By Lisa Seachrist
WASHINGTON — Having found the market too volatile to complete its planned public offering in October, Affymetrix Inc., has raised $50 million in a private placement of preferred stock with principal investor Glaxo Wellcome Americas Inc.
Under terms of the agreement, the Santa Clara, Calif.-based genomics company has agreed to sell 1.63 million shares of Series AA preferred stock at an aggregate price of $50 million. Affymetrix will pay a 6.5 percent dividend on the preferred shares, which will be convertible into Affymetrix common stock at an undisclosed price around $40 per share.
"This is a very good deal for Affymetrix," said Anne Bowdidge, manager of investor relations at Affymetrix. "The terms with Glaxo are very similar to those we would have found in the market and we could get them without the risks involved in a public offering."
The deal, which will become final after a 30-day review period at the Securities and Exchange Commission, gives Glaxo 37 percent of outstanding shares in Affymetrix. Glaxo has relinquished rights to nominate board members. Two members of the Affymetrix board work for Glaxo.
In October, because of unfavorable market conditions, the company withdrew its public offering of 1.5 million shares, which could have netted $61 million to commercialize applications of the company's GeneChip technology for monitoring gene expression and resequencing genes. Affymetrix also had earmarked the funds for manufacturing and an expansion of research and development facilities.
Bowdidge said the funds from the private placement will be put to use for a manufacturing scale-up to meet customer demand, construction of a new manufacturing facility, and expansion of research and development facilities. The primary focus of expanded research will be the company's Polymorphism Discovery Program, which aims to catalogue all variations of the 8,000 human genes sequenced.
"It's going to be a huge effort for us," Bowdidge said. "We intend to establish subscription databases of the polymorphism and to provide access to arrays of the polymorphism to help link them to disease."
Elizabeth Silverman, senior research analyst with BancAmerica Robertson Stephens, in New York, said the private placement with Glaxo came at a very good price with very little downside.
"When Affymetrix was considering a public offering they had two goals in mind," Silverman said. "They wanted to raise funds and they wanted to market themselves to funds outside the usual biotech funds. At the time, they were faced with a declining stock price and they weren't being introduced to different types of funds."
Silverman noted that the private placement is an efficient way to move forward with the company's plans because it could be done very quickly. She said, "They are sitting on a huge opportunity and they need to go forward."
"It's a very nice position to be in when your largest shareholder believes in you to this extent," Bowdidge said.
Affymetrix's stock (NASDAQ:AFFX) closed at $32.75, up $4.125. *