Affymetrix achieved substantial progress in 1999, confirming our leadership in DNA array technology. We increased our installed base to more than 220 instrument systems worldwide, added significant new corporate and academic customers, and greatly accelerated chip shipments, doubling 1998 levels. Revenues rose from $52.0 million in 1998 to $96.9 in 1999.
Yet our adventure is only beginning. Efforts to sequence the entire human genome are expected to yield first-draft results in 2000. This feat marks a turning point for the genomics industry and should accelerate demand for DNA analysis tools that are necessary to interpret these vast amounts of genetic data and extract valuable biological information for improving our quality of life. Many fields are poised to benefit from genomic discoveries, including drug discovery and development; disease diagnosis, monitoring and treatment; water safety and agriculture.
In the past year, Affymetrix made major strides in building a world-class commercial infrastructure. We expanded our manufacturing capabilities, broadened our product offerings, and aggressively built our sales, marketing and support teams. We completed two successful financings, acquired a synergistic product line, and enhanced our proprietary position. These accomplishments point to our success in achieving critical mass and momentum as we transition to an operating company.
Broad Product Acceptance Most of Affymetrix' revenue growth in 1999 occurred in our gene expression monitoring business, which focuses on helping researchers understand gene function in applications such as identifying and validating new drug discovery targets. Our GeneChip® technology has become the gold standard in this field. Demand for it has heightened as scientists seek tools to analyze and understand the wealth of sequence information being generated today.
In response to this demand, we broadened our product portfolio in 1999, adding whole genome and directed arrays as well as bioinformatics tools. We also expanded our popular EasyAccess™ high-volume sales program to include a new arrangement, AcademicAccess™, to meet the special needs of academic organizations. Most significantly, we completed the acquisition of Genetic MicroSystems, Inc., a leading supplier of instrumentation to generate low-density, user-defined DNA arrays. These "spotted arrays" complement our existing GeneChip gene expression product line, allowing us to meet customer needs with a more comprehensive set of array solutions.
Expanding Applications In 1999, Affymetrix also enhanced its position in the fast-emerging market for genotyping products and services, which have an initial use in the discovery and analysis of genetic variations known as single nucleotide polymorphisms (SNPs). We introduced the GeneChip HuSNP™ Mapping Assay, a uniquely rapid, powerful and cost-effective tool for conducting genetic linkage studies. Capable of analyzing approximately 1,500 SNP markers simultaneously, the HuSNP Assay is the first in a planned series of Affymetrix high-density genotyping products. We are also exploiting the power of our GeneChip array to offer a new line of GenFlex™ Tag arrays that will enable researchers to develop their own custom assays. Expected to be available in the first half of 2000, these Tag arrays will be combined with Affymetrix' universal reagents developed under an agreement with Orchid BioSciences, Inc. These arrays will be initially targeted to fine mapping and association studies aimed at pinpointing disease susceptiblity genes and predicting drug response.
We believe that our third business area, disease management, represents a large, longer-term opportunity for the company. We now have disease management agreements with two diagnostic industry leaders—Roche Molecular Systems, Inc., and bioMérieux, Inc. These partnerships focus on developing products and next-generation instrumentation that will incorporate advances from our expression monitoring and genotyping programs to create new tools for optimizing therapies for individual patients. We are excited about the progress of these collaborations in developing new GeneChip disease management products, especially in the areas of bacterial/virological testing and water quality monitoring.
Organizational Growth To meet the rising demand for our products, we grew every aspect of our commercial infrastructure last year. We substantially increased our manufacturing capacity with the completion and validation of a second manufacturing facility in West Sacramento, California. The manufacturing capacity of this new facility, which began commercial shipments in September, is designed to expand to keep pace with future demand. We also doubled our employee base, adding resources in product development, manufacturing, marketing, sales and technical support.
To further serve the emerging European market for our GeneChip technology, we established a wholly owned sales and technical subsidiary in the United Kingdom. To support these and future expansion activities, we raised $375 million in convertible subordinated debt in two separate financings, completed in September 1999 and February 2000. With a balance sheet that includes over $430 million in cash and short–term investments, we now have the flexibility to pursue strategic options to ensure our continued growth.
Patent and Licensing Strategy During the past year, there was continued recognition of the strength of Affymetrix' intellectual property position in the high density DNA array field. We now hold more than 70 issued U.S. patents and approximately 275 pending patent applications, accompanied by extensive foreign filings covering various aspects of DNA array technology. We are committed to protecting our investment in our core technology, and currently are engaged in patent litigations with three companies: Hyseq, Inc., Incyte Pharmaceuticals, Inc./Synteni, Inc., and Oxford Gene Technology. In September, some of our patents were upheld by the U.S. Patent and Trademark Office, which ruled in favor of Affymetrix in two interference proceedings.
Our comprehensive patent portfolio helps to ensure our freedom to operate and provides the basis for an active licensing program. As a key part of our business strategy, we continued to expand our number of licensees in 1999. In this way, we are laying the groundwork for widespread adoption of a common DNA analysis platform that will provide greater ease of use for researchers while supporting our core business interests.
Looking to the Future We enter the new millennium with a great sense of excitement about the potential of genomics to transform not only life science research and drug discovery, but also the practice of medicine, and ultimately, the overall quality of our lives. We are confident that the steps we have taken in the past year position Affymetrix to play a leading role in enabling the advances of the new genetic age. We thank our stockholders, partners and customers for their support and for sharing in this extraordinary opportunity.
Susan E. Siegel, President
March 17, 2000
