Affymetrix on the Ascent

In all sectors of the market, the winners are sometimes lost amid the combined performance of their brethren, losers included, and that's certainly the case for the components of the Amex Biotech Index.

Looking at the changes in those 17 stocks during the past 52 weeks reveals one clear winner, and by a sizable margin: Affymetrix (AFFX Quote), a maker of chips used to analyze the effects of drugs on genes. As of June 17, its shares are up 68% in the past year.

What investors are trying to determine is whether Affymetrix's performance is the start of a long-term trend or something that can be erased as quickly as it developed. Views are mixed, but looking at how the company got to be the best performer of the last 12 months could provide some clues as to what the future will bring.

In the short term, Affymetrix stands to benefit from interest in the in-depth testing of drug toxicity that has emerged in the aftermath of Merck's (MRK Quote) withdrawal of Vioxx and Biogen Idec's (BIIB Quote) suspension of Tysabri sales.

Affymetrix, based in Santa Clara, Calif., makes products that help researchers observe the effects of drugs on patients by monitoring changes in gene expressions. The company expects to launch several DNA-analysis products, as well as automated target preparation hardware developed jointly with Caliper Life Sciences (CALP Quote), in the not-too-distant future.

While these new products are expected to be well-received by academics and Big Pharma, the long-term effects of a shift in the standards of pharmaceutical development may have even greater implications for the company and for its sector.

Achieving Targets

Even after the run-up in the past year, Paul R. Knight of Thomas Weisel Partners still sees room for additional gains in Affymetrix stock. In the near term, the stock's performance will be driven by demand for tests to screen out compounds that are likely to fail later in development because of toxicity or lack of effectiveness. Longer term, the benefits could come as tests are used to analyze an individual's genetic makeup and the responses caused by drugs, Knight says.