or at commercially reasonable cost. If we are unable to consistently
manufacture probe arrays on a timely basis because of these or other factors,
our business, financial condition and results of operations could be seriously
harmed.
OUR QUALITY CONTROL PROCEDURES MAY NOT BE SUFFICIENT TO ENSURE PROPER
PERFORMANCE OF OUR PRODUCTS
The GeneChip system is a complex set of products, which are produced in an
innovative and complicated manufacturing process. As part of this manufacturing
process, we test only selected probe arrays from each wafer and only selected
probes on such probe arrays against a number of performance criteria. We
therefore rely on limited internal quality control procedures to verify the
correct completion of the manufacturing process. In addition, we and our
customers rely on the accuracy of genetic sequence information contained in
databases upon which our products are based. It is therefore possible that probe
arrays that do not meet all of our performance specifications may not be
identified before they are shipped. After the probe arrays are shipped, a
customer may test only selected probes. Due to the complexity and limited
operating history of these products, we have experienced technical problems and
anticipate that additional technical problems will occur and be discovered as
more
8
<PAGE>
systems are placed into operation. If we are unable to consistently deliver
products to our customers that meet their performance expectations, demand for
our products will decline and our business, financial condition and results of
operations could be seriously harmed.
WE MAY HAVE TO RELY ON LICENSES FROM THIRD PARTIES FOR CERTAIN TECHNOLOGY
Our commercial success also depends in part on us neither infringing patents
or proprietary rights of third parties nor breaching any licenses that may
relate to our technologies and products. For example, we or our collaborators
and customers may need to acquire a license for an amplification technology to
use the GeneChip system in certain applications. Such license may not be
available on commercially reasonable terms. Furthermore, we are aware of
third-party patents that may relate to our technology. In addition, we have
received and may in the future receive notices claiming that we infringe third
party rights as well as invitations to take licenses under third party patents.
We cannot guarantee that we will not be determined to infringe on patents or
proprietary rights of third parties or that we, our collaborative partners or
our customers would be able to obtain a license to such patents or proprietary
rights on commercially acceptable terms, if at all.
We are aware of U.S. and European patents and patent applications owned by
Oxford Gene Technology that have issued or that are pending and may issue that
may relate to our technology. We have opposed two such allowed European patents.
Several of the applications have broad claims to certain array related
technology. In August 1998, we entered into a series of agreements with Beckman
Coulter designed to provide us with a path to obtain a license to these patents
and patent applications. On June 4, 1999, Oxford Gene Technology filed patent
infringement suits against us in the U.S. and in the U.K. asserting that it is
not obligated to grant us a license under a consortium clause in Oxford Gene
Technology's 1996 license agreement with Beckman Coulter. On June 5, 1999,
pursuant to the series of agreements we entered with Beckman Coulter, the
license agreement between Beckman Coulter and Oxford Gene Technology was
assigned to us. This series of agreements and their interpretation may be
challenged and, if interpreted adversely, we could be subject to an injunction
or damages that could delay or preclude sales of some or all of our products.
Any such delay or constraint would seriously harm our business, financial
condition and results of operations.
We have various option, supply and license agreements with third parties
that give us rights to use certain technologies. If we fail to maintain rights
to such technology it could have a material adverse effect on our business,
financial condition and results of operations. For example, our inability to
exercise the option for the University of California technology relating to
miniaturized polymerase chain reaction devices or other option agreements under
reasonable terms, or at all, could seriously harm our ability to sell integrated
device products.
OUR BUSINESS MAY BE HARMED BY SIGNIFICANT OUTSTANDING LITIGATION
We are parties to significant litigation, which will consume substantial
financial and managerial resources and which could seriously harm our business,
financial condition and results of operations. Further, because of the
substantial amount of discovery required in connection with any such litigation,
there is a risk that confidential information could be compromised by
disclosure.
On March 3, 1997, Hyseq filed a lawsuit in United States District Court for
the Northern District of California (San Jose Division) alleging that our
products infringe United States Patents 5,202,231 and 5,525,464. In addition, in
December 1997, Hyseq filed a second action claiming that our products infringe a
related patent, United States Patent 5,695,940. On August 18, 1998, we filed a
lawsuit in Federal District Court in the Northern District of California (San
Francisco Division) against Hyseq alleging infringement of U.S. Patent Nos.
5,795,716 and 5,744,305, or '305. On September 1, 1998, we added our U.S. Patent
No. 5,800,992, or '992, to the complaint of infringement against Hyseq.
9
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On June 4, 1999, Oxford Gene Technology, or OGT, filed suit against us in
the United States District Court for the District of Delaware and in the United
Kingdom alleging infringement of United States Patent 5,700,637 and European
Patent 0-373-203, respectively. On June 5, 1999, an asset transfer agreement
with Beckman Coulter became effective, giving us access to various assets,
including licenses to United States Patent 5,700,637 and European Patent
0-373-203. On June 17, 1999, we filed a complaint in the United States District
Court for the Northern District of California asking for, among other things, a
declaration that we have a valid license to use the patents and that, in light
of this license, we are not infringing on these patents.
The Hyseq and the Oxford Gene Technology actions seek damages based on the
sale of our products and processes and seek to enjoin commercial activities
relating to those products and processes. In addition to subjecting us to
potential liability for damages, these actions, and any other similar legal
actions against us or our collaborative partners, could require us or our
collaborative partners to obtain a license in order to continue to manufacture,
market or use the affected products and processes. While we believe that the
Hyseq and Oxford Gene Technology complaints are without merit, we may not
prevail in the these actions and we or our collaborative partners may not
prevail in any other related action. Moreover, in the event we do not prevail in
the Hyseq and Oxford Gene Technology actions and we, our partners or our
customers are required to obtain a license to continue to manufacture, market or
use the affected products and processes, we, our partners or our customers may
not be able to obtain such a license on commercially acceptable terms, if at
all. Furthermore, we have expended and are likely to continue to expend
substantial financial and managerial resources in defending against the claims
filed by Hyseq and Oxford Gene Technology.
On January 6, 1998, we filed a patent infringement action in the United
States District Court for the District of Delaware (No. 98-6) alleging that
certain of Incyte's and Synteni's products infringe United States Patent
5,445,934, or '934. On September 1, 1998, we filed a complaint against Incyte
and Synteni in Federal District Court in Delaware alleging infringement of the
'305 Patent and the '992 Patent. These actions were transferred to the United
States District Court for the Northern District of California on November 18,
1998, as case numbers C98-4507 and C98-4508, respectively. The actions seek to
enjoin commercial activities of Incyte and Synteni relating to our patents and,
in regard to the '992 Patent, sought a preliminary injunction. Incyte and
Synteni moved for summary judgement that certain claims of the '992 Patent were
invalid. On May 4, 1999, the Court denied our motion for preliminary injunction
and denied Incyte/Synteni's motion for summary judgement.
We may not prevail in asserting our patent rights against Hyseq, Incyte,
Synteni or others. We have expended and are likely to continue to expend
substantial financial and managerial resources in asserting our patent rights
against Hyseq, Incyte, Synteni and others. Our failure to successfully enforce
our patent rights or the loss of these patent rights or others would remove a
legal obstacle to competitors in designing probe array systems with similar
competitive advantages to our GeneChip technology. The removal of such barriers
could seriously harm our business, financial condition and results of
operations.
On April 17, 1998, Incyte filed a response and counterclaim to case number
C98-4507, asserting that the '934 Patent is invalid and not infringed. On April
17, 1998, Incyte also filed a counterclaim alleging that a patent license
agreement we entered into in December 1997 with Molecular Dynamics interfered
with an agreement between Incyte and Molecular Dynamics. In the counterclaim,
Incyte alleges that the terms of our patent license to Molecular Dynamics
prevented Molecular Dynamics from meeting its obligations to Incyte. Incyte
seeks damages from us. On September 21, 1998, Incyte and Synteni filed an answer
asserting various defenses to the lawsuits in relation to the '992 Patent and
the '305 Patent, and asserted several counterclaims, including:
- A request for declaration of non-infringement and invalidity;
- An assertion of unfair competition;
10
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- A request for a declaration that Synteni and Dari Shalon (a one time
employee of Synteni) have not misappropriated any of our trade secrets;
- A claim of tortious interference with Incyte's and Synteni's economic
advantage;
- A claim of slander of title of a patent and a claim of trade libel.
We believe that the counterclaims are without merit. However, we have
expended and are likely to continue to expend significant financial and
managerial resources defending against these and any other counterclaims filed
by Incyte and Synteni. Our failure to successfully enforce our patent rights or
defend against counterclaims of Incyte, Synteni, or others could seriously harm
our business, financial condition and results of operations.
The United States Patent and Trademark Office, or USPTO, notified us that
Stanford University presented claims that relate to substantially the same
subject matter as certain claims from the '992 Patent and all of the claims of
the '305 Patent. The Stanford application is alleged to be exclusively licensed
to Incyte. The USPTO notified us on April 2, 1999 that it had declared an
interference proceeding relating to these patents and claims of patents. The
USPTO will conduct proceedings to determine the priority of these claims. We
will expend substantial financial and managerial resources as a result of these
proceedings. Moreover, we may not prevail in such proceedings. Such a failure to
prevail could result in our inability to commercialize our products and to
prevent others from copying aspects of our products.
OUR SUCCESS DEPENDS ON OUR ABILITY TO KEEP PACE WITH THE LATEST TECHNOLOGICAL
CHANGES
Expression monitoring, polymorphism analysis and disease management
technologies have undergone and are expected to continue to undergo rapid and
significant change. Our future success will depend in large part on our ability
to maintain a competitive position with respect to these and future
technologies. Rapid technological development by us or others may result in our
products or technologies becoming obsolete. In addition, products offered by us
could be made obsolete by less expensive or more effective tests based on other
technologies or by new therapeutic or prophylactic agents that obviate the need
for the information our products generate. Moreover, our efforts to develop
research and disease management products based on our technologies will be
subject to the risks of failure inherent in the development of products based on
new technologies. These risks include:
- The potential discovery that these technologies will be found to be
ineffective, unreliable or unsafe;
- Difficulties in manufacturing our products cost effectively;
- Difficulties in marketing our products on a large scale;
- The existence of third party proprietary rights precluding us or our
collaborative partners from manufacturing, using or selling products;
- The development of superior products by third parties; or
- The failure to receive necessary regulatory clearances.
If we are unable to develop the enhancements to our technology necessary to
compete successfully with newly emerging technologies, or if we are unable to
develop products based on these technologies, our business, financial condition
and results of operations will be seriously harmed.
11
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OUR SUCCESS DEPENDS ON MARKET ACCEPTANCE OF OUR PRODUCTS AS AN ALTERNATIVE TO
CURRENT TECHNOLOGIES
The commercial success of our GeneChip system will depend upon market
acceptance by pharmaceutical and biotechnology companies, academic research
centers and clinical reference laboratories. Market acceptance will depend on
many factors, including:
- Convincing researchers that the GeneChip system is an attractive
alternative to other technologies for the acquisition, analysis and
management of genetic information;
- Our ability to manufacture products with acceptable variations in quality
or performance;
- Our ability to provide our customers with software that enables the
integration and analysis of large volumes of genetic and other
experimental data;
- The cost of our GeneChip system and access to probe arrays, which may
deter certain potential customers of our products;
- Any failure by us in placing and servicing sufficient quantities of the
GeneChip system;
- Limitations in funding for commercial and academic research organizations
that are the potential customers for the GeneChip system;
- The receipt of regulatory clearances in the United States, Europe, Japan
and elsewhere;
- The availability of genetic content including proprietary markers that may
be important for incorporation into our probe arrays;
- Ethical concerns, which may limit the use of the GeneChip system for
certain disease management applications or the analysis of genetic
information;
- The ability of laboratories to license other technologies, such as
amplification technologies that may be required to use the GeneChip system
for certain applications; and
- The inability of potential customers to employ skilled laboratory
technicians necessary to operate the GeneChip system.
Because of these and other factors, our products may not gain market
acceptance.
WE FACE INTENSE COMPETITION IN OUR CURRENT AND POTENTIAL MARKETS
Competition in our existing and potential markets is intense and expected to
increase. Currently, our principal competition comes from existing technologies
and other DNA array technologies that are used to perform many of the same
functions for which we market our GeneChip systems. In order to compete against
existing and newly developed technologies and maintain pricing and gross
margins, we will need to be successful in asserting our patents in the DNA array
field and in demonstrating to potential customers that the GeneChip system
provides improved performance and capabilities.
In the expression monitoring and polymorphism analysis fields, existing
competitive technologies include gel-based sequencing performed using
instruments provided by companies such as the Applied Biosystems division of
Perkin-Elmer and Amersham Pharmacia Biotech. A large number of publicly-traded
and privately-held companies including CuraGen, Gene Logic, General Scanning
Inc., Genetic MicroSystems, Genome Solutions, Hewlett Packard, Hitachi,
Incyte/Synteni and Motorola also are developing or have developed DNA probe
based assays or other products and services, some of which may be competitive
with ours.
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Our principal sales representative, Amersham Pharmacia Biotech and its
wholly owned subsidiary, Molecular Dynamics, offer products based on licenses of
our patents that are potentially competitive with our products. Amersham
Pharmacia Biotech's and Molecular Dynamics' commercial activities with respect
to their competing products may seriously harm our sales and supply agreements.
WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON A LIMITED NUMBER OF CUSTOMERS
FOR A SIGNIFICANT PORTION OF OUR REVENUES
Our customers are concentrated in a small number of pharmaceutical and
biotechnology companies, academic research centers and clinical reference
laboratories. For example, in 1998, two of our customers accounted for 20% and
16% of total revenues, respectively. As a result of the significance of a few
customers, our business, financial condition and results of operations may be
seriously harmed by a limited number of customers. Furthermore, there are two
major reference laboratories in the United States, one which is associated with
a large pharmaceutical company. For a variety of reasons, these affiliations may
cause the laboratories to elect not to purchase GeneChip systems. A decision by
these reference laboratories to not purchase our GeneChip technology could
adversely impact our business, results of operations and financial condition. In
addition, our dependence on sales to a few customers may strengthen the
negotiating position of our potential customers, which, in turn, could reduce
the sales price of the GeneChip system and seriously harm our business,
financial condition and results of operations.
Several of our current customers have announced plans to merge, and further
consolidation in the pharmaceutical and biotechnology industries is generally
expected to occur. Planned or future consolidation among our current and
potential customers could decrease or slow aggregate sales of our technology and
shrink the research market our products target. Any such consolidation could
seriously harm our business, financial condition and results of operations.
In addition, we believe that the sales cycle for the GeneChip system will be
lengthy due to the need to educate potential customers about its
characteristics. Our failure to gain additional customers, the loss of any
customer or a significant reduction in the level of sales to any customer would
seriously harm our business, financial condition and results of operations.
WE DEPEND ON OUR ABILITY TO INCREASE AND SUSTAIN OUR INTERNATIONAL OPERATIONS
We intend to expand our international presence in order to increase our
export sales. Export sales to international customers entail a number of risks,
each of which could seriously harm our business, financial condition and results
of operations. These risks include:
- Unexpected changes in, or impositions of, legislative or regulatory
requirements;
- Delays resulting from difficulty in obtaining export licenses for certain
technology, tariffs, quotas and other trade barriers and restrictions;
- Longer payment cycles and greater difficulty in accounts receivable
collection;
- Potentially adverse taxes;
- Currency exchange fluctuations;
- The burdens of complying with a variety of foreign laws; and
- Other factors beyond our control.
We are also subject to general geopolitical risks in connection with
international operations, such as political, social and economic instability,
potential hostilities and changes in diplomatic and trade relationships.
Although we have not to date experienced any material adverse effect on our
operations
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as a result of such regulatory, geopolitical and other factors, such factors may
seriously harm our operations in the future or require us to modify our current
business practices.
OUR EXISTING PRODUCTS MAY NOT BE COMMERCIALLY VIABLE
We first introduced our GeneChip system in April 1996 with its first
commercial disease management application, an HIV probe assay designed to detect
mutations in HIV, the virus that causes AIDS. The HIV probe array provides
sequence information from the reverse transcriptase and protease genes of HIV,
and the system includes a fluidics station, a scanner, a workstation, a
hybridization oven and related software. In July 1997, we introduced our second
commercially available disease management product, the p53 tumor suppressor gene
assay for research use, which was developed in collaboration with Gene Logic. In
November 1997, we introduced our third commercially available disease management
product, the p450 assay for determining variations in two members of the CYP450
gene family. We have also entered into several supply and collaborative
agreements pursuant to which we are supplying GeneChip systems and expression
and genotyping probe arrays for research purposes.
Because our products and systems have been in operation for a limited period
of time, their accuracy and efficacy have not been fully established.
Accordingly, any of the following adverse events may occur, each of which would
seriously undermine our business, financial condition and results of operations:
- The accuracy of the probe arrays in providing sequence information may not
be equal to or better than current technologies, such as gel-based
sequencing techniques;
- The probe arrays may not provide commercially useful information;
- The probe arrays or the GeneChip system may experience operational
difficulties;
- We may experience manufacturing problems or marketing difficulties selling
the probe arrays to pharmaceutical and biotechnology companies, academic
research centers and clinical reference laboratories;
- Cost containment pressures for biomedical research and patient management
may limit the price we may be able to charge potential customers for our
probe arrays;
- Newly identified genetic information or incorrect genetic information
deposited in the sequence databases upon which we and our customers rely
may require us to redesign our current probe arrays or develop new probe
arrays;
- Technicians may not have adequate training to use the GeneChip system or
interpret the results generated from the system;
- The probe arrays and associated reagents may not gain regulatory approval
for clinical use; or
- Advanced therapies could be discovered that obviate the need for certain
probe arrays.
WE RELY HEAVILY ON OUR COLLABORATIVE PARTNERS
An important element of our business strategy involves collaborations with
pharmaceutical, diagnostic, biotechnology, bioinformatics, analytical instrument
and reagent companies as well as with academic researchers to help develop,
test, manufacture, sell and service our GeneChip technology. We have significant
collaborations with Amersham Pharmacia Biotech, Amersham Pharacia Biotech KK,
Hewlett Packard, bioMerieux and Roche Molecular Systems and we have entered into
a consortium with the Whitehead Institute, Millennium Pharmaceuticals and
Bristol-Myers Squibb.
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We have received a material portion of our revenue since inception from
these and other collaborative partners. We also intend to enter into
collaborative arrangements with other companies to expand our operations, apply
our technology, and commercialize potential future products. Our present or
future collaborative partners may not be able to perform their obligations as
expected or devote sufficient resources to the development, clinical testing,
supply or marketing of our potential products developed under these
collaborations. Moreover, any of the following developments could seriously harm
our business, financial condition and results of operations:
- One of our partners develops technologies or components competitive with
our GeneChip system;
- Our existing collaborations preclude us from entering into additional
arrangements;
- Failure of our partners to obtain timely regulatory approvals;
- Premature termination of an agreement;
- One of our partners' failure to devote sufficient resources to the
development and commercialization of our products; or
- Inability of one of our partners to supply products to us.
In addition, our agreements with our collaborators may have provisions that
allow for termination or give rise to disputes regarding the rights and
obligations of the parties. These and other possible disagreements could lead to
termination of the agreement or delays in collaborative research, development,
supply or commercialization of certain products, or could require or result in
litigation or arbitration. Any such delay, litigation or arbitration could
seriously harm our business, financial condition and results of operations.
Accordingly, any of our collaborations may prove to be unsuccessful. Likewise,
we may not be able to negotiate future collaborative arrangements on acceptable
terms, if at all.
OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
MAY HARM OUR COMPETITIVENESS
Our competitive position in the future will depend in large part on our
ability to do the following:
- Strengthen and defend our patent position;
- Preserve our copyrights and trade secrets;
- Operate without infringing the proprietary rights of third parties; and
- Acquire licenses related to enabling technology or products used with our
GeneChip technology.
Our failure to successfully do any of these things will seriously harm our
business, financial condition and results of operations.
Moreover, the patent positions of pharmaceutical and biotechnology companies
are generally uncertain and involve complex legal and factual questions. We
believe that there will continue to be significant litigation in the industry
regarding patent and other intellectual property rights. As a result, we cannot
guarantee any of the following:
- That any of our pending patent applications will result in issued patents;
- That we will develop additional technologies that are patentable;
- That any patents issued to us or our strategic partners will provide a
basis for commercially viable products;
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- That any patents issued to us or our strategic partners will provide us
with any competitive advantages;
- That any patents issued to us or our strategic partners will not be
challenged by third parties; or
- That the patents of others will not have an adverse effect on our ability
to do business.
In addition, patent law relating to the scope of claims in the technology
fields in which we operate is still evolving and the extent of future protection
for our proprietary rights is uncertain.
Others may independently develop similar or alternative technologies,
duplicate any of our technologies, or design around or invalidate our patented
technologies. In addition, we have and expect to continue to incur substantial
costs in litigation to defend against the patent suits brought by third parties
and when we initiate such suits. In addition, administrative proceedings, such
as interferences, in the United States Patent Office could substantially impact
the scope of our patent protection as well as result in the expenditure of
substantial funds in legal fees. We have been notified that third parties are
attempting to copy certain claims from two of our issued U.S. patents. As a
result of these attempts, an interference was declared on April 2, 1999. We may
not prevail in such proceedings. Other third parties may attempt to copy claims
of our patents to provoke interferences in the future.
Others have filed, and in the future are likely to file, patent applications
that are similar or identical to those of us or those of our licensors. To
determine the priority of inventions, we will have to participate in
interference proceedings declared by the United States Patent and Trademark
Office that could result in substantial cost to us. We cannot assure you that
any such patent applications will not have priority over our patent
applications.
WE RELY ON THIRD PARTY SUPPLIERS FOR MANY COMPONENTS OF OUR GENECHIP SYSTEM
We rely on Hewlett-Packard to manufacture and service our scanners and on
Enzo to manufacture certain reagents used with probe arrays. Our scanner,
introduced in April 1997, is obtained from Hewlett-Packard under a supply
agreement that expires in 2003. We are dependent on Hewlett-Packard for quality
testing and service of this instrument. Certain labeling kits needed to process
samples on GeneChip probe arrays are supplied to us by Enzo under a supply
agreement that expires in 2001. We are obligated to purchase certain labeling
kits from Enzo or compensate Enzo for any lost sales of these reagents.
Certain key parts of the GeneChip system, such as the scanner, certain
reagents kits and lithographic masks as well as certain raw materials used in
the synthesis of probe arrays, are currently available only from a single source
or a limited number of sources. No assurance can be given that scanners,
reagents, lithographic masks or other components of the GeneChip system will be
available in commercial quantities under acceptable terms. Even if alternative
sources of supply are available, it could be time consuming and expensive for us
to qualify new vendors. In addition, we are dependent on our vendors to provide
components of appropriate quality and reliability and to meet applicable
regulatory requirements. Consequently, in the event that supplies from these
vendors were delayed or interrupted for any reason, we could be delayed in our
ability to develop and deliver products to our customers. Any such delay could
seriously harm our business, financial condition and results of operations.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL THAT MAY NOT BE AVAILABLE
We anticipate that our existing capital resources, including the proceeds of
approximately $32.5 million from the private placement of 1,000,000 shares of
our common stock in March 1999, will enable us to maintain currently planned
operations through at least the year 2000. However, this expectation is based on
our current operating plan, which is expected to change as a result of many
factors, and we may need additional funding sooner than anticipated. In
addition, we may choose to
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raise additional capital due to market conditions or strategic considerations
even if we believe we have sufficient funds for our current or future operating
plans. To the extent that additional capital is raised through the sale of
equity or convertible debt securities, the issuance of such securities could
result in dilution to our stockholders.
We have no credit facility or other committed sources of capital. To the
extent operating and capital resources are insufficient to meet future
requirements, we will have to raise additional funds to continue the development
and commercialization of our technologies. Moreover, such funds may not be
available on favorable terms, or at all. If adequate funds are not available on
attractive terms, we may be required to curtail operations significantly or to
obtain funds by entering into financing, supply or collaboration agreements on
unattractive terms. Our inability to raise capital would seriously harm our
business, financial condition and results of operations.
OUR MANUFACTURING IS SUBJECT TO REGULATORY COMPLIANCE AND MAY BE AFFECTED BY THE
INTRODUCTION OF NEW TECHNOLOGY
We must comply with the FDA's regulations for sale of analyte specific
reagents, or ASRs, in the United States, ISO standards for sale of products in
Europe, as well as other standards prescribed by various federal, state and
local regulatory agencies in the United States and other countries. Although we
have filed an application for the registration of the manufacturing site for our
arrays as ASRs, we cannot guarantee that we will be able to comply with the
regulations at reasonable costs.
As our technologies evolve, new manufacturing techniques and systems will be
required. For example, it is anticipated that additional automated processing
systems will be needed to meet our future probe array demand. Further, as
products requiring increased density are developed, miniaturization of the
features on the arrays will be necessary. This will require new or modified
manufacturing equipment and processes. We cannot be sure that we will be able to
develop or access new manufacturing technologies.
WE HAVE LIMITED SALES, MARKETING AND TECHNICAL SUPPORT EXPERIENCE, WHICH MAY
HURT OUR EFFORTS AT SELLING OUR PRODUCTS
We are marketing our products to pharmaceutical and biotechnology companies,
academic research centers and clinical reference laboratories. We currently have
a limited direct sales, marketing and technical support organization and we have
entered into a non-exclusive distribution agreement with Amersham Pharmacia
Biotech KK and a service agreement with Hewlett Packard for our GeneArray
scanner. Our existing organization and relationships may not be sufficient and
we may be required to expand our organization and enter into additional
collaboration or distribution arrangements to commercialize our products both
inside and outside the United States. We cannot assure you that:
- We will be able to establish a sufficiently sized sales, marketing or
technical support organization;
- Amersham Pharmacia Biotech KK will be successful in distributing our
products;
- Amersham Pharmacia Biotech KK will not sell competitive products;
- Hewlett Packard will be successful in servicing our instruments and not
become our competitor; or
- We will be able to establish additional collaborative or distribution
arrangements to sell, market and service our products.
Failure to develop our sales, market and technical support capabilities would
have a material adverse effect on our business, financial condition and results
of operations.
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CHANGES IN GOVERNMENT FUNDING OF RESEARCH INSTITUTIONS COULD HARM OUR BUSINESS
A significant portion of our products for research use are likely to be sold
to universities, government research laboratories, private foundations and other
institutions where funding is dependent upon grants from government agencies,
such as the National Institute of Health. Research funding by the government,
however, may be significantly reduced in the future. Any such reduction may
seriously affect the ability of our existing and prospective research customers
to purchase our products for research use. In addition, we have received and
expect to continue to receive significant funds under various United States
government research and technology programs including the advanced technology
program, or ATP. Funding of the ATP grant expires in January 2000 and the 1999
budget has not yet been approved. Consequently, there can be no assurance that
we will complete work under the ATP and we may not receive any of the $8.6
million funding remaining on the grant and any funding that is not spent before
completion of the grant will no longer be available to us. Our failure to
receive this funding from the ATP could have a serious adverse effect on our
business. There can be no assurance that additional grants or other sources of
funding will be available following completion of the ATP grant to allow for
commercialization of products resulting from this funded research. Our failure
to obtain sources of future funding for this research could seriously harm our
business, financial condition and results of operations.
OUR BUSINESS MAY BE THREATENED BY SERIOUS ETHICAL, LEGAL AND SOCIAL IMPLICATIONS
OF GENETIC TESTING
Our success will depend in part upon our ability to develop tests for
specific genetic information discovered by us and others. These genetic tests
have given rise to some difficult issues, including:
- Genetic tests such as certain of our GeneChip assays may be difficult to
perform and interpret and may lead to misinformation or misdiagnosis;
- Even when a genetic test identifies the existence of a mutation in an
individual, the interpretation of the result is often limited to the
identification of a statistical probability that the tested individual
will develop a particular disease or condition;
- Once available, such tests may be subject to ethical concerns or
reluctance to administer or pay for tests for conditions that are not
treatable; and
- The possibility that specific gene-based diagnostic tests marketed by
other companies could encounter public resistance, thereby resulting in
societal and governmental concerns regarding genetic testing in general.
The prospect of broadly available genetic predisposition testing has raised
issues regarding the appropriate utilization and the confidentiality of
information provided by such testing. It is possible that discrimination by
insurance companies could occur through:
- An increase in premiums by insurers to prohibitive levels;
- Outright cancellation of insurance; or
- Unwillingness to provide coverage to patients shown to have a genetic
predisposition to a particular disease.
In addition, employers could discriminate against employees with a genetic
predisposition to develop a particular disease. Finally, governmental
authorities could limit the use of genetic testing or prohibit testing for
genetic predisposition to certain conditions which could adversely affect the
use of our products. As a result, ethical concerns about genetic testing may
seriously affect market acceptance of our GeneChip system or give rise to
legislative restrictions in some countries adversely affecting markets, and
thereby seriously harm our business, financial condition and results of
operations.
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WE DEPEND ON CERTAIN KEY PERSONNEL
We are highly dependent on the principal members of our management and
scientific staff. The loss of services of any of these persons could have a
serious adverse effect on our product development and commercialization efforts.
In addition, research, product development and commercialization will require
additional skilled personnel in areas such as bioinformatics, organic chemistry,
information services, regulatory affairs, manufacturing, sales, marketing and
technical support.
There is a shortage of such skilled personnel, which is likely to continue
for some time. As a result, competition for these people, particularly for
employees with technical expertise, is intense and the turnover rate for these
people is high. If we are unable to hire, train and retain a sufficient number
of qualified employees, our business, financial condition and results of
operations could be seriously harmed. This inability could also hinder the
planned expansion of our business.
In addition, we rely on our scientific advisors and consultants to assist us
in formulating our research, development and commercialization strategy. All of
the scientific advisors and consultants are engaged by employers other than us
and have commitments to other entities that may limit their availability to us.
Some of our scientific advisors and consultants also consult for companies that
may be our competitors. If we are unable to retain our scientific advisors and
consultants, our business, financial condition and results of operations could
be adversely harmed.
WE MAY BE EXPOSED TO LIABILITY DUE TO PRODUCT DEFECTS
Our business exposes us to potential product liability claims that are
inherent in the testing, manufacturing, marketing and sale of human diagnostic
and therapeutic products. We intend to acquire additional insurance, should it
be desirable, for clinical liability risks. We may not be able to obtain such
insurance or general product liability insurance on acceptable terms or at
reasonable costs. In addition, such insurance may not be in sufficient amounts
to provide us with adequate coverage against potential liabilities. A product
liability claim or recall could seriously harm our business, financial condition
and results of operations.
GLAXO OWNS A SUBSTANTIAL PORTION OF OUR OUTSTANDING STOCK
Glaxo Wellcome, plc and its affiliates currently beneficially own
approximately 31% of our outstanding common stock. On August 2, 1999, Glaxo sold
1,000,000 shares of our common stock. On August 5, 1999, Glaxo Wellcome
Americas, a wholly owned subsidiary of Glaxo, elected to convert all of the
shares of our Series AA preferred stock that it held into 1,257,229 shares of
our common stock at a conversion price of $40 per share. Following the
completion of these transactions, Glaxo's beneficial ownership of our capital
stock fell from approximately 32% to approximately 31%. Although we have
executed a governance agreement and voting trust agreement with Glaxo, Glaxo
nevertheless may be able to influence the outcome of shareholder votes,
including votes concerning the election of directors, adoption of amendments to
our certificate of incorporation and bylaws and approval of mergers and other
significant corporate transactions.
WE HAVE VARIOUS MECHANISMS IN PLACE TO DISCOURAGE TAKEOVER ATTEMPTS
In October 1998, we adopted a stockholder rights plan and change of control
policy. The purpose of the stockholder rights plan is to allow us and our board
of directors an opportunity to deal responsibly with parties that attempt to
gain a control position in our company without the approval of the board of
directors. The purpose of the change of control policy is to ensure that our
employees are treated fairly in the event of a change of control of us. Our
stockholder rights plan and change of control policy may discourage, delay or
prevent a change in control of us that a stockholder may consider favorable.
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In addition, certain provisions of our certificate of incorporation and
bylaws may discourage, delay or prevent a change in control of us that a
stockholder may consider favorable. These provisions include:
- Authorizing the issuance of "blank check" preferred stock;
- Prohibiting cumulative voting in the election of directors;
- Requiring the super-majority voting to effect certain amendments to our
certificate of incorporation and bylaws;
- Limiting the persons who may call special meetings of stockholders;
- Prohibiting stockholder action by written consent; and
- Establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted upon by
stockholders at stockholder meetings.
In addition, certain provisions of Delaware law and our stock incentive
plans as well as recent and anticipated rulings from the Securities and Exchange
Commission relating to the accounting for acquisitions may discourage, delay or
prevent a change in control.
OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE
The market price of our common stock since our initial public offering in
June 1996 has increased dramatically and has been highly volatile. This
volatility has been caused and will in the future continue to be caused by the
following factors, some of which are beyond our control:
- Announcements of our results of research activities;
- Quarterly variations in our operating results;
- New collaborative agreements;
- Technological innovations by ourselves and our competitors;
- Announcements of new commercial products and initiatives by us,
collaborative partners or competitors;
- Changes in government regulation or new regulatory actions;
- Changes in patent laws;
- Developments concerning proprietary rights;
- Developments in litigation initiated against us or by us; and
- Fluctuations in the stock market price and volume of traded shares
generally, especially fluctuations in the traditionally volatile
technology and biotechnology sectors.
WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO STOCK PRICE
VOLATILITY
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. Due to the potential volatility of our stock price, we may be the
target of such litigation in the future. Securities litigation could result in
substantial costs and divert management's attention and resources, which could
seriously harm our business, financial condition and results of operations.
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OUR BUSINESS COULD BE AFFECTED BY YEAR 2000 COMPUTER PROBLEMS
We are assessing the potential impact of the Year 2000 computer problem on
our products (including GeneChip systems and software), information systems,
embedded systems (including computers used in its manufacturing process) and on
the ability of certain third parties to supply critical materials and services
as well as the readiness of certain customers. We completed the assessment of
our products, computer systems, embedded systems, certain third party suppliers
and major customers in the second quarter of 1999, and plan to take necessary
remediation action by the end of 1999. While we do not anticipate a material
business interruption to result from the Year 2000 problem, we cannot guarantee
that our products or systems will be Year 2000 ready. In addition, we could be
seriously affected by the lack of Year 2000 readiness of key third party
suppliers and service providers and major customers. We cannot guarantee that we
or third parties will be Year 2000 ready. Finally, we are also subject to
external forces that might generally affect industry and commerce, such as
utility and transportation failures. We have not yet developed a contingency
plan to address situations that may result if we or certain third parties are
unable to achieve Year 2000 readiness. If any of our products, information
systems, embedded systems, key third party suppliers and services providers and
major customers are not Year 2000 ready, we may experience a business
interruption which would seriously harm our business, results of operations and
financial condition.
COMPLIANCE WITH GOVERNMENT REGULATION IS CRITICAL TO OUR BUSINESS
Many of our products, including our diagnostic products, will be regulated
as medical devices and therefore be subject to approval by the United States
Food and Drug Administration. Unless exempted by government regulation, there
are two primary methods for securing FDA approval.
First, the FDA determines that the proposed medical device can be marketed
in the United States because it is substantially equivalent to an existing
medical device already in the United States market and issues what is known as a
510(k) pre-market notification clearance. Second, the FDA may require that the
new device satisfy a more in depth approval process, known as pre-market
approval, or PMA. Both the 510(k) clearance and the PMA processes may require
the presentation of a substantial volume of clinical data, as well as a
substantial review, thereby delaying the introduction of the new device into the
market. Moreover, the PMA process requires extensive clinical studies,
manufacturing information (including demonstration of compliance with quality
systems requirements) and likely review by a panel of experts outside the FDA.
FDA review of a PMA application could take significantly longer than that for a
510(k) application, thereby further delaying the introduction of the new medical
device into the market. Finally, even if the FDA approves the new device, it may
impose restrictions on our ability to market the device.
We cannot assure you that we will or our collaborators will be able to meet
the FDA's requirements or receive FDA clearance for our products. Moreover, even
if we are exempt from approval or even if we receive clearance, the FDA may
impose restrictions on our marketing efforts. Finally, delays in the approval
process may cause us to introduce our products into the market later than
anticipated. Any failure to obtain regulatory approval, restrictions on our
ability to market our products, or delay in the introduction of our products to
the market could seriously harm our business, financial condition and results of
operations.
Moreover, medical device manufacturers are subject to periodic inspections
by the FDA and state agencies. If the FDA believes that a company is not in
compliance with applicable laws or regulations, it can take any of the following
actions:
- Issue a warning or other letter notifying the particular manufacturer of
improper conduct;
- Impose civil penalties;
- Detain or seize products;
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- Issue a recall;
- Ask a court to seize products;
- Enjoin future violations;
- Withdraw clearances or approvals; or
- Assess civil and criminal penalties against us, our officers or our
employees.
If we fail to comply with the FDA's requirements and are subject to any of the
actions mentioned above, our business, financial condition or results of
operations would be seriously harmed.
Medical device laws and regulations are also in effect in many of the
countries in which we may do business outside the United States. These laws and
regulations range from comprehensive device approval requirements for some or
all of our medical device products to requests for product data or
certifications. The number and scope of these requirements are increasing. We
may not be able to obtain regulatory approvals in such countries and we may be
required to incur significant costs in obtaining or maintaining our foreign
regulatory approvals. In addition, the export of certain of our products which
have not yet been cleared for domestic commercial distribution may be subject to
FDA export restrictions. Any failure to obtain product approvals in a timely
fashion or to comply with state or foreign medical device laws and regulations
may seriously harm our business, financial condition or results of operations.
We are also subject to numerous environmental and safety laws and
regulations, including those governing the use, storage and disposal of
hazardous and biological materials, and construction of new facilities. We may
not be able to obtain the necessary permits to operate new facilities, including
our facility near Sacramento, California or elsewhere. Any violation of, and the
cost of compliance with, these regulations or permit requirements could have a
serious adverse effect on our business, financial condition and results of
operations.
WE DEPEND ON REIMBURSEMENT BY HEALTH CARE ORGANIZATIONS
Our ability to commercialize certain products and services successfully may
depend on the extent to which we are able to secure reimbursement from
government authorities, such as Medicare and Medicaid, private health insurers,
and other organizations, such as health maintenance organizations. These
third-party payors are increasingly likely to challenge the prices charged for
health care products and services. The cumulative effect of the trend towards
managed health care in the United States, legislative proposals to reform health
care or reduce government insurance programs, and the concurrent growth of
organizations such as HMOs, which could control or significantly influence the
purchase of health care products and services, may result in lower prices for
health care products and services commercialized by us, our customers and our
collaborative partners. This reduction in turn could reduce the amount of our
future revenues or royalty payments that may be due to us. The lower prices
could also harm our profits and the profits of our customers and collaborative
partners. As a result, pharmaceutical, diagnostic and biotechnology companies
may choose to reduce or eliminate certain research and development programs that
utilize our products. Any such reduction of our revenues or royalty payments or
the reduction or cancellation of research programs that utilize our products
could seriously harm our business, financial condition and results of
operations.
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FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference herein contain
forward-looking statements. These statements relate to future events or our
future financial performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expects,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of such terms or other comparable terminology. These statements are
only predictions and involve known and unknown risks, uncertainties and other
factors, including the risks outlined under "Risk Factors" that may cause our or
our industry's actual results, levels of activity, performance or achievements
expressed or implied by such forward-looking statements. Before deciding to
purchase our common stock, you should carefully consider the risks described in
the "Risk Factors" section, in addition to the other information set forth in
this prospectus and the documents incorporated by reference herein.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of such statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus to conform such statements to actual results.
USE OF PROCEEDS
All net proceeds from the sale of our common stock will go to the
stockholder who offers and sells its shares. Accordingly, we will not receive
any proceeds from the sale of the shares by the selling stockholder.
23
<PAGE>
SELLING STOCKHOLDER
The following table sets forth certain information, as of August 31, 1999,
with respect to the number of shares of common stock owned by the selling
stockholder named below and as adjusted to give effect to the sale of the shares
offered hereby. The shares are being registered to permit public secondary
trading of the shares, and the selling stockholder may offer the shares for
resale from time to time. Based upon 25,715,932 shares of common stock
outstanding on August 31, 1999, the Growth Fund of America owns more than 1% of
our outstanding stock.
The shares being offered by the selling stockholder were acquired from us
pursuant to a common stock purchase agreement dated March 12, 1999. The shares
of common stock were issued pursuant to an exemption from the registration
requirements of the Securities Act. The selling stockholder represented to us
that it was acquiring the shares for investment and with no present intention of
distributing the shares.
We have filed with the SEC, under the Securities Act, a registration
statement on Form S-3, of which this prospectus forms a part, with respect to
the resale of the shares from time to time on The Nasdaq National Market, in
privately-negotiated transactions, or in any combination of these types of
transactions. We have agreed to use our best efforts to keep such registration
statement effective until the earlier of:
- March 12, 2001;
- The date on which all the shares have been sold; or
- The date on which all the shares may be sold under Rule 144 of the
Securities Act in any three-month period.
The shares offered by this prospectus may be offered from time to time by
the selling stockholder named below:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BENEFICIALLY
OFFERING OWNED AFTER THE OFFERING
--------------------- ------------------------------
NAME AND ADDRESS OF NUMBER OF NUMBER OF SHARES NUMBER OF
SELLING STOCKHOLDER SHARES PERCENT BEING OFFERED SHARES PERCENT
- -------------------------------------------------- ---------- --------- ----------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
The Growth Fund of America, Inc................... 1,000,000 3.89% 1,000,000 -- *
</TABLE>
- ------------------------
* Less than 1%
24
<PAGE>
PLAN OF DISTRIBUTION
The shares offered hereby may be sold by the selling stockholder at various
times in one or more of the following transactions:
- On The Nasdaq National Market;
- In privately negotiated transactions; or
- In a combination of any of the above transactions.
The selling stockholder may sell its shares at market prices prevailing at
the time of the sale, at prices related to such prevailing market prices, at
negotiated prices or at fixed prices.
The selling stockholder may use broker-dealers to sell its shares. If this
happens, broker-dealers will either receive discounts or commissions from the
selling stockholder, or they will receive commissions from purchasers of shares
for whom they acted as agents.
For the purposes of this prospectus, the term "selling stockholder" shall
include donees, pledgees and other assignees selling shares received from the
selling stockholder named herein as well as any donees, pledgees and other
assignees selling shares received from such donees, pledgees or assignees.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 75,000,000 shares of common stock
and 5,000,000 shares of preferred stock, each with a per share par value of
$0.01. As of August 31, 1999, there were 25,715,932 shares of common stock
issued and outstanding and no shares of preferred stock issued and outstanding.
COMMON STOCK
Holders of shares of our common stock are entitled to one vote per share on
all matters voted on by our stockholders. Subject to the preferences that maybe
applicable to any outstanding shares of preferred stock, holders of our common
stock are entitled to receive ratably such dividends, if any, that may be
declared from time to time by our board of directors out of funds legally
available for such dividends. Such dividends are not cumulative. In the event of
a liquidation, dissolution or winding up of Affymetrix, holders of our common
stock are entitled to receive, after payment of liabilities and after payment of
a liquidation preference to the holders of our Series AA preferred stock (as
described below), an amount per share equal to the quotient obtained by dividing
(A) the per share Series AA preferred stock liquidation preference by (B) the
number of shares of common stock into which one share of Series AA preferred
stock could then be converted. After such payment, any remaining assets would be
distributed ratably to the holders of our common stock and holders of our Series
AA preferred stock. Holders of our common stock have no preemptive or conversion
rights or other subscription rights. No redemption or sinking fund provisions
apply to our common stock. All outstanding shares of our common stock are fully
paid and nonassessable.
PREFERRED STOCK
Our board of directors has the authority to issue the preferred stock in one
or more series and to fix the rights, privileges, preferences and restrictions
thereof, including dividend rights, conversion rights, voting terms, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series. Any such action by our board of
directors does not require any further vote or action of our stockholders.
Our certificate of incorporation authorizes 5,000,000 shares of preferred
stock, 1,634,522 shares of which have been designated as Series AA preferred
stock. Holders of our Series AA preferred stock
25
<PAGE>
are entitled to receive cumulative dividends payable in cash prior and in
preference to any dividends paid to holders of our common stock at the rate of
$1.99 per share per year payable in two installments on June 30 and December 31
of each year. These dividends accrue on each share of Series AA preferred stock
whether or not earned or declared from the date on which the Series AA preferred
stock was first issued. Holders of our Series AA preferred stock are also
entitled to receive an amount equal to any cash dividend paid to holders of our
common stock. In the event of a liquidation, dissolution or winding up of
Affymetrix, holders of our Series AA preferred stock are entitled to receive a
liquidation preference prior and in preference to any payments made to holders
of our common stock. This preference is an amount per share equal to the sum of:
- $30.59 for each outstanding share of our Series AA preferred stock;
- accrued but unpaid dividends on such shares of our Series AA preferred
stock; and
- a per share amount equal to the difference obtained by subtracting (A) the
product of ten percent of the annual per share dividend multiplied by a
fraction, the numerator of which is the number of days elapsed since the
date on which the first share of Series AA preferred stock was first
issued and the denominator of which is 365, from (B) the annual per share
dividend.
After such payment, holders of our common stock are entitled to receive an
amount per share equal to the quotient obtained by dividing (A) the per share
Series AA preferred stock liquidation preference by (B) the number of shares of
common stock into which one share of Series AA preferred stock could then be
converted. After such payment, any remaining assets would be distributed ratably
to the holders of our common stock and holders of our Series AA preferred stock
Holders of shares of our common stock are entitled to one vote per share on
all matters voted on by our stockholders. Our Series AA preferred stock can be
redeemed either at the election of us or at the election of the holders of our
Series AA preferred stock. Each share of our Series AA preferred stock is
convertible into common stock at the option of the holder of such share. All
shares of Series AA preferred stock shall be converted into common stock upon
the written consent of the holders of a majority of the Series AA preferred
stock.
For more information regarding our capital stock, you should read "Where You
Can Find More Information" on page 27.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for
Affymetrix by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
Menlo Park, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements and schedule included in our annual report on form 10-K for the year
ended December 31, 1998, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements and schedule are incorporated by reference in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
26
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
from the SEC's website at "http://www.sec.gov."
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus, and information that we file later with the SEC
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we will make with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934:
1. Our annual report on form 10-K for the year ended December 31, 1998, as
filed with the SEC on March 31, 1999 (file number 000-28218);
2. Our proxy statement as filed on April 29, 1999 pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (file number 000-28218);
3. Our quarterly report on form 10-Q for the quarter ended March 31, 1999, as
filed with the SEC on May 17, 1999 (file number 000-28218); and
4. Our quarterly report on form 10-Q for the quarter ended June 30, 1999, as
filed with the SEC on August 16, 1999 (file number 000-28218).
5. The description of our preferred share purchase rights in our registration
statement on form 8-A, as filed with the SEC on October 16, 1998 (file
number 000-28218).
You may request a copy of these filings, at no cost, by calling us at (408)
731-5000 or by writing to us at the following address:
Affymetrix, Inc.
3380 Central Expressway
Santa Clara, CA 95051
Attn: Investor Relations, Anne Bowdidge
This prospectus is part of a registration statement we filed with the SEC.
You should rely only on the information or representations provided in this
prospectus. We have authorized no one to provide you with different information.
We are not making an offer of these securities in any state where the offer is
not permitted. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front of the document.
27
<PAGE>
1,000,000 SHARES
AFFYMETRIX, INC.
-----------------
SEPTEMBER , 1999
--------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS.
The exhibits listed in the exhibit index as filed as part of this
registration statement.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------
<C> <S>
*3.1 Amended and Restated Certificate of Incorporation
(1)3.2 Bylaws
(2)4.1 Summary of Rights to Purchase Shares of Preferred Stock
pursuant to the Rights Agreement dated as of October 15,
1998
5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP
23 Consent of Ernst & Young LLP, Independent Auditors
**10.1 Asset Purchase Agreement by and between Beckman Coulter,
Inc. and Affymetrix, Inc.
*10.2 Assumption of Certain Liabilities
**10.3 License Agreement
**10.4 Agreement by and among ISIS Innovation Limited and Beckman
Instruments, Inc. dated as of April 17, 1996
**10.5 License Agreement
**10.6 Limited Liability Company Operating Agreement
10.7 Form of Assignment of Assets
**10.8 Letter of Agreement dated July 23, 1998
**10.9 OEM Supply Agreement by and between Beckman Coulter, Inc.
and Affymetrix, Inc.
*10.10 Promissory Note by Susan E. Siegel
*10.11 Amendment to Lease by and between Affymetrix, Inc. and Harry
Locklin dated as of May 12, 1999
*10.12 First Addendum to Lease by and between Solar Oakmead Joint
Venture and Affymetrix, Inc.
*10.13 Amendment No. 1 to the 1996 Nonemployee Directors Stock
Option Plan of Affymetrix, Inc.
**10.14 Letter of Agreement dated as of August 28, 1998
</TABLE>
- ------------------------
(1) Incorporated by reference to the same number exhibit filed with our form 8-K
as filed on September 29, 1998 (File No. 000-28218).
(2) Incorporated by reference to exhibit 3.3 filed with our form 8-K as filed on
October 16, 1998 (File No. 000-28218).
* Previously filed.
** Confidential treatment granted.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Santa Clara, State of California, on the 3rd day of
September, 1999.
<TABLE>
<S> <C> <C>
AFFYMETRIX, INC.
By: /s/ STEPHEN P.A. FODOR, PH.D.
-----------------------------------------
Stephen P.A. Fodor, Ph.D.
CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ STEPHEN P.A. FODOR,
PH.D. Chief Executive Officer
- ------------------------------ and Chairman of the September 3, 1999
Stephen P.A. Fodor, Ph.D. Board
Vice President and Chief
Financial Officer
- ------------------------------ (Principal Financial and September 3, 1999
Edward M. Hurwitz Accounting Officer)
- ------------------------------ Vice Chairman of the Board September 3, 1999
John D. Diekman, Ph.D.
- ------------------------------ Director September 3, 1999
Paul Berg, Ph.D.
- ------------------------------ Director September 3, 1999
Adrian Hennah
- ------------------------------ Director September 3, 1999
Vernon R. Loucks, Jr.
- ------------------------------ Director September 3, 1999
Barry C. Ross, Ph.D.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
- ------------------------------ Director September 3, 1999
David B. Singer
- ------------------------------ Director September 3, 1999
Lubert Stryer, M.D.
- ------------------------------ Director September 3, 1999
John A. Young
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ STEPHEN P.A. FODOR,
PH.D.
-------------------------
Stephen P.A. Fodor, Ph.D.
ATTORNEY-IN-FACT
</TABLE>
II-3
<PAGE>
Exhibit 5.1
September 3, 1999
Affymetrix, Inc.
3380 Central Expressway
Santa Clara, California 95051
Gentlemen:
We have examined the Registration Statement on Form S-3
originally filed by Affymetrix, Inc., a Delaware corporation (the "Company"),
with the Securities and Exchange Commission (the "Commission") on July 12, 1999,
as thereafter amended or supplemented (the "Registration Statement"), in
connection with the registration under the Securities Act of 1933, as amended,
of up to 1,000,000 shares of the Company's common stock held by certain
stockholders of the Company (the "Shares").
We have examined and are familiar with originals or copies,
certified or otherwise identified to our satisfaction, of such documents,
corporate records, certificates of public officials and officers of the Company
and such other instruments as we have deemed necessary or appropriate as a basis
for the opinions expressed below, including the Registration Statement, the
Amended and Restated Certificate of Incorporation of the Company, the Bylaws of
the Company and actions by the Board of Directors of the Company.
It is our opinion that the Shares have been validly issued,
are non-assessable and are fully paid. Our opinion with respect to the Shares
being sold by the stockholders of the Company being fully paid is based solely
upon your written representations to us with respect to the consideration
received for such Shares.
We hereby consent to the filing of this opinion as Exhibit 5.1
to the Registration Statement and further consent to the use of our name
wherever appearing in said Registration Statement, including the prospectus
constituting a part thereof, and in any amendment or supplement thereto.
Very truly yours,
/s/ Gunderson Dettmer Stough
-----------------------------------------
Villeneuve Franklin & Hachigian, LLP
GUNDERSON DETTMER STOUGH
VILLENEUVE FRANKLIN & HACHIGIAN, LLP
<PAGE>
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in amendment
No. 2 to the Registration Statement (Form S-3) of Affymetrix, Inc. for the
registration of 1,000,000 shares of its common stock and to the incorporation by
reference therein of our report dated January 29, 1999 (except for Note 11, as
to which the date is March 25, 1999) with respect to the financial statements
and schedule of Affymetrix, Inc. included in its Annual Report (Form 10-K) for
the year ended December 31, 1998, filed with the Securities and Exchange
Commission.
Palo Alto, California
September 2, 1999
