Biotech Stock Report - They Just Don’t Want to Quit
Beaverton, OR– June 18, 2003 The biotech sector just doesn’t want to quit! This is great, but the upward momentum will level off sometime with periods of profit taking. The good thing is that this rally is not based on speculation. There has been a wealth of good news in the biotech world, starting with a new philosophy at the Food and Drug Administration (FDA). Recent statements by the FDA about accelerated approvals using surrogate endpoints will certainly quicken important drugs through the clinical trial process. And announcements at the latest American Society of Clinical Oncology (ASCO) meeting regarding major clinical trial successes endorse the concept of molecular targeting and the significance of antibody technology. Lately, Affymetrix (NASDAQ: AFFX) shares have pulled back despite the fact that the company is at the cusp of profitability with cutting edge technology. We believe the 12-month price target of $25 for Affymetrix is attainable. The company is the leader in the gene microarray market. There is significant competition in the development and manufacture of microarrays and the market is highly fragmented with many small competitors. Affymetrix claims a healthy 85% share of the pre-fabricated market and we don’t see much slippage in the near future. Somewhat surprisingly the genomic microarray biochip field is still dominated by the "do it your self" producers. Although the "do it your self" market is a fragmented arena in which many researchers prepare their own microarrays. The "do it your self” market is not just an individual researcher in academia, working in his or her own labs. Indeed, some pharmaceutical houses manufacture their own chips on an industrial scale, as does the NIH whose production facility can produce whole genome arrays at competitive costs to the prefab manufacturers. Diagnostic companies can also make and utilize their own chip formats. Penetration into the “do it your self” market is an important growth opportunity for Affymetrix, but it will be a challenge for Affymetrix to be able to match their needs and lean costs to win over this segment. Government/academic funding is an important source of revenue for Affymetrix. And, despite the passing of government budget appropriations for genomic and proteomic research worldwide earlier this year dollars appropriated have not been fully funded in the U.S., Japan, and Europe. Funding for NIH-approved appropriations has been delayed, and other U.S. government agencies have been instructed to defer scheduled expenditures. To offset, the challenges over the last several months, Affymetrix announced a number of collaborations, with large pharmaceutical companies, which are utilizing the GeneChip technology to perform SNP and gene-disease association studies to identify potential therapeutics, as well as to develop toxicity/efficacy profiles of new chemical entities (NCEs). Affymetrix has also announced a nonexclusive 18-year collaboration with Roche Diagnostics to develop and market in vitro diagnostic tests for a wide range of diseases. On the near-term financial horizon for Affymetrix, we believe the company will meet the market's expectations. And we will be on the look out for powerful and compelling economic and scientific forces to drive long-term growth for the microarray sector. We hope Affymetrix won't let us down and think a good entry point is around $21.
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