Axon announces loss, shares drop

Shares in Axon Instruments (ASX: AXN) suffered a kick in the guts after a shareholder update revealed unexpected losses of up to $US4 million in the six months to June.

The medical instruments maker blamed the forecast loss on slower than anticipated growth in the microarray genomics market.

But analysts have demanded the company 'please explain', citing concerns that Axon's market was not transparent enough, making it difficult to glean information on performance.

Shares in the company were trading 6.9 per cent lower at 34 cents at the time of writing today, compared with a price of $1.09 at the start of the year.

The slide came as Axon told investors it expected a loss of $US3 million to $US4 million in the six months to June after taking into account $US6 million in R&D expenses.

In the statement, the company said it expected the microarray slowdown and the decline in its profitability to be a short-term issue.

"Several new product introductions have been somewhat delayed," the statement explained.

"Thus we will not benefit from previously expected revenues during the first half of the year from certain cell-based screening systems or our next-generation microarray scanners.

"We are thoroughly reviewing all activities and will act to reduce expenses where cost-savings will not adversely impact future profitability."

Assirt Equities Research analyst Chris Kallos said his organisation had issued a "hold" recommendation on the stock pending an Axon briefing for analysts next week.

"The trouble with Axon is that its main market is very opaque; it is not transparent to us," Kallos said. "Its products are sold in research labs and early stage biotech companies and it is very difficult to track that sort of information from a sales perspective.

"So I think yesterday's announcement came as a bit of a shock because we didn't have a loss factored in."

Kallos said that the current market climate was not conducive to unexpected disappointments.

"We're now revising our valuation and want to see its strategy from here on," Kallos explained. "We have to assess if the market is slowing down or if Axon is losing its competitive edge because they are relatively small in the scheme of things.

"I think it's going to be a case of 'please explain'."

Deutsche Bank analyst Alex McGee said an examination of competitor stocks in the Axon market, namely Affymetrix and Applied Biosystems, supported the company's claim that the gene microarray market was flat.

"It's not as if Axon is alone or that it has dropped the ball," McGee said.

"There are excuses, but in this kind of market people are not going to give them the benefit of the doubt."

He said the next six to 12 months would be vital for Axon to show whether its huge R&D expenditure was bearing fruit.

"We still like the stock and the management team and we are giving it a neutral hold recommendation," McGee said. "The company now has to convince the market that the gene/protein array markets are viable and they can only do that by delivering earnings growth."

Tolhurst Noall analyst George Semerdjian said it was inevitable people would have to buy the equipment in the long run in order to automate their operations and become more efficient.

"At the end of the day, early adopters have taken to the technology as anticipated, but second-line buyers haven't," he said. "I think it is inevitable that laboratories will have to embrace it."

Semerdjian said Tolhurst Noall rated the stock a "buy" despite the company's negative news.

"We're pretty relaxed with the management and have faith in the future of these products," he said.