Affymetrix (NASDAQ:AFFX) was a bit of a puzzling stock today when we saw it had hit a 52-week low after a proposed $250 million convertible note offering.  After the near-10% haircut, this has a $1.5 Billion market cap, and its triple-digit P/E ratio is a bit misleading when you you consider the $0.30 2007 estimate and the $0.51 estimate for 2008.  Revenue estimates for 2007 and 2008 ar $371.7 million and $401.2 million, respectively.

The company isn’t without troubles, because it will lose some key Roche revenues in 2008 and it has increased its patent lawsuits against Illumina.

Its recently established diagnostics business is the hopeful here, but  its partners need FDA marketing approval before that becomes a huge win.

As of September 30, its current assets were $400 million, and total assets outside of Goodwill, deferrals, and ‘other’ are in the vicinty of $600 million.  Its current liabilities are $79+ million and other longer-term debt (including another convertible note) total just under $137 million more; so total liabilities are about $216 million.

The 30-year $250 million in notes may even be used to retire a portion of its previously issued notes.  The terms and conditions will be negotiated between Affymetrix and J.P.Morgan, its underwriter.  The "use of proceeds" from this offering is for general corporate purposes.  This near-10% drop to $21.72 is a loss of of one-third its value from highs as the 52-week trading range $21.58 to $31.95.  Defending triple digit P/E stocks on announcements isn’t what 24/7 Wall St.normally does.  But in this case the financing pact may be deemed cheap.

We’ll evaluate the full spectrum of analyst comments tonight and tomorrow and after we get word of the terms and conditions of the financing, but this sell-off seems excessive for a stock that traded up to $28 last month before its quarterly report.

Jon C. Ogg
November 13, 2007

Jon Ogg produces the 24/7 Wall St. Special Situation Investing Newsletter; he does not own securities in the companies he covers.

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