AFFX Affymetrix, Inc.

We maintain our Neutral recommendation on Luminex Corporation (LMNX). Revenues and earnings for first-quarter fiscal 2011 topped the Zacks Consensus Estimates. Profit more than doubled year over year on the back of solid top line growth.

Revenues surged 30% year over year in the quarter led by strong consumables and assay sales. Consumable revenues propelled 53% to touch a new quarterly record (of $15 million), boosted by strong demand from the company’s major partners.

Healthy shipments of analytical instruments contributed to sustained double-digit growth in system sales. Better sales mix supported gross margin improvement in the quarter. The company backed its revenue forecast for fiscal 2011.

Texas-based Luminex develops and markets proprietary biological testing technologies, which have applications across the life sciences industry. Its proprietary open-architecture xMAP technology enables fast, cost-effective and accurate conduct and analysis of biological tests (bioassays).

Luminex continues to expand its xMAP technology-based installed instrument base. The company shipped 197 analyzers (including 38 MAGPIX analytical instruments) in the first quarter, resulting in cumulative shipments of 7,897 (up 13% year over year).

Luminex possesses an extensive product portfolio and a healthy pipeline of novel assays, which if successfully developed and launched, would facilitate further growth. The company expects to launch the RVP Fast assay in the U.S. and the NeoPlex 4 newborn screening assay in Europe in fiscal 2011.

Moreover, Luminex has a strong international presence which has helped it to expand its product portfolio and customer base. The company’s collaborative agreements should also help expand the use of its products/technology. Luminex, in February 2011, collaborated with Massachusetts-based integrated health system Partners HealthCare to discover novel biomarkers and develop clinical assays.

However, Luminex operates in the highly competitive life sciences industry, characterized by rapid and continuous technological innovation. The company competes with Affymetrix (AFFX), Life Technologies (LIFE) and Sequenom (SQNM).

Moreover, Luminex is challenged by sluggish growth in its core markets, faces regulatory uncertainties, and heavily depends on partners to market its instruments and assays, a strategy that has risks. Our recommendation on the stock is supported by a short-term Zacks #3 Rank (Hold).

 
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