Affymetrix's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Feb. 8.12 | About: Affymetrix, Inc. (AFFX)

Affymetrix (NASDAQ:AFFX)

Q4 2011 Earnings Call

February 08, 2012 5:00 pm ET

Executives

Doug Farrell - Vice President of Investor Relations

Frank Witney - Chief Executive Officer, President and Director

Timothy C. Barabe - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

David C. Clair - Piper Jaffray Companies, Research Division

Doug Schenkel - Cowen and Company, LLC, Research Division

Quintin J. Lai - Robert W. Baird & Co. Incorporated, Research Division

Peter Lawson - Mizuho Securities USA Inc., Research Division

Ross Muken - Deutsche Bank AG, Research Division

Daniel L. Leonard - Leerink Swann LLC, Research Division

Nandita Koshal - Barclays Capital, Research Division

Travis Steed - Macquarie Research

Jeff Ares - Goldman Sachs Group Inc., Research Division

Bryan Brokmeier - Maxim Group LLC, Research Division

Rafael Tejada

Zarak Khurshid - Wedbush Securities Inc., Research Division

Ramesh C. Donthamsetty - JP Morgan Chase & Co, Research Division

Operator

Greetings, and welcome to the Affymetrix Fourth Quarter Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Doug Farrell, Vice President of Investor Relations for Affymetrix. Thank you, Mr. Farrell, you may begin.

Doug Farrell

Good afternoon, and welcome to the conference call. At the close of the market today, we released our operating results for the fourth quarter and fiscal year ended December 31, 2011. Joining me on the call today is our President and CEO, Frank Witney; as well as our CFO, Tim Barabe. As a reminder, today's call is being recorded and the audio from the call is being webcast over the Internet on our home page at affymetrix.com.

During this call, we may make various remarks about the company's future expectations, plans and prospects that constitute forward-looking statements for purposes of Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

Such statements are subject to risks and uncertainties that could cause actual results to differ materially for Affymetrix from those projected. These risk factors are discussed in Affymetrix's Form 10-K for the year ended December 31, 2010, and on other SEC reports, including our prior period quarterly report on Form 10-Q. We encourage you to review these documents carefully as forward-looking statements are made as of today's date, and we make no obligation to update this information.

So with that, let me turn the call over to Frank.

Frank Witney

Okay. Thanks, Doug, and good afternoon, everyone. Before discussing our commercial and operational progress for the fourth quarter, I'd like to take a minute to give you an update on our previously announced acquisition of eBioscience.

We remain excited about the strategic fit and positive financial impact of the combination of the 2 companies. As we've recently announced, successful completion of the transaction will require that we restructure the deal, and we are in active discussions on this front with eBioscience and our lenders.

For the purposes of this call, I do not want to speculate as to the possible elements of the restructuring or the likelihood that we'd be able to reach an agreement. I hope to be in a position later this quarter to announce a more definitive outcome and timetable.

Now I'd like to shift gears to our core business and provide an update for the fourth quarter and some comments on the year. Over the last few months, we've completed an internal reorganization into 3 business units including Expression, a combined Genetic Analysis and Clinical Diagnostics unit, and Life Science Reagents. These business units are designed to create a high level of focus on identifying and executing on opportunities in our target markets, and to create better integration with our commercial organization.

We've made significant changes to the structure of our commercial organization, and made a number of key hires as well. This includes a new head of global commercial operations, Vice Presidents of both Global Marketing and Regulatory, as well as new commercial leadership in Europe and Japan. We're making a steady progress in redirecting the business and laying the groundwork for a return to growth.

For 2012, we are executing against the focused set of commercial goals that include: first, stabilizing our Expression business. This includes arrays, low-plex solutions and single cell and tissue products. Increasing our -- secondly, increasing our market share in genotyping, particularly targeted applications. Third, building critical mass toward a market-leading position in cytogenetics. And last, driving continued growth on our life science reagents business.

I'd like to highlight some quarterly accomplishments and expectations against each of these initiatives, starting with our Expression business unit. Expression constitutes about 45% of our revenue, and we took some important steps towards stabilizing the business in the fourth quarter.

One of our primary goals is to offset the decline in our IVT revenue. We intend to do this by adding new products to our array-based Expression portfolio and rejuvenating our Panomics mid-plex cell and tissue assays. We anticipate that our overall Expression business will decline by 5% to 10% in 2012. But we also see emerging opportunities that will help offset the decline of our IVT arrays. This is a significant challenge for us. As you're aware, we are focusing on the area with new products for preclinical and clinical applications.

And I want to give you a short progress report on some of our activities in this area. We recently entered into an exclusive agreement with Genisphere to offer the company's FlashTag Biotin reagents. These microRNA reagents enables streamlined target prep methods for high-quality and reproducibility, and strengthen our industry-leading position in array-based gene expression. microRNA is one of the fastest growing applications in gene expression, and represents an important new revenue stream for Affymetrix, one that we expect will grow significantly, as we continue to introduce new content.

These reagents are compatible with a wide variety of sample types, including formalin-fixed paraffin-embedded samples, FFPE; fresh, frozen and whole blood. Customers tell us these reagents enable faster insight in the role of microRNAs in biological processes, such as mRNA degradation, transcriptional gene silencing, translational repression and ultimately, in biomarker discovery in our core markets of translational medicine and cancer research.

These assays require as little as 100 nanograms of total RNA, which makes them exceptionally well suited for studying cancer, where sample sizes are often limited and the samples are often degraded. In addition to the miRNA solutions, we also exclusively licensed Genisphere's powerful RNA amplification technology for global expression profiling in clinically relevant samples such as FFPE. As an example, Genisphere provides this technology to Pathwork Diagnostics for their FDA-cleared array-based gene expression tissue of origin test. We expect to launch our first kits under this licensing agreement by midyear. We'll talk more about our broad range of technologies for genomic analysis and molecular diagnostics from FFPE samples over the course of the upcoming year.

We generated increased sales of GeneAtlas, our desktop entry-level microarray system. We've expanded the application's menu for use on GeneAtlas to include our IVT and whole-transcript products, as well as a number of important model organisms. This system is designed for new users who wanted to work outside of Core Lab and allow researchers to go from sample to data in just 3 days, and includes all the necessary informatics in an easy-to-use interface. We expect that the GeneAtlas system will be important in driving the continued adoption of arrays, especially in emerging markets.

Now turning to the genetic analysis and clinical diagnostics business unit, which represents roughly 35% of our revenue and represents our most robust growth opportunities. In fact, we project this business unit will grow 20% or more in 2012, driven by our cytogenetics program and increased penetration of our Axiom genotyping platform. This BU is also the area with our highest level of R&D investment.

I'd like to take a moment to update you on progress, on the progress we are making in this particular business unit. First, we're seeing a number of opportunities within the Targeted Genotyping portion of the market. This includes ethnic-focused genotyping panels that allow customers to utilize cost-effective, population-specific arrays and increase the potential for finding informative snips in various ethnic groups. Given that customers may run tens and thousands of samples on these unique arrays, this is an important competitive advantage for our array platform.

Recently, we attended the Plant and Animal Genetics Conference in San Diego, and customer interest was very strong. We currently offer the industry's broadest portfolio of array-based gene expression assays for studying plant and animal genomes, more than 300 in total. Now we're expanding into plant and animal genetics by building a world-class portfolio of products for genotyping plants and animals.

In order to have access to the most comprehensive genetic data, we recently signed a Memorandum of Understanding with BGI under which we will codevelop Targeted Genotyping panels powered by the combination of BGI state-of-the-art content and our Axiom genotyping platform. This nonexclusive partnership will develop and commercialize a portfolio of plant, crop and livestock assays for genotyping applications, such as marker-assisted trait selection, parentage, quality control and traceability.

The relationship between Affymetrix and BGI will leverage the combination of NGS sequence databases, bio informatics and advanced array-based genotyping tools. The partnership will provide Affymetrix with nonexclusive rights to BGI's sequence data for designing arrays, and we intend to collaborate with BGI to co-market these products. We envision additional collaborations beyond ag over time but are excited to kick off this relationship in such an important area.

Turning to cytogenetics. Our cytogenetics business continues to ramp up nicely during the quarter. Our number of key opinion leaders are up and running, and customer feedback on our new Research Use Only CytoScan product has been outstanding. Customers tell us that the combination of the most comprehensive and highest resolution content, the simplified workflow and state-of-the-art chromosome visualization software makes CytoScan the platform of choice for advanced array-based cytogenetic analysis.

CytoScan was designed with input from over 100 practicing cytogeneticists, and we are confident that this voice of the customer ensures we have a superior product for postnatal applications and a platform on which to build additional applications.

Proof-of-principle studies are gaining factor in migrating to a new cyto platform. And we've already conducted more than 70 such studies for customers. We intend to grow our Cytogenetics business to about -- to be -- to constitute about 10% of our revenue in 2012 as we convert customers from traditional microscope-based approaches and take share from other commercial array platforms.

We intend to file this product for regulatory approval later this year, and believe that receiving regulatory clearance would put us at a significant advantage over other RUO, array-based competitors. We have a broad-based product development roadmap in cytogenetics that includes applications and inherited disorders, hematological malignancies and FFPE-derived solid tumors. We plan to launch a steady stream of new products and applications in cytogenetics over the next several quarters and continue to grow this business aggressively.

Overall, we have a clear set of clinical priorities that we will be reporting on in 2012, such as aggressive growth of our RUO CytoScan, including the applications previously discussed, 510(k) filing of CytoScan, development of low-cost automation for our cytogenetics platform, development of our cancer mutation detection platform, OncoScan, in kit format for launch in Q1 2013, and continued support of our Powered by Affy partners, such as Pathwork, VeriSign, Almac, Signature and others are making good progress, using expression arrays for cancer diagnostics and other complex disease diagnostics.

Our third business unit, life science reagents, is primarily comprised of products developed to manufacturer by the former USB team. Since the acquisition of this business in 2007, we have consistently seen mid-single digit growth and life science reagents down, makes up about 12% of our product sales. We anticipate that the Treo product lines for molecular biology, biochemistry and the anti-traits [ph] membrane extraction reagents will continue to deliver profitable growth for the foreseeable future.

This team has consistently demonstrated strong operational, quality in commercial performance, which has resulted in the consistent performance that we've observed.

We continue to work -- turning to operations, we continue to work through our challenges in Affymetrix as evidenced by our results in Q4 in fiscal 2011. Despite that, we see opportunities in all of our business units in translational, preclinical and clinical applications. We have reorganized and realigned the business to exploit these opportunities, and recruited a number of proven industry veterans to help us continue to drive operational improvements and solid execution.

Based on the growth rate of important product lines, such as cytogenetics and microRNA, we expect to see year-over-year growth beginning in the second half of 2012.

At this point, I'll turn the call over to Tim, who will walk you through financial details of the fourth quarter and the year and provide annual guidance for 2012. I will then come back with some concluding remarks. Tim?

Timothy C. Barabe

Thanks, Frank, and good afternoon. On January 21, the company entered into an agreement to settle the purported class action litigation that was initiated by our holder of the company's 3.5% convertible notes. As part of the settlement, the company has commenced a tender offer to repurchase the $95.5 million of the 3.5% notes still currently outstanding at par plus accrued interest. These notes would have been potable to the company in January 2013, so we will be repurchasing them about 10 months earlier than planned.

We expect this will save us more than $2 million in interest expense -- net interest expense in 2012. Now I'd like to review our financial results for the fourth quarter and fiscal year ended December 31, 2011. And then I'll close with an update on our balance sheet, as well as guidance for 2012.

For the fourth quarter, the company reported total revenue of $65.1 million, compared to $84.9 million for the same period last year. As a reminder, the fourth quarter of 2010 included a one-time $5 million payment under a licensing agreement.

Excluding this one-time payment, total revenue was down 19% from the prior year, driven by lower consumable and instrument sales. For the year ended December 31, 2011, the company reported total revenue of $267.5 million compared to $310.7 million in 2010, down 14%. Again, driven primarily by lower consumable and instrument sales. Excluding the one-time payment in the fourth quarter of 2010, revenue would have been declined by about 13% for the year.

Turning to the detail, fourth quarter product revenue was $58.7 million compared to $71.9 million for the fourth quarter of 2010, which represents a decrease of 18%. Consumable sales were $54.8 million, down 13% from $63.4 million in 2010.

DNA and other revenue was $23.3 million, compared to $26.9 million or 13% down from 2010. As a reminder, last year's DNA, revenue included a significant volume of genotyping arrays that will run as part of 100,000-patient NIH funded study.

Our RNA revenue was $31.5 million, down from $36.5 million in the fourth quarter of 2010, or 14%. Additionally, instrument sales for the quarter were $3.8 million, compared to $8.5 million in the fourth quarter of 2010. For the full year, product revenue was $241.3 million in 2011, down from $277.7 million in 2010, or a decrease of 13%. Consumable sales were $225 million in fiscal 2011, down about 11% from $252.1 million in 2010. DNA and other revenue was $98.7 million, or down 8% from 2010. RNA revenue of approximately $126 million, $126.3 million, was down about 12% from the $144.3 million for the same period in 2010.

Instrument sales for 2011 were $16.3 million, down from $25.6 million in 2010. Service revenue was $5.1 million, compared to $6.4 million in the fourth quarter of 2010. For the full year, service revenue was $20.2 million in 2011, compared with $20.6 million in 2010.

Royalties and other revenue was $1.3 million versus $6.6 million in the fourth quarter of 2010. For the full year, royalties and other revenue was $6.0 million in 2011, compared to $12.4 million in 2010. Again, the fourth quarter of 2010 included a $5 million one-time payment for our license.

Turning to gross margin. While revenue and operating expenses in the fourth quarter were primarily in line with our expectations, gross margin was not. Our total gross margin was 53%, representing about -- a decrease of about 5 percentage points over the fourth quarter of 2010. The primary drivers for the decreased gross margin were volume absorption due to lower sales, as well as the combination of unexpected obsolescence and warranty expense on instruments.

For fiscal year 2011, total gross margin was 59%, up slightly from 57% in 2010. However, we experienced the sequential decline in gross margins during 2011, primarily driven by volume absorption and unfavorable mix change. We will discuss projected 2012 gross margins a bit later in the call.

Total operating expenses for the fourth quarter were approximately $45.5 million versus $44.1 million incurred in 2010. While we were targeting a run rate of about $42.5 million per quarter, our fourth quarter expenses included $2.6 million in acquisition-related expenses, as well as $2.2 million in severance costs.

Total operating expenses for the fiscal year ended 2011 were $173.2 million, as compared to $182.7 million in 2010, or a reduction of 5%.

Turning to R&D. Fourth quarter R&D expenses were $16.7 million, up 8% from $15.5 million for the same period last year, driven by increased spending on our cytogenetics program, as well as the restructuring cost associated with the 20% reduction in R&D headcount that we announced on our last call.

Q4 R&D expense included $1.8 million in severance costs. Removing those, total R&D spending would have been down 4% year-over-year. Our goal is to reduce our R&D expense to about 20% of revenue in the near term with a longer-term goal of closer to 15%.

For total year 2011, R&D expenses were $63.6 million, down from $67.9 million in 2010. SG&A expenses of $28.8 million for the fourth quarter of 2011 were basically flat compared to the fourth quarter of 2010, which was $28.7 million.

For the fiscal year, SG&A expenses were $109.6 million compared to $114.8 million in 2010. SG&A included $400,000 in severance and $2.6 million in acquisition-related expenses. Adjusting for these items, SG&A would have been down 10%.

Interest expense and other net was approximately $3.7 million in the fourth quarter of 2011, due primarily to interest expense on our outstanding bonds, as well as an impairment of $1.7 million for our West Sacramento facility. These were partially offset by interest income. This compared to an interest expense and other net of $300,000 in the prior year quarter, which included a gain on repurchase of convertible notes of $500,000.

For the fiscal year ended 2011, interest expense and other net was $10.1 million, primarily due to interest expense, a write-down of the notes receivable of $2.2 million and the impairment of our West Sac facility of $1.7 million. This can compare to a net expense of $2.9 million in 2010, which included a net gain of $6.3 million on the repurchase of convertible notes, partially offset by impairment charges recognized on our nonmarketable investments of about $5.7 million.

In the fourth quarter, we recognized income tax expense of approximately $300,000. Our income tax expense for the fourth quarter was driven principally by foreign income taxes. For the fourth quarter, we generated a net loss of $14.7 million or $0.21 per diluted share. This compares to a net income of $4 million or $0.06 per diluted share in the fourth quarter of 2010.

For the full year, net loss was $28.2 million or compared to a net loss of $10.2 million or $0.15 per diluted share in 2010. To facilitate the analysis of the company's core operating results, I would like to summarize noncore adjustments to our net income for the quarter and their impact on pre-tax earnings per share.

In aggregate, these adjustments amounted to a net $3.4 million or $0.05 per share decrease in GAAP net loss and include, within gross margin, $533,000 or roughly $0.01 per share in the amortization of acquisition-related intangibles. In operating expenses, $1 million or $0.01 per share in acquisition-related intangibles. In interest expense and other net, the impairment of our West Sacramento building of $1.7 million or $0.02 per share, as well as other-than-temporary impairments on 2 investments that totaled $200,000 or $0.01 per share.

Let me take a moment to summarize our balance sheet. We ended the fourth quarter of 2011 with total cash and available-for-sale securities of $265.1 million, compared to $264 million at the end of the third quarter of 2011. Our current net cash position is $169.6 million, which represents an increase of approximately $27.9 million over the same period in the prior year.

In Q4, the company generated about $6 million in cash flow from operations and almost $40 million for the full year. Capital spending was about $900,000 in the fourth quarter, resulting in free cash flow of $5 million for the quarter. In addition, we incurred licensing charges of roughly $3 million.

Depreciation and amortization was approximately $7.3 million, including the amortization of the acquired intangible assets. Operating expenses for the fourth quarter included $2.2 million of stock compensation expense, compared to $2.3 million in the fourth quarter of 2010. Accounts receivable were $44 million, down about 16% from $52.3 million last year.

Turning to inventory, and other balance sheet items. Net inventory for the first quarter of 2011 was $42.9 million, which was down substantially from the third quarter of 2011, about $5 million. Year-over-year inventory is down by about 15%.

To summarize, during the fourth quarter, cash flow from operations is about $6 million. Free cash flow was about $5 million, and we ended the quarter with net cash of about $170 million.

Finally, in terms of guidance for 2012, Frank summarized the growth prospects of our various business units. On a consolidated basis, excluding eBio, our expectations for 2012 are: revenue, flat to low single-digit growth. Given the current run rate of the business, we'd expect to see revenue pick up in the second half of 2012. Assuming revenues was within the forecasted range, we would expect gross margins to be in the 40% -- 54% to 56% range.

We expect operating expenses to be in the $167 million to $170 million range. And we expect capital spending somewhere between $7 million to $10 million.

Lastly, free cash flow, we expect to be in the range of $10 million to $15 million based on revenue guidance. Now I'd like to turn the call over to Frank for our closing remarks.

Frank Witney

Okay. Thank you, Tim. 2011 was a difficult year for Affymetrix, with an annual revenue decline of 14% and the resulting impact on gross margins. As a team, we've been working very hard over the last 6 months to position the business to grow through new product introductions, application focus, commercial team reorganization and several important new additions to our team. We've taken a difficult action of repurposing operating expenses from R&D to our commercial organization to help drive revenues, as well as reducing overall operating expenses.

Finally, our overall, organization recognize that our investors are impatient to see stabilization of our business and a return to growth. We believe we are positioned to do that in the year of 2012 and beyond, and have a high sense of urgency to make this a turnaround year for Affymetrix. At this point, we'd like to open the call up for any questions that you may have.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Bill Quirk from Piper Jaffray.

David C. Clair - Piper Jaffray Companies, Research Division

It's actually Dave Clair here for Bill. First question, just hoping to get some additional details on eBio. What needs to be restructured there? And if this deal doesn't close, should we be thinking about additional M&A activity in the near term?

Frank Witney

Okay. So let me address that one. So our commitment letter from GE has not been terminated, but the condition -- as we've said, the conditions for funding under that commitment are now impacted by recent developments. So as a practical matter, the financing has to be restructured in order for the deal to happen. As we said in the prepared -- our remarks, we're talking to GE and eBio to restructure the financing, and we will provide an update once we know whether -- and on what terms this can be accomplished. So we're not certainly not thinking about other M&A deals at this point. We're totally focused on our core business, as well as seeing what transpires in our discussions with eBio and with our lenders. So, at this point, that's our focus. We have a lot to do on our core business, and we continue to work hard on finding a way to close and work with eBio.

David C. Clair - Piper Jaffray Companies, Research Division

Okay. And then just a quick clarification question. You said to expect a CytoScan FDA filing later in 2012. Are you still on track to file CytoScan in mid-2012 with FDA? I think that's the timeline you've set in the past.

Frank Witney

Yes, we're in the mid to maybe a little bit later. But we're making good progress. So it's going to be within that time frame, to mid-year to slightly later than that. But we're making good progress.

Operator

Our next question comes from the line of Doug Schenkel from Cowen and Company.

Doug Schenkel - Cowen and Company, LLC, Research Division

So actually, let me start with another question on eBio. When does your exclusivity period expire on that deal? Any concern that somebody else might come in? And are you in discussions with eBio to extend that period?

Frank Witney

So our exclusivity period is through March 31. And again, we're in discussions with our lenders in eBio on avenues to close the transaction.

Doug Schenkel - Cowen and Company, LLC, Research Division

Okay. Then I guess one more related to that. In your prepared remarks, it sounded like you needed to negotiate with eBio. Wasn't just a question of basically, recutting what you've been talking to the syndicate about. Is that correct that this isn't just a matter of lining up the financing that you actually have to now work with eBio to potentially recut the deal?

Frank Witney

Let's just leave it at we're in discussions with our lenders and eBio on a path forward that works for all parties.

Doug Schenkel - Cowen and Company, LLC, Research Division

Okay. Your guidance seems to imply, and I think you said this specifically, that you expect revenue to improve in the second half of the year. And then for the year, your guidance implies an acceleration above the quarterly run rate we've seen in the past 2 quarters. I guess, how do we get comfortable with this, especially since it's a back-loaded guide heading into an environment where, if anything, there could be even more pronounced funding uncertainty and you guys do have a high degree of exposure to the academic government end market. I mean, this just seems, to be frank about it, like a pretty aggressive guide, given what you've done in the last 2 quarters in an environment which is still challenging. How do we get comfortable with this?

Frank Witney

Yes, it's a fair question. Certainly, our lead growth driver is our cytogenetics program, the underlying customer business that we have, the kind of feedback we're getting from proof-of-principle experiments are very encouraging, and we have line of sight. So -- but again, that program is just in the process of ramping up. The product is only 2 quarters old. So that's a major driver of the second half of the year. The other thing -- the other piece that we believe will kick in as the year goes on is our genotyping, our Axiom platform, which had a number of issues in the year. So we're -- that's a component of our future growth. And then, in general, we've -- as we've talked about, we've restructured our commercial organization. We have new leadership in various roles. Many of them are relatively new in their jobs. And so there is some maturation of our broader commercial organization. But when you take a step back, the growth is going to come from our genetic analysis business with cyto being the -- really, the lead player. I think we'll continue to see steady -- we'll see steady growth out of our reagents business. And really, but the driver, really, will be the back half of the year in cyto. And hopefully, we'll see some traction with our genotyping platform as well.

Doug Schenkel - Cowen and Company, LLC, Research Division

Okay. Last one on cyto. Any chance you'd be willing to say what that contributed in the quarter? Is that low-single millions in terms of dollars contribution?

Frank Witney

Let's just leave it that by year end that we believe cyto will be roughly 10% of our overall revenues by year end.

Doug Schenkel - Cowen and Company, LLC, Research Division

By year end next year?

Frank Witney

Yes.

Operator

Our next question comes from the line of Quintin Lai from Robert W. Baird.

Quintin J. Lai - Robert W. Baird & Co. Incorporated, Research Division

Frank, following up on Doug's question about CytoScan and your line of sight. Do the initial customers or -- that you see adopting? Have they already -- do they already have the instruments in place?

Frank Witney

Many do. And many are expanding their instrument platforms by adding an additional instrument for increased volume. Some of these customers are conversions from people that were running our SNP 6 platform, which runs on the same scanner. So in some cases, there will be capital purchases. The numbers of samples that people are running make this a reasonable investment. Many -- so we'll see some additional instrument placements and in some cases -- in many cases, we'll just simply be running on the same instruments that they're already running on.

Quintin J. Lai - Robert W. Baird & Co. Incorporated, Research Division

And then, going again to that kind of, the line-of-sight description that you had. Are your customers, right now in the process of validating it for their clinical use?

Frank Witney

Well, some are in -- I mean, they're in various stages. As I've said, we have over 70 proof-of-principle experiments. Some of them have adopted. Some of them are relatively early on. So there are various stages. We're aggressively pursuing. We know where these customers are, and we know where the competitors have entrenchment, have a business, and we're going after those as well. So I would say across the whole sort of continuum, we're attacking at all potential sites. People that are running hours, that want to expand, people running our old product and want to move over or labs that are still doing microscopy [ph] applications that were converting to arrays. So it's a pretty full effort. The team is highly motivated and highly trained on how to sell this particular product.

Quintin J. Lai - Robert W. Baird & Co. Incorporated, Research Division

Great. And then just on a modeling question, Tim, the OpEx, the guidance that you gave, should we -- how should we kind of pace it to the year?

Timothy C. Barabe

I would say, Quintin, it's a little bit heavier in the first and second quarter because we're doing cyto trials. And then it would taper off, time it to, towards the back half of the year.

Quintin J. Lai - Robert W. Baird & Co. Incorporated, Research Division

So that's on the R&D line? And then SG&A, just sales and marketing, should that just be ramping up as you add more people?

Timothy C. Barabe

Yes, I would say, SG&A, the sales and marketing component for sure will ramp up a little bit as the year goes on, whereas the G&A component will be pretty much flat.

Operator

Our next question comes from the line of Peter Lawson from Mizuho Securities.

Peter Lawson - Mizuho Securities USA Inc., Research Division

Frank, [indiscernible] with government spend. How's that coming back? Or has it come back and how does it trended during the year?

Frank Witney

Well, I guess, from our perspective, we -- we're probably not as sensitive to spending as maybe you might imagine. We have a lot of stuff that we're doing on our own that our new products and new approaches. It's -- so I'm not as sensitive to that particular topic as maybe some others are. But you can -- you see the same reports that we do. But I don't see any overwhelming impact that would change that trajectory we're talking about here.

Peter Lawson - Mizuho Securities USA Inc., Research Division

And then Europe versus the U.S. what was it like in the quarter? And what's the expectations with 2012?

Frank Witney

Yes. So we actually had much stronger performance in Europe than we did in North America. North America has been a little bit of a problem for Affymetrix for the last few years. The sequential -- there was sequential growth quarter over quarter in Europe, where we saw sequential decline in North America, and that's a trend that we've seen for the last few years. One of the changes that we did make in our commercial organization is we changed leadership in North America because we believe that just candidly, we've underperformed in North America. And so we -- I'm not sure that that's a macro trend or it's a company-specific trend, but we certainly had stronger -- we saw stronger performance in our international business, which is Asia and Japan and our distributors, as well as Europe. And we saw our biggest gap in revenue performance was in North America. We've taken steps to change that and in many different ways, including the leadership.

Peter Lawson - Mizuho Securities USA Inc., Research Division

And then, just briefly, I know AGBTs will sequence in and take it. But do you have any product releases there [indiscernible]?

Frank Witney

No, Peter, you're correct. That's essentially largely a sequencing meeting. So we don't have any product rollouts there. No, we don't. No.

Operator

Our next question comes from the line of Ross Muken from Deutsche Bank.

Ross Muken - Deutsche Bank AG, Research Division

So digging back into sort of Doug's comment from earlier. If you sort of have to rank in terms of your expectations next year for the business, sort of for more ambitious to less ambitious, where would you say from an expectation perspective, you're kind of more pushing the needle and it's going to be a lot of heavy lifting in other places where you think you've started to make some progress and you've put the right people in place and you feel like it's at least the cleaner path to kind of fixing some of the legacy issues that, that business maybe was impacted by.

Frank Witney

Yes. So I would say starting with the easiest going to the hardest. The easiest for us is our life science reagents business. That's a very steady business. It's 13% of the revenue. It's been growing 5%, 6%, 7%. And we envision that it will continue to do that. We have a great team in place, great execution. It's a team we feel very comfortable with. Our genetic analysis business unit that has the 2 components, genotyping and cyto, we feel extremely good about the cyto. We've talked a lot about that. We have exactly the right people in place. We've overlaid clinical sales specialists with a lot of experience. We've put regulatory people in the company that have a lot of experience. We feel in very good shape there. The genotyping one is in that same business unit. That's one that's problematic for us. We feel we have a good platform. We've made some pretty good claims in the past that haven't come through. We have a new team in place. We fixed our genotyping issues. We have a number of new arrays out that our ethnic-specific. We have our Targeted Genotyping in place. But we're well behind the competition in that particular area. But -- we'll we've -- I think we have modest and realistic expectations around our genotyping platform. In that same business unit, is also our PBA partners, or Powered by Affy partners, which some of them are getting very nice traction. And so -- and we have good management there. So we feel -- that we feel our PBA partners will continue to make progress. It's still a relatively small amount of money, but we feel pretty good. So in aggregate, if you take that genetic analysis business together, we come up with this -- we come with our revenue growth that's in excess of 20% for that unit. And that whole business, as we said, is 34% of the total. The area that we are spending -- which we have to do the heaviest lifting at is in the Expression business. That represents 45% of our business. It declined precipitously last year. And there are certain parts of it, like the IVT, that our historic product that we don't anticipate that anything is going to change to that trajectory. However, we feel the number of products in around that, that are more clinically oriented, like our microRNA product, our gene level transcriptome products and some inexpensive products like PrimeView. So we believe that we've got a team in place. People that know this business very well. We've hired Expressions or in the process of hiring Expression specialists to help our account manager sell into our pretty complex world of NGS, in which the arguments are complex and the roles of arrays need to be explained pretty carefully. That business will continue to decline. We think it will decline on the order of 10%, something like that, in aggregate, with the IVT declining more aggressively offset by some of these other products. The Pano business is the other piece of Expression, and we expect and have every reason to believe and got up to a pretty good start in January that the Pano business will recover -- will return to growth. We've done that by essentially putting the old Pano team together that the sales team was dissembled a few years ago, and you don't -- it's not like the water faucet, you just don't turn the water back on. And so we put that team back together. They're off to a pretty good start. It's a small part of the business. Overall, it represents maybe 7% or 8% of our total revenue. But we expect it to grow pretty aggressively. So in aggregate, we see the Expression business in the minus 5% to minus 10% range. So I would put it and not grading it with reagents, the easiest and most reliable genetic analysis, half of it in great shape on cyto. The genotyping is still, has a yellow light on it. Our PBA partners, we feel, are in good shape. And then the Expression business, we have to work very, very hard to offset the losses that we're going to see in the IVT business.

Ross Muken - Deutsche Bank AG, Research Division

Turning to eBio. I know you can't say much in terms of the processes that stand. But can you just give us a sense, I mean, in terms of like the amount of management time and/or distraction this is causing today. Because, obviously, Frank, you outlined a pretty ambitious plan to help stabilize and turnaround the business. It seems like the eBio situation has been a much more complicated one than we all thought. And so can you just give us a sense sort of how you're balancing that versus the day job in terms of getting the core business to kind of get to a point where you're more satisfied with the top line performance?

Frank Witney

Yes, a good question. The good news days are kind of expandable. But we've walled off the management of the eBio process, I think, extremely well. Obviously, heavy lifting is being done by Tim and myself. Rick Runkle, our General Counsel and his team. There's some -- there are some involvement in integration meetings. But people understand that our top priority is the core business. With or without eBio, our top priority is the core business. I think we have walled off the vast majority of the team. They know it's happening. We update them as we can from time to time. But in fact, it's really falling to the people on this call and Rick's team to do the vast majority of the work around that. Tim's team on the financial modeling side but they are continuing to do their work as well. But from the point of view of people in R&D, people in the sales, in the commercial organization, we just had our sales meeting down in San Diego over last weekend, we talked about eBio as something that's out there. But we spent 99.9% of the time talking about Expression, Genetics and Reagents, with almost no discussions of eBio or whatsoever. But it's a great question.

Ross Muken - Deutsche Bank AG, Research Division

And maybe just quickly on the model. You mentioned sort of the cost to product revenue. There were some instrument obsolescence in there. How much of that sort of ongoing versus one-time in nature? And then on the interest, income and the other line, you even taken out the headquarter charge, there were still a fairly decent reversal versus the last 2 quarters. We had income on that line. What was sort of the Delta Q-to-Q that caused that relevant change?

Timothy C. Barabe

Well, I would say, gross margin had a big impact. So we were down probably about 5 percentage points versus what we had been in the previous quarter. So that's over $3 million right there. A good deal of that, maybe 2/3 of that was really warranty work as opposed to absorption. But clearly, absorption does play a role. If we -- it's a lot easier to have 60% gross margins when you're in the 70s on the sales basis than when you're in that mid-60s. So that, that would answer that question. We did have -- we had impairments and we had some restructuring. I mean, basically, what we've done is, is we've taken 20% out of R&D. We've also taken heads out of G&A in order to repurpose those spends into sales and marketing. So I mean, that definitely had an impact as well. So you combine the 2 impacts, it was probably about an $8 million impact for the quarter versus the previous quarter.

Operator

Our next question comes from the line of Dan Leonard from Leerink Swann.

Daniel L. Leonard - Leerink Swann LLC, Research Division

I think I'm going to ask the same question other folks have, but try to take it in a different way. Do you have anything to the tune of a bookings rate or a backlog you can communicate on the cytogenetics business? If you could give us a more visibility into that growth projection?

Frank Witney

Yes, I think the only thing that I'd really like to say on that is that we are as we -- for our full year plan, we anticipate cytogenetics and CytoScan, in particular, because we have a couple of products that are falling off, to be roughly 10% of our revenues. And we are tracking to that on our bookings. Q4 came in about even a little higher than we anticipated to support that 10% number. And January came in just fine as well. And I can tell you in talking to the sales team down in San Diego, it is very difficult to get them to talk about anything other than cytogenetics because their customers are lighting up when they see it. So I would say that we are tracking well towards our goal in cytogenetics. I don't want to sit here and say there was any upside to that number. But we are tracking well to the plan. The product is performing extremely well. We've had customers say extremely positive things, willing to do webinars for us, extolling the product and they feel extremely good about it.

Daniel L. Leonard - Leerink Swann LLC, Research Division

Okay. And is there any sensitivity on the forecast there around the timing of your anticipated FDA filing? Does that have an influence on some of the order expectations in the back half of the year?

Frank Witney

No, it does not.

Daniel L. Leonard - Leerink Swann LLC, Research Division

Okay. And then, finally, do you have anything to the tune of a backlog or bookings or what have you to support the forecast in Axiom, the Axiom rebound?

Frank Witney

Axiom is a lumpy business. We are off to a very, very good start in Europe in Axiom. I would say that we are, at this point, we have booked our entire first quarter of Axiom in Europe. We're off to a slower start in North America. So -- but we're still driving to the number, but it's not a daily number, it's a lumpy -- these are larger deals and it's lumpier than sort of the daily bookings type thing.

Operator

Our next question comes from the line of Nandita Koshal from Barclays Capital.

Nandita Koshal - Barclays Capital, Research Division

I guess I'll start with cyto again. And I see some of your growth projections involved or make some assumptions around market share gains that are fairly meaningful. Frank, maybe if you could comment on the competitive landscape in that market is and what really drive some of these check-ins?

Frank Witney

Well, yes, it is -- we talked about Agilent being the market leader in this area. There's obviously other products [indiscernible] have products in the area. We believe, and we've been told that the way we constructed this particular product and the system around that we have an industry-leading product and are willing to stand behind that and our customers are willing to stand behind that. That has to do with the density of markers, it has to do with the performance, the simplicity of the assay. It's really there. When you line up the arrays side-by-side and you look at the content on the arrays and the kind of resolution that you can get, we feel that we have a demonstrable competitive and sustainable competitive advantage to continue to gain significant market share in the space.

Nandita Koshal - Barclays Capital, Research Division

Okay. And then maybe a question for Tim. Tim, how much of that R&D load in 2012 for the cyto trial?

Timothy C. Barabe

We haven't broken that out. But it would be a clinical trial. We haven't given color on that, have we?

Frank Witney

We have not. But this is certainly nothing like clinical trials in the sense of pharmaceutical-type clinical trials from a cost standpoint.

Timothy C. Barabe

Low millions as opposed to huge. Does that help?

Nandita Koshal - Barclays Capital, Research Division

It does, it does. And the R&D target of 20% and then over time getting to 15%, is that primarily top line leverage? Or is there something in there that's sort of restructuring plans or additional look at the R&D organization?

Timothy C. Barabe

We currently have a 2012 budget that tracks to 20% of sales. So we took the 20% of R&D out in mid-October. And the plan that we have is operating to a 20% number.

Frank Witney

I think one thing -- just a little bit of color, is that we're not investing uniformly across our business units. We have a very low investment in R&D. In our Life Science reagents business, it's a few percentage of sales. In our Expression business, it's more like, for the lack of a better word, a maintenance business at roughly 10% of sales. And then we are investing quite aggressively in our clinical business -- or genetic analysis and clinical business by investing in our cyto platform, as well as OncoScan, which we've mentioned earlier, which is our, our cancer cytogenetics and somatic mutation product, as well as trying to gain a foothold and gain some market share in genotyping. So we're really spending heavily -- disproportionately heavily in our genetic analysis business. But we intend to -- if we can continue to see growth rates that are north of 20%, that number will fall in line. As we don't see any obvious need to add people to R&D. We've got great people. We have informatics. We have molecular biologists. We've got biochemists to make kits. So we feel we're well staffed. It's really a question of growing into those revenues over the next 2 or 3 years. And again, the R&D is not, it's not peanut buttered across the organization. It's being selectively applied in areas that we believe our best growth opportunities.

Operator

Our next question comes from the line of Jon Groberg from Macquarie Capital.

Travis Steed - Macquarie Research

This is actually Travis in for John. Most of my questions have been asked at this point. But I want to see if you could maybe break out the DNA and other and let us know what the DNA was in the quarter?

Frank Witney

Yes, give us one second, I can pull that for you, Travis. So it's roughly about $18 million and change. Yes, so $18.4 million call it in DNA, and about $4.9 million, $5 million in other.

Travis Steed - Macquarie Research

Okay. And I think previously you identified like 3% to 4% synergies on the eBio deal. Do you still kind of feel the same about getting synergies out of the deal if it closest?

Frank Witney

Yes, nothing is material.-- nothing is changed in that thinking.

Operator

Our next question comes from the line of Isaac Ro from Goldman Sachs.

Jeff Ares - Goldman Sachs Group Inc., Research Division

This is Jeff in for Isaac. One quick clarifying. Do you say that the guidance is not predicated upon the approval of the CytoScan product later in the year?

Frank Witney

It is not.

Jeff Ares - Goldman Sachs Group Inc., Research Division

So then looking at the range of the guidance from flat to down low single digits in the commentary you gave on the various percentages of the businesses, I mean, if you take down 10%, up 20% and up mid-single...

Frank Witney

I'm sorry, just to clarify -- our guidance is flat to up in low single digits, it's not down.

Jeff Ares - Goldman Sachs Group Inc., Research Division

Flat to up, okay. So then looking at the different points of the range, where are the factors there specifically by business unit, considering if you take down 10% and then up 20% for the other business, if you can kind of get to the midpoint of that, so what get you to the low end of the range?

Frank Witney

Well, we guess the low end of the range would be that if we can support Expression. If Expression -- we feel pretty confident about the genetic analysis and the life science reagents business. The Expression business has been a challenge for us. It's not a secret. Panomics shrunk, when you're asking it to grow. The Expression, the IVT business has shrunk in the 15% to 20% range, and we don't see any way to attenuate that. We can only augment it and offset it with new products that we've launched. So I would say the -- and I don't think it would be a surprise to anybody in this call, the area that people are the most concerned about is our Expression business is 45% of our revenue in a non-eBio world, it's less in an eBio world. But I would say that the, we're going to keep a very close watch on the growth of the Pano business, which we're asking to grow 35%. It's a small number. But we have, north of $100 million in our classical RNA, global RNA Expression business between IVT and the gene level products. And so that's the one that could drive us to the low end would be if we undershoot on Expression.

Jeff Ares - Goldman Sachs Group Inc., Research Division

I guess then to expand on to that, given the year that you, guys, had in front of the restructure issues you've made, can you give us an idea of kind of how the sales force is aligned to protect that business concerning your comment earlier that everyone's pretty focused on cyto? How do we get comfort around the fact that it's kind of not going to be forgotten if people try to sell their businesses that aren't growing versus just stop the bleeding?

Frank Witney

Yes, that's a terrific question. I don't want to go into all the details. But I can tell you at a high-level, what we've done is we've created account managers that have responsibility for Cytogenetics and Expression, and the genotyping products are being -- are pulled out. The genotype sale, genotyping sale is a complex sale. And we've pulled those people out and created a specialist team that do just genotyping. So if you're an account manager, you have Cytogenetics as a relatively small number and Expression is a relatively large number. And so it will definitely get attention with that group. Secondly, what we've done is we've overlaid Expression specialist, and by the definition of Expression in this case, it covered everything from Panomics, from single cell to multiplex to global expression profiling with extremely good knowledge of the -- with an extremely good knowledge of the impact of RNA-Seq and where arrays fit in the RNA-Seq world. So Expression is a topic that is on top of everyone's mind, except for those people who are selling their genotyping products in order to just perform there. So it's a pretty, I think logical. But it's a relatively major structural change in the way we are approaching our customers and one that we feel will bear fruit. It may take a little time to set in. This strategy is about 6 weeks old. We spent a lot of time in San Diego at the sales meeting on training and forecasting. We've unwound the industrial academic sales split, as we felt that was not efficient. And so we're going to do some pretty big changes. But we think we're logical. We think people -- we think it's logical and we think people have line of sight on where their customers are and have the time to become very knowledgeable. It used to be relatively easy to sell expression array at Affymetrix. We didn't have a lot of competition, either from price or other technologies. And now, the situation is, is more complex and we're trying to respond to that.

Jeff Ares - Goldman Sachs Group Inc., Research Division

So is it fair to say based on those comments that more of the back half way growth is less market dependent and more sales force line curve dependent?

Frank Witney

Well, we believe that we have a very good portfolio of Expression products. We have a low-cost global. We have microRNA. We've got human transcriptome array that, has all the available content from NGS. We have our classical products, both in cartridges and on arrays. We have mid-plex and single cell. It's a broad and powerful and stable, cost-effective portfolio of products. But it has been -- and I think it's company specific. We took our eye off Expression, and now we put our eye back on Expression. And the people who are selling it are -- and the people who are supporting the specialists are very, very focused on getting to those numbers.

Jeff Ares - Goldman Sachs Group Inc., Research Division

And then, just lastly, on clearly pacing for revenue. I mean, I know you, guys, don't want to give quarterly guidance, but given the tough 1Q comp you have, is it fair to assume that most of the revenue is going to be weighted in the second half and the first half is probably closer to the second half of last year's run rate?

Timothy C. Barabe

I think that would be a fair comparison.

Operator

Our next question comes from the line of Bryan Brokmeier from Maxim Group.

Bryan Brokmeier - Maxim Group LLC, Research Division

Frank, when you joined, you talked about how one of the areas that Affymetrix had been weak and where you wanted to focus more on were in certain international markets that had kind of become pretty much ignored or just not been a strong as they should have been. How are those going to play into your growth of getting there to the high end of your growth range?

Frank Witney

Yes, good question. We have -- we worked over the last couple of months on a pretty extensive plan for the buildout of the areas that we think are the 2 drivers [ph] for growth, one is Brazil and the other is China, where we have very small efforts relative to our competitors -- direct competitors as well as broader competitors or broader companies in the life science tools space. Those have been delayed just a little bit, waiting to see what happens with eBio. Because as we talked about our commercial organization in eBio has kind of overlay each other and there may be some way to leverage each other's efforts. We have to wait -- we are modestly proceeding. We've added some people in Brazil. We are poised at people in China. We believe we can -- we believe that with just some additional efforts in those 2 areas, we can get some, we can get additional growth. The other thing that we've done is changed our leadership in Japan to a very aggressive person. We've got -- Japan has been a difficult area for Affymetrix for several years and, we felt it was time for a new leadership there. And that person has been on -- has been in place now for a couple of months and I see some upside. So we're focusing in those areas, although across, for example, we -- our ratio of RNA to DNA in sales in Asia is actually more equal than it is in other parts of the world. And so we do have some nice efforts over there, and we think we can exploit them even more with some additional investments. We've held off on those investments, until we see exactly what happens with the eBio transaction.

Bryan Brokmeier - Maxim Group LLC, Research Division

And are partnerships going to play any role in those markets? Or is it -- are you planning direct distribution and also waiting to see what happens with eBio?

Frank Witney

Yes, so we're certainly waiting. In some cases, for example, in Brazil. We'll use a Khmers [ph] model in which we have some direct and work some with distribution. In China, even the large players, it's impossible to reach all customers in China with a direct force. So we'll end up using some sort of a mixed system of direct sales plus distributors where it make sense.

Bryan Brokmeier - Maxim Group LLC, Research Division

Alright. And that's going to depend on whether you get eBioscience or not -- whether you take out in partialing, it's not something you can move forward with in terms of at least getting the partnerships in place and then the rest of the country wait and see?

Frank Witney

Yes, we're doing a lot of things underneath. We're doing a lot of things that are, what I'd say, preparing the soil. But we haven't moved forward with anything until we see exactly where we are with eBio. But it won't be that were going to delay 3 or 4 months. We have the plan. The plan is in place. It's been well bedded by finance, by the commercial team. And we'll launch some or all part of that effort once we have visibility on the transaction.

Bryan Brokmeier - Maxim Group LLC, Research Division

And then, just lastly, also in revenue growth, if you're looking at flat to low single digits overall, is that implying that you expect North America to continue to decline? Or what needs to be done in order to get that into the positives and for you to be -- see positive growth in all geographies?

Frank Witney

Well, we -- I would say, in -- that we have a high -- I would say, Tim and I have a high level of confidence in our Europe performance. We spent time over there, went through the plan sort of line item by line item. We feel good about our international business. We're spending an awful lot of time on the -- the assumption is we will see improvement in North America, that's the short answer. But it's the area that Scott, the microscope is dialed by far the highest resolution on North America, including new leadership. Our new global head of commercial organization is spending, I would say, 90% of his time with the North America team. We have not replaced the North America leader. What this person is doing is managing the district managers directly in order to get a better feel for exactly what's on the ground. But the assumption is baked into our flat to up, to modestly up is based on an improvement in North America. It won't work, if we don't.

Operator

Our next question comes from the line of Derik De Bruin from Bank of America.

Rafael Tejada

This is Rafael in for Derik. Just one for me. And shockingly, it's on the cyto product. Just wondering, what kind of feedback are you getting from current and potential customers for the cyto product? What are they telling you about the reimbursement side of this product when it's used in clinical applications? Is there a potential challenge that would lead for, that could hinder a broader market demand?

Frank Witney

Yes, at this point, as you know, it's an RUO product. Let me just leave it at we do have a reimbursement strategy that we're working through. It's still a work in process. We're spending a lot of time on it, and we feel we'll have a good understanding of the reimbursement when time comes to pass.

Operator

Our next question comes from the line of Zarak Khurshid from Wedbush.

Zarak Khurshid - Wedbush Securities Inc., Research Division

Tim, I think you mentioned a $3.3 million license charge. I was just curious, what is that exactly? Is it a cash charge? And is it kind of an annual thing?

Timothy C. Barabe

It's not annual, it wasn't $3.3 million, it was more in the order of $3 million. And it was Genisphere, it was to license the reagents that we'll be selling later on this year. One-time.

Zarak Khurshid - Wedbush Securities Inc., Research Division

Got it. And then, Frank, on the cytogenetic strategy. Can you give us a flavor of the new products that you'll be rolling out over the next couple of years? And what kind of additional sort of indications or opportunities you'll be addressing with those new derivatives?

Frank Witney

Yes, I mean, there's a lot of degrees of freedom there. We're focused on postnatal, children with syndromes and would like to get some level of understanding of the genetics underneath them. But we're looking at prenatal. We're looking at pre-implementation genetics. We're looking at the products of conception. We're looking in the leukemia, lymphoma area, as well as certain approaches in solid tumors with FFPE. So hematological solid tumors. And on the constitutional side, prenatal and pre-implementation. So we're working through the models on what is our best opportunities. We have extensive, I think, extensive market information on where to make those investments. We're working on automation, our lower cost automation. We've had relatively high-cost automation offered with some of our platforms. We will be launching low-cost automation in the near future for labs that need higher throughput at more reasonable price points. So as time goes on, we'll be more granular on what those products are. But right now, our focus is really on that revenue number, on the postnatal and our filing, on our filing strategy. But it's a -- the degrees of freedom and the types of products that we can put out around the cyto platform are large. We've talked publicly about the market being roughly $800 million, $200 million for constitutional or inherited, inherited chromosomes, as well as another $600 million for cancers. And the other thing that's nice about this is that our OncoScan product is really a cytogenetics product because it's a copy number product that also does cancer mutations. So when you put our CytoScan product together with our OncoScan product that we intend to launch in kit form in 2013, we think we'll have very broad-based platform for doing cytogenetics, either in constitutional, in hematological or in solid tumors. And those that are even in highly degraded formalin fixed samples. So we feel really, really good about this -- about the global profiling from cytogenetic space.

Zarak Khurshid - Wedbush Securities Inc., Research Division

That's great color. Specifically sort of honing in on the postnatal genetics opportunity. Do you have a sense for the penetration today? And perhaps, the organic growth versus over the course of 2011, whether it's maybe you can just speak qualitatively, you versus signature genomics and those other players, how fast is this market growing for array-based cytogenetics?

Frank Witney

There's 2 terms of the equation. There is the terms of the people that are doing arrays today, which is about 100 million from the various people you talk to. We believe we're gaining market share, and we believe we will gain substantial market share in that group in 2012 based on the power of our product. The other term to that equation are people who are doing classical karyotyping by appearing to microscopes and chemically stained chromosomes which is a very low diagnostic yield approach. And so when you put all that together, I want to believe that the market is probably growing, when you put the 2 terms together, 10%, 15%. But we believe that because of the market share gain and the ability to convince people that a microscope is not standard of care and many -- and the thought-leader groups are all pushing people into array-based cytogenetics because of the resolution, we think the market is going to -- our particular growth rate will be much higher than the base or underlying rate of the market growth.

Operator

Our next question comes from the line of Tycho Peterson from JPMorgan.

Ramesh C. Donthamsetty - JP Morgan Chase & Co, Research Division

Ramesh Donthamsetty on for Tycho. Just the gross margin guidance, what are the assumptions there, either obsolescence cost, mix and volume will be helpful if you can give some color there.

Frank Witney

Yes, so we built the -- I'll start and I'll let Tim dive in. We built the gross margin assumptions based on the volumes that we see in the plan and the mix that we see in the plan. And of course, we built in certain nonstandard cost based on historicals. And so we believe these more -- short of a really substantial drop in volume. We feel that the margins in this 44%, 54% to 56% range are reasonable. We are in great shape. If we did see any upside on the revenues, we are in a position to see real leverage in our gross margin. Our operations team is world class. They consistently take cost out with productivity efforts. They managed to lower inventory by what was the number? $5 million?

Timothy C. Barabe

$5 million in the fourth quarter. 15% overall for the year.

Frank Witney

So $5 million even in the quarter, which return cash back to the company. So we just couldn't feel better about our operations team. They go above and beyond. And we had a challenging revenue quarter, as we've just talked about, maybe not in expectations, but on year-over-year. And yet they managed to reduce inventory without any impact on customer service levels. So we feel pretty good about the gross margin level being in that -- to being in that range. It's a little lower than the company has experienced over the last several years. But at some point, it's more based on -- its volume-based as supposed to that were substantially inefficient or we're losing material pricing. There is clearly a mix issue and there's an absorption issue. And those are the 2 major issues that have our margin at 50s.

Ramesh C. Donthamsetty - JP Morgan Chase & Co, Research Division

Right. So just a follow-up on that, just on the mix issue. Is it -- if you think about cytogenetics and some the arrays there, not necessarily FDA-cleared, HTA, Panomics, some of those growth areas. Is there a particular product line or area that has more of a hit on margins than the other?

Timothy C. Barabe

Ramesh, it's Tim here. I would just say that the main impact on the margins would be from the decline in the gene expression business, which is a very high gross margin business. I would say the other businesses, Cyto has a good margin, Panomics and our life science reagents businesses probably have lower margins, and they're growing. So I think it's the combination of lower margins on those growth businesses combined with the fact that gene expressions are very, very high margin business.

Operator

There are no further questions in the queue. I'd like to hand the call back over to management for closing comments.

Doug Farrell

Thank you for taking the time to join us on the call today. If you did miss any portion of the call, a phone replay will be available for the next 7 days, beginning at about 5:00 Pacific time today. To access the replay, domestic callers should dial (877) 660-6853. International callers please dial, (201) 612-7415. The passcode for both is the same, 387472. Alternatively, an audio replay will be available under the Investor Relations section our website at affymetrix.com. Thank you again for joining us, and have a great day.

Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!