Affymetrix Inc. released its fourth-quarter earnings Wednesday after the markets closed and provided guidance of 45 cents to 50 cents for 2003. Early Thursday, Affymetrix shed light on that estimate by revealing it signed a GeneChip technology license agreement with Roche Diagnostics, bringing Affymetrix at least $70 million over the next five years.

The companies have had a relationship for nearly a decade, Affymetrix said in its conference call, but Thursday's deal opens up what was once test-by-test agreements to cover diagnostic products in a range of indications, including cancer and osteoporosis and cardiovascular, metabolic, infectious and inflammatory diseases. Roche Diagnostics, a division of F. Hoffmann-La Roche Ltd., of Basel, Switzerland, gets nonexclusive rights to Affymetrix's array and instrument technologies for up to 18 years and will look to develop GeneChip laboratory tests for DNA analysis, genotyping, resequencing applications and RNA expression analysis.

Affymetrix's stock (NASDAQ:AFFX) jumped $4.23 Thursday, or 19.4 percent, to close at $26.03.

With the expanded access comes expanded payment. Affymetrix, of Santa Clara, Calif., will receive a one-time up-front payment of $70 million, amortized over five years, and would receive royalty payments on diagnostic kit sales and milestone payments for technical and commercial achievements.

"I think it speaks volumes to the creation of new opportunities and the development of the GeneChip platform for molecular diagnostics," said Aaron Geist, an analyst with Robert W. Baird & Co. in Milwaukee. "This is an example of Roche betting on the GeneChip approach for the next generation of technologies that would be used in a clinical setting."

Affymetrix's GeneChip platform consists of oligonucleotide arrays, instruments to process and analyze the arrays and software to handle the data. Researchers use GeneChip arrays to identify genetic variations associated with disease and discover drug targets. As Geist put it, the technology "is still dominantly a research product." But the deal with Roche opens up the possibility of incorporating it into marketable products and generating commercial revenue.

"This is a glimpse into the future of where GeneChips can go," Geist told BioWorld Today. He pointed to using GeneChips in clinical trials to stratify patients as another possible use.

Roche Diagnostics and Affymetrix have been working on a cytochrome P450 diagnostic product based on GeneChip. In its conference call Thursday, Affymetrix said it expects that product to be commercialized in the first half of this year.

By revealing the $70 million deal, Affymetrix clarified the financial position it had mapped out just 15 hours earlier. The company's fourth-quarter figures show a net income of $2.9 million, or 5 cents per share, up from a net loss of $8.4 million, or 15 cents per basic and diluted share, in 2001. The company reported pro forma net income of $4 million, or 7 cents per share for the quarter, beating consensus estimates of 6 cents, according to Thomson First Call.

For the year, Affymetrix reported a net loss of $1.6 million, or 3 cents per basic and diluted share. On a pro forma basis, it had a profit of $7.9 million, or 14 cents per basic share and 13 cents per diluted share for the year, up from a pro forma net loss of $9.7 million, or 17 cents per basic and diluted share, the previous year.

It had product revenue in the fourth quarter of $69.7 million, an increase of 26 percent over 2001. For the year, product revenue grew to $248.5 million, up more than 27 percent from $194.9 million. Affymetrix said the increase in product revenue was "the result of strong demand related to [its] GeneChip probe array business."

As of Dec. 31, the company had $361.5 million in cash, cash equivalents and available-for-sale securities.

Affymetrix subsidiary Perlegen Sciences Inc. said Monday it raised $30 million in a private placement. That move reduced Affymetrix's holding in Perlegen to about 43 percent. In its earnings statement, Affymetrix said it licensed Perlegen technologies to hasten its plan to commercialize microarrays for whole-genome and candidate-region DNA analysis. Affymetrix gets access and commercialization rights to about 248,000 long-range PCR assays Perlegen developed to screen 50 haploid genomes. (See BioWorld Today, Jan. 28, 2003.)

Affymetrix will pay Perlegen $15 million in cash through the deal, and another $3 million in further compensation. The agreement cancels future royalty payments from Affymetrix for array products Affymetrix commercializes based on information contained in Perlegen's SNP database.

Also, Affymetrix announced the return full time of Susan Siegel as president, following her departure in October due to an undisclosed illness. Her return is a bonus for Affymetrix's already "strong management team," Geist said, and another reason for the company to look ahead favorably.

"I think it was a good quarter," he said. "They exceeded the consensus and they hit our numbers. We don't see any weakness or slowdown at all. [The deal] is a strong push for Affymetrix. It speaks volumes for the interest researchers have for using chips and chip technology, given such a weak environment for many other tool providers."