<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
- -------- Exchange Act of 1934 for the period ended MARCH 31, 1999
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
- -------- Exchange Act of 1934 for the transition period from to .
------- ------
Commission File No. 0-28218
AFFYMETRIX, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 77-0319159
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3380 CENTRAL EXPRESSWAY, SANTA CLARA, CALIFORNIA 95051
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408)731-5000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
COMMON SHARES OUTSTANDING ON MARCH 31, 1999: 24,159,333
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AFFYMETRIX, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Page
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31, 1999
and December 31, 1998 .................................................... 3
Condensed Consolidated Statements of Operations for the Three Months
Ended March 31, 1999 and 1998 ............................................ 4
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998 ............................................ 5
Notes to Condensed Consolidated Financial Statements........................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................... 12
Item 6. Exhibits and Reports on Form 8-K ................................................... 14
SIGNATURES..................................................................................... 15
</TABLE>
2
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AFFYMETRIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 29,761 $ 1,301
Short-term investments 70,164 79,267
Accounts receivable 11,432 8,919
Inventories 4,425 3,276
Other current assets 1,605 2,184
------------ ------------
Total current assets 117,387 94,947
Net property and equipment 33,008 30,865
Acquired technology rights 9,460 9,625
Other assets 1,200 991
------------ ------------
$ 161,055 $ 136,428
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 13,441 $ 14,560
Obligation to Beckman Coulter, Inc. 5,000 5,000
Other liabilities 200 261
Convertible redeemable preferred stock 49,857 49,857
Stockholders' equity:
Common stock 242 230
Additional paid-in-capital 192,291 159,147
Accumulated deficit (99,797) (92,720)
Other (179) 93
------------ -------------
Total stockholders' equity 92,557 66,750
------------ -------------
$ 161,055 $ 136,428
------------ ------------
------------ ------------
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes.
3
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AFFYMETRIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
------------------ ----------------
<S> <C> <C>
Revenue:
Product $ 15,163 $ 6,531
Research 2,444 2,997
License fees and royalties 197 225
------------------ ----------------
Total revenue 17,804 9,753
Costs and expenses:
Cost of product revenue 5,093 2,493
Research and development 10,367 8,511
Selling, general and administrative 9,658 5,741
------------------ ----------------
Total costs and expenses 25,118 16,745
------------------ ----------------
Loss from operations (7,314) (6,992)
Interest income, net 1,050 1,092
------------------ ----------------
Net loss (6,264) (5,900)
Preferred stock dividends (813) -
------------------ ----------------
Net loss attributable to
Common Stockholders $ (7,077) $ (5,900)
------------------ ----------------
------------------ ----------------
Basic and diluted net loss
per common share $ (0.30) $ (0.26)
------------------ ----------------
------------------ ----------------
</TABLE>
Note: Certain prior year balances have been reclassified to conform with the
current year presentation.
See accompanying notes.
4
<PAGE>
AFFYMETRIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(In thousands)
(Unaudited)
<TABLE>
Three months ended March 31,
-------------------------------------
1999 1998
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,264) $ (5,900)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 2,162 1,069
Change in operating assets and liabilities:
Accounts receivable (2,513) 1,138
Inventories (1,149) (547)
Other current assets 579 (105)
Other assets (209) 4
Accounts payable and other accrued liabilities (3,073) (1,347)
Deferred revenue 1,140 978
-------------- -------------
Net cash used in operating activities (9,327) (4,710)
Cash flows from investing activities:
Capital expenditures (3,713) (4,548)
Proceeds from the sale of short-term investments 18,419 25,309
Proceeds from maturities of short-term investments - (34)
Purchases of short-term investments (10,015) (19,496)
-------------- -------------
Net cash provided by investing activities 4,691 1,231
Cash flows from financing activities:
Issuance of common stock 33,156 253
Principal payments on capital lease obligation (60) (55)
-------------- -------------
Net cash provided by financing activities 33,096 198
Net increase / (decrease) in cash and cash equivalents 28,460 (3,281)
Cash and cash equivalents at beginning of period 1,301 4,779
-------------- -------------
Cash and cash equivalents at end of period $ 29,761 $ 1,498
-------------- -------------
-------------- -------------
</TABLE>
See accompanying notes.
5
<PAGE>
AFFYMETRIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The
consolidated financial statements include accounts of Affymetrix, Inc.
("Affymetrix" or the "Company") and Affymetrix, UK Ltd., a wholly owned
subsidiary functioning as a sales and technical arm for the European market.
All material intercompany accounts and transactions have been eliminated in
consolidation. In the opinion of management, all adjustments (consisting of
normal recurring entries) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 1999
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999. For further information, refer to the
financial statements and notes thereto included in the Annual Report on Form
10-K for the year ended December 31, 1998 filed by Affymetrix. Certain
amounts in 1998 have been reclassified to conform to 1999 presentation.
REVENUE RECOGNITION
Product revenues include sales of GeneChip-Registered Trademark-
instrumentation, software and probe arrays as well as the associated
subscription fees earned under EasyAccess-TM- supply agreements.
Instrumentation, software and probe array revenues are generally recognized
upon shipment. Reserves are provided for anticipated returns and warranty
expenses at the time the associated revenue is recognized. Revenues from
subscription fees earned under EasyAccess supply agreements are recorded
ratably over the term of the agreement subject to adjustments for anticipated
reductions provided for in certain agreements for late delivery of probe
arrays. Payments received in advance under these arrangements are recorded as
deferred revenue until earned. Research revenues include amounts earned,
including milestones, from services performed pursuant to commercial
collaboration and supply agreements as well as under government grants.
Research revenues are recorded in the period in which the costs are incurred
or in which the revenues are earned as defined in the related agreement.
Direct costs associated with these contracts and grants are reported as
research and development expense. License and royalty revenues include
amounts earned from third parties licensed under the Company's intellectual
property and are recognized when earned under the terms of the related
agreements.
NOTE 2--CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
As of March 31, 1999, debt securities held by the Company are
comprised of U.S. Government obligations and U.S. corporate debt securities.
They are classified as available-for-sale and are carried at fair value with
unrealized gains and losses reported in stockholders' equity.
6
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NOTE 3--INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -------------
<S> <C> <C>
Raw material........................................... $ 2,070 $ 1,775
Work in process........................................ 189 70
Finished goods......................................... 2,166 1,431
----------- --------
Total.............................................. $ 4,425 $ 3,276
----------- --------
----------- --------
</TABLE>
NOTE 4--COMPREHENSIVE LOSS
The components of comprehensive loss for the three months ended
March 31, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
--------- ---------
<S> <C> <C>
Net loss attributable to common stockholders............. $(7,077) $(5,900)
Unrealized gain (loss) on securities..................... (335) 80
--------- ---------
Comprehensive loss....................................... $(7,412) $(5,820)
--------- ---------
--------- ---------
</TABLE>
NOTE 5--COMMON STOCK PURCHASE AGREEMENT
On March 15, 1999, the Company completed the private placement of
1,000,000 shares of common stock for an aggregate purchase price of $32.5
million to the Growth Fund of America, Inc., which is managed by Capital
Research and Management Company. The Company is obligated to file a
registration statement to cover all of these shares within 90 days of the
completion of the private placement.
NOTE 6--FOREIGN CURRENCY TRANSLATION
The financial statements of Affymetrix, UK Ltd. are measured using
the U.S. dollar as the functional currency. Assets and liabilities of this
subsidiary are translated at the rates of exchange at the balance sheet date.
Income and expense items are translated at average quarterly rates of
exchange. The resultant translation adjustments are included in the
consolidated statement of operation.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations as of March 31, 1999 and for the three month periods
ended March 31, 1999 and 1998 should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
All statements in this discussion that are not historical are
forward-looking statements. Such statements are subject to risks and
uncertainties that could cause actual results to differ materially for
Affymetrix from those projected, including, but not limited to, uncertainties
relating to technological approaches, product development, manufacturing and
market acceptance, uncertainties related to cost and pricing of Affymetrix'
products, dependence on collaborative partners, uncertainties relating to
sole source suppliers, uncertainties relating to FDA and other regulatory
approvals, competition, risks relating to intellectual property of others and
the uncertainties of patent protection. These and other risk factors are
discussed in Affymetrix' Annual Report on Form 10-K for the year ended
December 31, 1998. Affymetrix expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in
Affymetrix' expectations with regard thereto or any change in events,
conditions, or circumstances on which any such statements are based.
OVERVIEW
Affymetrix, Inc. has developed and intends to establish its 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. The Company's GeneChip system consists of disposable
DNA probe arrays containing gene sequences on a chip, reagents for use with
the probe arrays, a scanner and other instruments to process the probe
arrays, and software to analyze and manage genetic information.
The business and operations of the Company were commenced in 1991 by
Affymax N.V. ("Affymax") and were initially conducted within Affymax. In
March 1992, the Company was incorporated as a California corporation and
wholly owned subsidiary of Affymax and in September 1998 was reincorporated
as a Delaware corporation. In March 1995, Glaxo plc, now Glaxo Wellcome plc
("Glaxo"), acquired Affymax, including its ownership interest in Affymetrix.
Beginning in September 1993, the Company issued equity securities which
diluted Affymax' and then Glaxo's ownership in Affymetrix. On April 14, 1998,
the Company completed the sale of 1,634,522 shares of Series AA Preferred
Stock to Glaxo Wellcome Americas, Inc. (a wholly owned subsidiary of Glaxo)
for net proceeds of approximately $49.9 million. The Preferred Stock is
convertible into Affymetrix Common Stock at approximately $40.00 per share.
Glaxo's acquisition of the Series AA Preferred Stock increased Glaxo's
beneficial ownership of Affymetrix to approximately 37% on an as converted
basis. In March 1999, the Company sold 1,000,000 shares of common stock to a
third party in a private placement, which reduced Glaxo's ownership position
to 35% on an as converted basis.
8
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Product revenue increased 132% to $15.2 million for the quarter
ended March 31, 1999, up from $6.5 million for the quarter ended March 31,
1998. The increase in product revenue during the quarter, compared to the
same period in 1998, resulted principally from the growth in placements of
GeneChip-Registered Trademark- systems together with the accompanying sales
of GeneChip probe arrays and related products and subscription fees. Research
revenue decreased 18% to $2.4 million for the quarter ended March 31, 1999,
down from $3.0 million for the quarter ended March 31, 1998. The decrease was
due principally to the timing of milestone achievements under research
contracts, offset by higher grant revenue from the Advanced Technology
Program, for which the funding expires in January 2000. License fees and
royalties revenue was $0.2 million in both the three months ended March 31,
1999 and 1998.
Cost of product revenue was $5.1 million for the three months ended
March 31, 1999, compared to $2.5 million for the three months ended March 31,
1998. Gross margin on product revenue was approximately 66% for the three
months ended March 31, 1999, compared to 62% for the three months ended March
31, 1998. The improved gross margin was principally the result of higher
subscription fees recorded for the three months ended March 31, 1999. The
Company currently expects that gross margins will decline for the remainder
of 1999 as costs associated with the expansion of manufacturing capacity at
the Company's Sunnyvale and West Sacramento facilities are incurred. Margins
have fluctuated, and will continue to fluctuate significantly, as a result of
variations in manufacturing yields and changes in the mix of products sold.
In addition, the Company has experienced, and continues to experience,
variations in the manufacturing yield of its GeneChip products which has
impacted, and will continue to impact, the Company's ability to meet its
commitments to deliver product to its customers in a timely manner. Any
prolonged difficulty in providing timely delivery of products may adversely
affect the Company's relationships with its customers and its business, its
financial condition and results of operations.
Research and development expenses were $10.4 million for the three
months ended March 31, 1999, compared to $8.5 million for the three months
ended March 31, 1998. The increase in research and development expenses was
attributable primarily to the hiring of additional research and development
personnel and associated purchases of research supplies. The Company expects
research and development spending to increase over the next several years as
product development and core research efforts continue to expand.
Selling, general and administrative expenses were $9.7 million for
the three months ended March 31, 1999, compared to $5.7 million for the three
months ended March 31, 1998. The increase in selling, general and
administrative expenses resulted primarily from the Company's expansion of
commercial activities and significantly increased legal costs arising from
the Company's ongoing patent litigation. Selling, general and administrative
expenses are expected to continue to increase as the Company expands sales
and marketing, prosecutes and defends its intellectual property position and
defends against claims made by third parties, and adds management and support
staff. In particular, the Company expects legal costs to increase over the
next several months as ongoing patent litigation with Hyseq, Inc. and with
Incyte Pharmaceuticals, Inc. and Synteni, Inc. result in increased additional
legal expenditures.
9
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Net interest income was $1.0 million for the three months ended
March 31, 1999, compared to $1.1 million for the three months ended March 31,
1998. The fluctuations in net interest income result principally from
variation in the Company's short-term investment balances.
IMPACT OF YEAR 2000
The Company is assessing the potential impact of the Year 2000
computer problem on its 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. The Company has initiated the assessment of its products,
identified certain software code that needs to be revised and is in the
process of updating this code for existing and future products. The Company
believes that with this update, its products will be Year 2000 ready. The
Company expects to complete the assessment of its computer systems, embedded
systems, certain third party suppliers and major customers by the end of the
second quarter of 1999, and to take necessary remediation action by the end
of 1999. Expenditures to date have not been material and have consisted
solely of the limited use of outside consultants and the time of certain
company personnel. Based on the partial assessment completed through March
31, 1999, the Company does not currently expect the future costs of
completing the assessment, modifying its products, making system
modifications, purchasing replacement computer systems and assessing the Year
2000 readiness of material third party suppliers and major customers to be
material. While the Company does not anticipate a material business
interruption to result from the Year 2000 problem, the Company gives no
assurances that its products or systems will be Year 2000 ready and the
Company cannot guarantee the Year 2000 readiness of key third party suppliers
and service providers, collaborators and major customers. Pending the
completion of the assessment of the Company's Year 2000 readiness, the
Company may make certain contingency plans (for example the stockpile of
critical raw materials in late 1999), but currently such plans have not been
developed. If any of the Company's products or information systems, embedded
systems, key third party suppliers and services providers and major customers
are not Year 2000 ready, the Company may experience a business interruption
and be subject to certain litigation which would have a material adverse
impact on the Company's business, results of operations and financial
condition.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company's cash, cash equivalents, and
short-term investments were $99.9 million compared to $80.6 million at
December 31, 1998. The increase is primarily attributable to the proceeds
from issuance of common stock to Growth Fund of America, Inc., offset by cash
used to fund the Company's operating loss and capital expenditures,
principally for the expansion of manufacturing capacity.
Net cash used in operating activities was $9.3 million for the three
months ended March 31, 1999, as compared to $4.7 million for the three months
ended March 31, 1998. The increase in net cash used in operating activities
resulted primarily from increases in the Company's net loss and changes in
operating assets and liabilities.
The Company's investing activities, other than purchases, sales and
maturities of available-for-sale securities, consisted of capital expenditures,
which totaled $3.7 million for the three months ended March 31, 1999 and $4.5
million for the three months ended March 31, 1998. Capital expenditures during
the three months ended March 31, 1999 primarily included
10
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facilities and production equipment for the new manufacturing facility in
West Sacramento, California. The Company expects to increase its capital
expenditures during the remainder of 1999 to further complete and expand the
West Sacramento manufacturing facility.
Financing activities for the three months ended March 31, 1999,
include net proceeds of $32.5 million from the private placement of 1,000,000
shares of common stock in March 1999.
The Company anticipates that its existing capital resources will
enable it to maintain currently planned operations and planned capital
expenditures through at least 2000. However, this expectation is based on the
Company's current operating plan and capital expenditure plan, which could
change, and therefore the Company could require additional funding sooner
than anticipated. In addition, the Company expects its capital requirements
to increase over the next several years as it expands its facilities and
acquires scientific equipment to support expanded manufacturing and research
and development efforts. The Company's long-term capital expenditure
requirements will depend on numerous factors, including, but not limited to:
the progress of its research and development programs; initiation or
expansion of research programs; the development of commercial scale
manufacturing capabilities; its ability to maintain existing collaborative
and customer arrangements and establish and maintain new collaborative and
customer arrangements; the costs involved in preparing, filing, prosecuting,
defending and enforcing intellectual property rights; the effectiveness of
products; commercialization activities and arrangements; and other factors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
There have been no material changes in the Company's reported risk
since December 31, 1998.
11
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 3, 1997, Hyseq filed a lawsuit in United States District
Court for the Northern District of California (San Jose Division) alleging
that Affymetrix' products infringe United States Patents 5,202,231 and
5,525,464. In addition, in December 1997, Hyseq filed a second action
claiming that Affymetrix' products infringe a related patent, United States
Patent 5,695,940. On August 18, 1998, the Company 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 ("'305"). On September 1, 1998, the Company added Affymetrix'
U.S. Patent No. 5,800,992 ("'992") to the complaint of infringement against
Hyseq. The Hyseq action, which seeks damages based on the sale of Affymetrix'
products and processes and seeks to enjoin commercial activities relating to
those products and processes, and any other legal action against the Company
or its collaborative partners claiming damages on account of the sale of
Affymetrix' products and seeking to enjoin commercial activities relating to
the affected products and processes could, in addition to subjecting the
Company to potential liability for damages, require the Company or its
collaborative partners to obtain a license in order to continue to
manufacture or market the affected products and processes. While the Company
believes that the Hyseq complaints are without merit, there can be no
assurance that the Company will prevail in the Hyseq actions or that the
Company or its collaborative partners will prevail in any other action, nor
can there be any assurance that any license required would be made available
on commercially acceptable terms, if at all. Furthermore, the Company has
incurred and is likely to continue to incur substantial costs and expend
substantial personnel time in defending against the claims filed by Hyseq.
On January 6, 1998, the Company 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 ("'934"). On September 1, 1998, the Company 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 the Affymetrix 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 Affymetrix' motion for preliminary injunction and
denied Incyte/Synteni's motion for summary judgement.
There can be no assurance that Affymetrix will prevail in asserting
its patent rights against Hyseq, Incyte, Synteni or others. The Company has
and is likely to continue to incur substantial costs and expend substantial
personnel time in asserting the Company's patent rights against Hyseq,
Incyte, Synteni and others. Failure to successfully enforce its 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 the GeneChip technology, which could have a material adverse
effect on the Company's business, financial condition and operating results.
The United States Patent and Trademark Office ("USPTO") notified
Affymetrix 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 Affymetrix on April
2, 1999 that it had declared an interference proceeding relating to these
patents and claims of patents. The
12
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USPTO will conduct proceedings to determine the priority of these claims.
These proceedings will result in substantial costs to the Company. Affymetrix
cannot assure that it will prevail in such proceedings. Failure to prevail
could result in inability to prevent others from copying aspects of
Affymetrix' products and/or adversely affect our own freedom to operate, and
could have a material adverse effect on the Company's business, financial
condition, and results of operation.
On April 17, 1998, Incyte filed a response and counterclaim to case
number C98-4507, asserting the '934 Patent is invalid and not infringed.
Also, on April 17, 1998, Incyte filed a counterclaim alleging that a patent
license agreement entered into in December 1997 between Affymetrix and
Molecular Dynamics interfered with an agreement between Incyte and Molecular
Dynamics. In the counterclaim, Incyte alleges that the terms of the patent
license to Molecular Dynamics prevented Molecular Dynamics from meeting its
obligations to Incyte and seeks damages from Affymetrix. 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, namely a request for declaration of noninfringement
and invalidity, an assertion of unfair competition, a request for a
declaration that Synteni and Dari Shalon (a one time employee of Synteni)
have not misappropriated any of Affymetrix' 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. Affymetrix
believes the counterclaims are without merit. However, the Company has and is
likely to continue to incur substantial costs and expend substantial
personnel time in defending against these and any other counterclaims filed
by Incyte and Synteni. Failure to successfully enforce its patent rights or
defend against counterclaims of Incyte, Synteni, or others could have a
material adverse effect on the Company's business, financial condition and
operating results.
13
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
(1) 3.1 Certificate of Incorporation
(1) 3.2 Bylaws
+ 10.41 Promissory Note between Rich Rava and the Company
dated April 3, 1997.
27 Financial data schedule.
</TABLE>
- ----------
(1) Incorporated by reference to the same number exhibit filed with
Registrant's Form 8-K as filed on September 29, 1998 (File No.
000-28218).
+ Management contract, compensatory plan or arrangement.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended March 31,
1999.
14
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
May 13, 1999 AFFYMETRIX, INC.
By: /s/ Edward M. Hurwitz
--------------------------
Edward M. Hurwitz
Vice President and
Chief Financial Officer
15
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AFFYMETRIX, INC.
EXHIBIT INDEX
March 31, 1999
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
(1) 3.1 Certificate of Incorporation
(1) 3.2 Bylaws
+ 10.41 Promissory Note between Rich Rava and the Company
dated April 3, 1997.
27 Financial data schedule.
</TABLE>
- ----------
(1) Incorporated by reference to the same number exhibit filed with
Registrant's Form 8-K as filed on September 29, 1998 (File No.
000-28218).
+ Management contract, compensatory plan or arrangement.
16
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PROMISSORY NOTE
Santa Clara, California $50,000.00
April 3, 1997
1. FOR VALUE RECEIVED, the undersigned RICHARD RAVA ("Rava")
unconditionally promise to pay to the order of Affymetrix Inc.
("Affymetrix") at 3380 Central Expressway, Santa Clara, California (or
at such other address as the holder of this Note may designate by notice
to Rava), the sum of Fifty Thousand Dollars ($50,000.00) with interest
from the date hereof at 6.49% simple interest per annum. Such interest
shall be forgiven so long as Rava shall remain an employee of Affymetrix
in good standing.
2. This Note, including all outstanding principal and any interest due
hereon shall be paid in full five years from the date of this Note.
3. This note shall become immediately due and payable in full prior to
maturity if any of the following occur: sale of the residence at 338
LAKEVIEW WAY, REDWOOD CITY, CA; (the "Residence"); if the Residence
shall cease to be the principal residence of Rava; if any payment is not
made when due; or upon termination of Rava's employment by Affymetrix
for any reason. Rava requests and authorizes Affymetrix to withhold any
amount due Affymetrix hereunder from any salary, proceed of sale of
Affymetrix stock, stock options or other compensation due or payable to
Rava.
4. Rava agrees to pay all reasonable costs of collection of this Note
if payments are not made when due. If legal action is necessary to
enforce or collect this Note, such costs shall include, without
limitation, reasonable attorney's fees. Interest shall accrue on all
past due payments at the rate of 10% per annum or the highest rate
permitted by law if lower.
5. This Note shall be governed by and construed in accordance with the
internal laws of the State of California. Rava consents to personal
jurisdiction in any court in Santa Clara County, California.
/s/ Richard P. Rava 4/3/97
----------------------- -----------
RICHARD RAVA Date
Witness: /s/ Kenneth J. Nussbacher
------------------------------
KENNETH NUSSBACHER
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ITEM 1 OF
THE COMPANY'S FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 29,761
<SECURITIES> 70,164
<RECEIVABLES> 11,432
<ALLOWANCES> (476)
<INVENTORY> 4,425
<CURRENT-ASSETS> 117,387
<PP&E> 44,509
<DEPRECIATION> (11,501)
<TOTAL-ASSETS> 161,055
<CURRENT-LIABILITIES> 13,441
<BONDS> 200
49,857
0
<COMMON> 242
<OTHER-SE> 92,315
<TOTAL-LIABILITY-AND-EQUITY> 161,055
<SALES> 15,163
<TOTAL-REVENUES> 17,804
<CGS> 5,093
<TOTAL-COSTS> 5,093
<OTHER-EXPENSES> 20,025
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 237
<INCOME-PRETAX> (7,077)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,077)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,077)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>