Affymetrix: Directionless Business in Search of a Strategic Catalyst
Affymetrix (AFFX) is a biotech company offering gene analysis tools. It recently announced that it was recognized as the “fifth top performer among all life sciences companies on Twitter,” ranked by an outfit called Comprendia Bioscience Consulting Group. This distinction comes hot on the heels of receiving the 2011 North America Product Leadership of the Year Award by Frost & Sullivan, probably through a paid partnership program. (And as I write this, Frost & Sullivan has delivered another piece of exciting research regarding the company's products.) While perhaps par for the course in the competitive biotech environment, these releases smack of some desperation.
The fact is that Affymetrix, once one of the powerhouses of the sector, has fallen on hard times and been overtaken by companies offering novel next-generation sequencing technologies. Its revenues have been declining for 12 of the last 14 quarters; it has only recently become again marginally profitable and steadily cash-flow positive. It has tried to prevent employees from jumping ship by suing them. It is one of those companies where a buyout rumor or hope seems to circulate every other week.
Affymetrix is also almost 100% up from its 52-week lows. It is an interesting story.
CFO Barabe and July 2010 warning
In the first weeks of July 2010, the stock lost 40% after warning on its Q2 revenues. The stock had already been unable to sustain the bounce off the GFC lows of March 2009 and had been steadily declining. However, the warning should not have been a surprise since a new CFO had taken over just three months before, in March 2010.
Tim Barabe had previously been the CFO of Human Genome Sciences (HGSI) since 2006. He oversaw the HGSI stock also get caught in the crisis before the company finally struck gold in 2009. Barabe had 600,000 options or so at, say, $6-7 average exercise price. HGSI had been averaging $25 last year. He's doing okay there and doesn't need to worry about saving for retirement. He's had a good, low-profile career and Affymetrix could be a last officer position before concentrating on a couple of directorships.
When Barabe moved to Affymetrix, it was to be expected that he would want to start with a clean sheet: from this angle; the warning was perhaps logical. Some investors, such as Joseph Harrosh, took immediate advantage of the share price fall – Harrosh has since increased his stake to almost 10%. Integrated Core Strategies, a hedge fund, disclosed a position in November 2010 when the price was still stuck in the low $4s and then gradually sold. Mutual funds have also initiated positions, including recently a specialized healthcare fund, OrbiMed Advisors.
Since his appointment, Barabe is delivering what he can from a CFO point of view -- reducing finance costs, cleaning up inventories and rationalizing R&D and product expenses. His cost-cutting and write-downs have helped the company's cash-flows. Revenue, however, has continued to suffer; he can't do much about that.
Hmmm, interesting. Can you offer any proof to go along with that "trust me" slogan? "Trust me" is little more than empty- promise-lip service on Wall Street, in Washington and at most American banks in this Great Recession age.
Yeah, I guess, "there it is". Right?
Frank Whitney isn't reveared by the market because of his 30 years of hard work and innovations inside the industry; but, more for his notoriety as a corporate chop-shop guy.
I find it a little hard to believe that Stephen Fodor brought this guy in to simply act as an auctioneer. (5 git a 10, git a 15, git a 20! Do I hear 30?) What a joke.
I hope that Stephen Fodor is NOT serious with that crap. Whitney may be CEO, but Stephen Fodor is above him and still active in the business.
I don't know, I don't like this too much at all. The author makes several interesting points; but clearly he is wrong about Affymetrix being directionless.
The company under Kevin King made the right decisions in order to halt their decline and turn themselves around. They have been doing well enough to stablilize themselves in the consumables market and doing something like that certainly requires direction.
If Illumina had won the Frost and Sullivan laudations, would it still be viewed as an award that a company buys and presents to itself? Or would it be a completely different story since it was Illumina?