Prepared by MERRILL CORPORATION

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GLwsgIMAPCTKOkr6eF+U4H8qlLW1lINwfCu5K6PWacpn/BpCKR4Jt9S3pWjqwU+j 9lFv0fY1GPfCdjwk63WjaQ== 0000912057-01-528165.txt : 20010814 0000912057-01-528165.hdr.sgml : 20010814 ACCESSION NUMBER: 0000912057-01-528165 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AFFYMETRIX INC CENTRAL INDEX KEY: 0000913077 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 770319159 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28218 FILM NUMBER: 1707496 BUSINESS ADDRESS: STREET 1: 3380 CENTRAL EXPRESSWAY CITY: SANTA CLARA STATE: CA ZIP: 95051 BUSINESS PHONE: 4085226000 MAIL ADDRESS: STREET 1: 3380 CENTRAL EXPRESSWAY CITY: SANTA CLARA STATE: CA ZIP: 95051 10-Q 1 a2056357z10-q.htm 10-Q Prepared by MERRILL CORPORATION
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

/x/	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED JUNE 30, 2001

/ /	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .

Commission File No. 0-28218

AFFYMETRIX, INC.
(Exact name of Registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		77-0319159 (I.R.S. Employer Identification Number)
3380 Central Expressway, Santa Clara, California (Address of principal executive offices)		95051 (Zip Code)

Registrant's telephone number, including area code: (408) 731-5000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / /

Common Shares Outstanding on July 31, 2001: 57,836,990

AFFYMETRIX, INC.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets at June 30, 2001 and December 31, 2000	3
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2001 and 2000	4
	Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2001 and 2000	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	19
Item 4.	Submission of Matters to a Vote of Security Holders	22
Item 5.	Other Information	23
Item 6.	Exhibits and Reports on Form 8-K	33
SIGNATURES		35

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AFFYMETRIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

			June 30, 2001			December 31, 2000
			(Unaudited)			(Note)
ASSETS
Current assets:
	Cash and cash equivalents		$	36,269		$	7,263
	Available-for-sale securities			335,752			428,767
	Accounts receivable			47,207			53,104
	Inventories			30,388			17,234
	Prepaid expenses			7,412			2,157
	Other current assets			352			367

		Total current assets		457,380			508,892
Net property and equipment				67,857			56,245
Acquired technology rights				9,629			10,014
Goodwill and other intangible assets				23,764			26,788
Notes receivable from employees				2,517			2,113
Other assets				17,038			16,728

			$	578,185		$	620,780

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable and accrued liabilities		$	40,353		$	71,024
	Deferred revenue			20,528			19,544
	Current portion of capital lease obligation			—			22

		Total current liabilities		60,881			90,590
Noncurrent portion of capital lease obligation				—			60
Obligation to Beckman Coulter, Inc				5,000			5,000
Convertible subordinated notes				375,000			375,000
Common stock purchase rights				3,000			3,000
Stockholders' equity:
	Common stock			578			571
	Additional paid-in-capital			347,292			341,541
	Notes receivable from stockholders			(647	)		(994	)
	Deferred stock compensation			(21,504	)		(27,875	)
	Accumulated other comprehensive income			6,648			12,080
	Accumulated deficit			(198,063	)		(178,193	)

		Total stockholders' equity		134,304			147,130

			$	578,185		$	620,780

Note: The balance sheet at December 31, 2000 has been derived from the audited consolidated financial statements at that date included in the Company's Form 10-K.

AFFYMETRIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Amounts)

(Unaudited)

			Three Months Ended June 30,						Six Months Ended June 30,
			2001			2000			2001			2000
Revenue:
	Product		$	41,970		$	40,182		$	92,459		$	76,855
	Revenue from Perlegen Sciences, Inc. (Note 6)			2,865			—			2,865			—
	Research			1,332			440			2,432			2,874
	License fees and royalties			3,382			4,789			6,680			5,913

		Total revenue		49,549			45,411			104,436			85,642
Costs and expenses:
	Cost of product revenue			15,743			17,211			34,940			30,717
	Cost of Perlegen Sciences, Inc. revenue (Note 6)			2,865			—			2,865			—
	Research and development			16,466			12,952			35,809			25,160
	Selling, general and administrative			21,988			23,050			46,532			42,801
	Merger related costs			—			—			—			2,395
	Amortization of deferred stock compensation			3,178			—			6,356			—
	Amortization of purchased intangibles			1,565			—			3,138			—

		Total costs and expenses		61,805			53,213			129,640			101,073

Loss from operations				(12,256	)		(7,802	)		(25,204	)		(15,431	)
Interest and other income, net				3,149			1,710			5,534			3,070

Loss before income taxes				(9,107	)		(6,092	)		(19,670	)		(12,361	)
Income tax provision				—			—			(200	)		—

Net loss			$	(9,107	)	$	(6,092	)	$	(19,870	)	$	(12,361	)

Basic and diluted net loss per common share			$	(0.16	)	$	(0.11	)	$	(0.35	)	$	(0.23	)

Shares used in computing basic and diluted net loss per common share				57,340			54,989			57,168			54,326

See accompanying notes.

AFFYMETRIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

(In Thousands)

(Unaudited)

						Six Months Ended June 30,
						2001			2000
Cash flows from operating activities:
	Net loss					$	(19,870	)	$	(12,361	)
		Adjustments to reconcile net loss to net cash used in operating activities:
			Depreciation and amortization				6,467			4,753
			Amortization of intangible assets				3,409			382
			Amortization of investment premiums				3,053			(410	)
			Amortization of deferred stock compensation				6,371			56
			Accretion of interest on notes receivable from stockholders				(339	)		—
			Change in operating assets and liabilities:
				Accounts receivable			5,897			(13,382	)
				Inventories			(13,154	)		(4,219	)
				Other current assets			(5,240	)		170
				Other assets			(714	)		(10,665	)
				Accounts payable and accrued liabilities			(30,671	)		6,434
				Deferred revenue			984			3,232

					Net cash used in operating activities		(43,807	)		(26,010	)

Cash flows from investing activities:
	Capital expenditures						(18,079	)		(12,984	)
	Proceeds from the sale of available-for-sale securities						257,746			287,108
	Proceeds from the maturities of available-for-sale securities						48,284			—
	Purchases of available-for-sale securities						(221,500	)		(405,197	)
	Purchases of technology rights						—			(1,850	)

					Net cash provided by/(used in) investing activities		66,451			(132,923	)

Cash flows from financing activities:
	Issuance of common stock						5,758			6,479
	Issuance of convertible subordinated debt						—			225,000
	Principal payments on capital lease obligations						(82	)		(126	)
	Repayment of notes receivable from stockholders						686			150

					Net cash provided by financing activities		6,362			231,503

Net increase in cash and cash equivalents							29,006			72,570
Cash and cash equivalents at beginning of period							7,263			12,677

Cash and cash equivalents at end of period						$	36,269		$	85,247

See accompanying notes.

AFFYMETRIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2001

(Unaudited)

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The consolidated financial statements include the accounts of Affymetrix, Inc. ("Affymetrix" or the "Company") and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring entries) considered necessary for a fair presentation have been included. Certain amounts in 2000 have been reclassified to conform to the 2001 presentation. All share and per share amounts have been adjusted to reflect a two-for-one stock split in August 2000.

Results for any interim period are not necessarily indicative of results for any future interim period or for the entire year. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.

Revenue Recognition

Product revenues include sales of GeneChip® instrumentation, Affymetrix 428 scanners and 417 arrayers, software and probe arrays as well as subscription fees earned under EasyAccess(TM) agreements. Instrumentation and probe array revenues are recognized when earned, which is generally upon shipment and transfer of title to the customer and fulfillment of any significant post-delivery obligations. Revenue from Perlegen Sciences, Inc. ("Perlegen") is recognized at cost upon shipment of the wafers and transfer of title to Perlegen. Software revenue is recognized upon completion of performance obligations, which is generally upon installation. Reserves are provided for anticipated warranty expenses at the time the associated revenue is recognized. Revenue related to extended warranty and software maintenance arrangements is deferred and recognized over the applicable periods. Revenue from subscription fees earned under EasyAccess agreements is recognized ratably over the term of the agreement subject to adjustments for anticipated reductions provided for in certain agreements for late delivery of probe arrays. Payments received in advance under these arrangements are recorded as deferred revenue until earned.

Research revenue includes amounts earned from services performed pursuant to commercial collaboration and supply agreements as well as under government grants. Research revenue is recorded in the period in which the costs are incurred or in which the revenue is earned as defined in the related agreement. Direct costs associated with these contracts and grants are reported as research and development expense.

License and royalty revenues include amounts earned from third parties with licenses to the Company's intellectual property and are recognized when earned under the terms of the related agreements, generally upon signing of the license. In situations where the Company has continuing performance obligations, license revenue is recognized ratably over the period of expected performance.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Financial Instruments and for Hedging Activities" ("SFAS 133") which provides a comprehensive and consistent standard for hedging activities and the accounting for derivatives. In June 1999, FASB issued Statement of Financial Accounting Standards No. 137, which defers the effective date of SFAS 133 to years beginning after June 15, 2000. The adoption of SFAS 133 did not have a material impact on the Company's results of operations or financial position.

In June 2001, FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141") which eliminates the pooling-of-interest method and provides a single-method approach, the purchase method, for the accounting for all business combinations, as well as new criteria for recognition of intangible assets. SFAS 141 is effective for all business combinations initiated after June 30, 2001. The adoption of SFAS 141 did not have a material impact on the Company's results of operations or financial position.

In June 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which establishes new standards for goodwill and other intangible assets, including the elimination of goodwill amortization, to be replaced with periodic evaluation of goodwill for impairment. SFAS 142 is effective for fiscal years ending December 15, 2001 but any goodwill and intangible assets resulting from a business combination after July 1, 2001 will be accounted for under SFAS 142. Goodwill and intangible assets from business combinations before July 1, 2001 will continue to be amortized prior to the adoption of SFAS 142.

The Company will adopt SFAS 142 on January 1, 2002. Upon the adoption of SFAS 142, the Company is required to evaluate its existing goodwill and intangible assets from business combinations completed before July 1, 2001 and make any necessary reclassifications in order to comply with the new criteria in SFAS 141 for recognition of intangible assets. The Company will then be required to reassess the useful lives of all intangible assets acquired in purchase business combinations, including those reclassified from goodwill, and make any necessary amortization adjustments by the end of the first interim period after adoption. To the extent that any intangible asset is identified as having an indefinite useful life, SFAS 142 requires the Company to test the intangible asset for impairment and recognize any impairment losses as a cumulative effect of change in accounting principle in the first interim period.

After the identification and assessment of intangible assets discussed above, the Company is required, under SFAS 142, to identify reporting units and assign all related assets and liabilities and goodwill to the reporting units. The Company must then complete the two-step transitional goodwill impairment test. The first step, which must be completed within six months of adoption of SFAS 142, requires the Company to determine the fair value of each reporting units and compare it to the reporting unit's carrying amount. To the extent that a reporting unit's carrying amount exceeds its fair value, an indication exists that the reporting unit's goodwill may be impaired and the Company is required to complete step two of the transitional goodwill impairment test as soon as possible, but no later than December 31, 2002. Step two requires the Company to compare the implied fair value of the

reporting unit to its carrying amount as of January 1, 2002. Any transitional impairment loss will be recognized as a cumulative change in accounting principle in the first interim period.

At June 30, 2001, the Company has goodwill and total intangible assets of $33.4 million subject to SFAS 141 and SFAS 142. Amortization expense for goodwill and intangible assets amounted to $3.4 million for the six months ended June 30, 2001. Due to the extensive efforts needed to comply with the adoption of SFAS 141 and SFAS 142, it is not practical to reasonably estimate the impact of adoption of these statements on the Company's financial statements at the date of this report, including whether any transitional impairment losses will be required to be recognized as a cumulative effect of a change in accounting principle.

Net Loss Per Share

Basic earnings (loss) per share is calculated using the weighted average number of shares of common stock outstanding during the period less the weighted-average number of shares of common stock subject to repurchase. Diluted earnings (loss) per share gives effect to the dilutive effect of stock options and warrants (calculated based on the treasury stock method) and convertible debt (calculated on an as-if-converted method). Diluted net loss per share is the same as basic net loss per share as the Company is in a net loss position.

Shares used in computing net loss per share is as follows (in thousands):

		Three Months Ended June 30,			Six Months Ended June 30,
		2001		2000	2001		2000
Weighted-average shares outstanding		57,718		54,989	57,574		54,326
	Less: Weighted-average shares of common stock subject to repurchase	(378	)	—	(406	)	—

	Weighted average shares used in computing basic and diluted net loss per share	57,340		54,989	57,168		54,326

NOTE 2—CASH, CASH EQUIVALENTS AND AVAILABLE-FOR-SALE SECURITIES

At June 30, 2001, cash equivalents and available-for-sale securities consisted of U.S. Government obligations, U.S. corporate debt securities and equity securities. The investments are carried at fair value with unrealized gains and losses reported in stockholders' equity.

NOTE 3—INVENTORIES

Inventories consist of the following (in thousands):

		June 30, 2001		December 31, 2000
Raw materials		$	7,811	$	4,494
Work in process			791		931
Finished goods			21,786		11,809

	Total	$	30,388	$	17,234

NOTE 4—ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following (in thousands):

		June 30, 2001		December 31, 2000
Accounts payable		$	12,054	$	15,242
Accrued compensation and related liabilities			7,476		7,059
Accrued interest on convertible subordinated notes			5,880		5,971
Accrued sales and use tax			3,049		2,940
Accrued warranties			3,250		4,738
Accrued legal			2,744		8,153
Accrued royalties			5,219		6,003
Accrued legal settlement			—		18,587
Other			681		2,331

	Total	$	40,353	$	71,024

NOTE 5—COMPREHENSIVE LOSS

The components of comprehensive loss for the three and six months ended June 30, 2001 and 2000 are as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2001			2000			2001			2000
Net loss	$	(9,107	)	$	(6,092	)	$	(19,870	)	$	(12,361	)
Unrealized gain (loss) on equity investment		2,917			33,676			(6,387	)		33,876
Unrealized gain (loss) on debt securities		(2,326	)		1,584			955			(141	)

Comprehensive gain (loss)	$	(8,516	)	$	29,168		$	(25,302	)	$	21,174

NOTE 6—PERLEGEN SCIENCES, INC.

In 2000, Affymetrix formed a wholly-owned subsidiary called Perlegen Sciences, Inc. ("Perlegen"). From Perlegen's inception through March 30, 2001 the operating results of Perlegen were consolidated into the financial statements of Affymetrix. On March 30, 2001, Perlegen completed a private financing, with third party investors raising $100 million which reduced Affymetrix' ownership position in Perlegen to approximately 53%. Affymetrix and certain of its affiliates have placed a portion of their holdings (approximately 8%) into a voting trust, relinquishing certain voting rights and control such that Affymetrix will account for Perlegen's financial results using the equity method from the date of the financing. As the Company's investment in Perlegen has no basis for accounting purposes Affymetrix has not recorded its proportionate share of Perlegen's operating losses in its financial statements since the completion of Perlegen's financing. Pursuant to a supply agreement with Perlegen, in the quarter ended June 30, 2001, the Company sold whole wafers to Perlegen at the Company's fully burdened cost of manufacturing. Revenue and cost of revenue of $2.9 million are reflected in the accompanying condensed consolidated statements of operations.

NOTE 7—LEGAL PROCEEDINGS

Oxford Gene Technology Settlement

On March 26, 2001, Affymetrix reported on Form 8-K that Affymetrix and Oxford Gene Technology, Ltd. ("OGT") entered into a settlement agreement on March 23, 2001 resolving all existing litigation between the two companies.

Hyseq, Inc. Litigation

On March 3, 1997, Hyseq, Inc. ("Hyseq") filed a lawsuit in United States District Court for the Northern District of California (San Jose Division) alleging that Affymetrix' products infringe United States Patent Nos. 5,202,231 (the "'231 Patent"), and 5,525,464 (the "'464 Patent"). In addition, in December 1997, Hyseq filed a second action claiming that Affymetrix' products infringe a related patent, United States Patent 5,695,940 (the "'940 Patent"). On October 26, 1999, Hyseq filed a third action in United States District Court for the Northern District of California claiming that Affymetrix' products infringe a related patent, United States Patent No. 5,972,619 (the "'619 Patent"). The action also requests a declaration that Affymetrix' United States Patent No. 5,795,716 (the "'716 Patent") is invalid based on the '619 Patent. On November 2, 2000, Hyseq was granted permission to file a supplemental complaint in United States District Court for the Northern District of California alleging that Affymetrix' products infringe an additional related patent, United States Patent No. 6,018,041 (the "'041 Patent"). No trial date in these matters has been set.

On October 26, 1999, the United States District Court for the Northern District of California issued a claims construction order interpreting various terms of the '231, '464, and '940 Patents. Following Hyseq's motion for reconsideration of that claims construction order, the United States District Court for the Northern District of California on July 28, 2000, issued a revised claims construction order interpreting various terms of the '231, '464 and '940 Patents. The parties have briefed claim construction issues on the '619 Patent, and a claims construction decision was issued by

the court on March 20, 2001 regarding the '619 Patent. Claim construction rulings are a pre-trial proceeding that provide interpretations of specific language in claims of the relevant patents.

The Hyseq actions seek damages based on the sale of Affymetrix' products and processes and seek to enjoin commercial activities relating to those products and processes. In addition to subjecting Affymetrix to potential liability for damages, these actions, and any other similar legal actions against Affymetrix, its collaborative partners, or its customers, could require Affymetrix, its collaborative partners, or its customers to obtain a license in order to continue to manufacture, market or use the affected products and processes. While Affymetrix believes that the Hyseq complaints are without merit, Affymetrix may not prevail in these actions and Affymetrix, its collaborative partners, or its customers may not prevail in other related actions. Moreover, in the event Affymetrix does not prevail in the Hyseq actions and Affymetrix, its partners or its customers are required to obtain a license to continue to manufacture, market or use the affected products and processes, Affymetrix, its partners or its customers may not be able to obtain such a license on commercially acceptable terms, if at all. Furthermore, Affymetrix has expended and is likely to continue to expend substantial financial and managerial resources in defending against the claims filed by Hyseq.

On August 18, 1998, Affymetrix filed a lawsuit in United States District Court for the Northern District of California against Hyseq alleging infringement of the "'716 Patent", and United States Patent No. 5,744,305 (the "'305 Patent"). On September 1, 1998, Affymetrix added its United States Patent No. 5,800,992 (the "'992 Patent"), to the complaint of infringement against Hyseq. On November 23, 1998, Hyseq filed an answer to Affymetrix' complaint, alleging that Affymetrix' three asserted patents are invalid. On January 25, 2001, the United States District Court for the Northern District of California issued a claims construction order interpreting various terms of the '716, '305 and '992 Patents. On May 8, 2001, the Court determined that the term "substantially complementary," as used in claims 1 and 3 of the '992 Patent is indefinite within the meaning of the federal Patent Act. No trial dates have been set in these cases.

On January 30, 2001, the Board of Patent Appeals and Interferences of the United States Patent and Trademark Office issued to Affymetrix a Notice Declaring Interference and has ordered the commencement of an interference proceeding between Affymetrix and Hyseq involving certain claims of Affymetrix' '716 Patent, and certain claims of a Hyseq patent application.

Incyte Pharmaceuticals and Synteni Litigation and Proceedings

On January 6, 1998, Affymetrix filed a patent infringement action in the United States District Court for the District of Delaware alleging that certain of Incyte Genomics, Inc.'s ("Incyte") and Synteni, Inc.'s ("Synteni") products infringe United States Patent 5,445,934, (the "'934 Patent"). On September 1, 1998, Affymetrix filed a complaint against Incyte and Synteni in United States District Court for the District of Delaware alleging infringement of the '305 Patent and the '992 Patent. These actions were transferred to the United States District Court for the Northern District of California on November 18, 1998. The actions seek to enjoin commercial activities of Incyte and Synteni relating to Affymetrix' patents and, in regard to the '992 Patent, sought a preliminary injunction. Incyte and Synteni moved for summary judgment that certain claims of the '992 Patent were invalid. On May 4,

1999, the court denied Affymetrix' motion for preliminary injunction and denied Incyte and Synteni's motion for summary judgment.

On April 17, 1998, Incyte filed a response and counterclaim, asserting that the '934 Patent is invalid and not infringed. On April 17, 1998, Incyte also filed a counterclaim alleging that a patent license agreement Affymetrix entered into in December 1997 with Molecular Dynamics interfered with an agreement between Incyte and Molecular Dynamics. In the counterclaim, Incyte alleges that the terms of Affymetrix' patent license to Molecular Dynamics prevented Molecular Dynamics from meeting its obligations to Incyte. Incyte seeks damages from Affymetrix. On September 21, 1998, Incyte and Synteni filed an answer asserting various defenses to the lawsuits in relation to the '992 Patent and the '305 Patent, and asserted several counterclaims, including a request for declaration of non-infringement and invalidity, an assertion of unfair competition, a request for a declaration that Synteni and Dari Shalon, who was a one-time employee of Synteni, have not misappropriated any of Affymetrix' trade secrets, a claim of tortious interference with Incyte's and Synteni's economic advantage, a claim of slander of title, and a claim of trade libel. On August 11, 2000, Incyte and Synteni asserted that the '934, '305 and '992 Patents are unenforceable.

On April 2, 1999, the United States Patent and Trademark Office, or USPTO, notified Affymetrix that Stanford University presented claims that relate to substantially the same subject matter as certain claims from the '992 Patent and all of the claims of the '305 Patent. The Stanford application is alleged to be exclusively licensed to Incyte. The USPTO notified Affymetrix on April 2, 1999 that it had declared an interference proceeding relating to these patents and claims of patents. The USPTO conducted proceedings and determined on September 10, 1999 that Incyte and Synteni did not meet the burden of proof required to establish a case that the claims should be further evaluated in a full interference proceeding. Incyte and Synteni appealed this decision in the United States Court for the Northern District of California on November 8, 1999. On January 22, 2001, the United States District Court for the Northern District of California issued a claims construction order interpreting various terms of the '934, '305 and '992 Patents. On June 12, 2001, in response to Affymetrix' motion for reconsideration, the Court amended its construction of two terms in claim 4 of the '992 patent. On May 2, 2001, the Court entered partial summary judgment that certain of Incyte's products do not infringe the '934 Patent or certain claims of the '305 Patent. On May 8, 2001, the Court determined that the term "substantially complementary," as used in claims 1 and 3 of the '992 Patent, is indefinite within the meaning of the federal Patent Act. Trial in this case is scheduled for April 8, 2002.

On August 17, 2000 Incyte filed a lawsuit against Affymetrix in the United States District Court for the Northern District of California, alleging infringement of U.S. Patent Nos. 5,716,785 and 5,891,636 and asserting various state law claims. On September 6, 2000, Affymetrix filed its answer in this lawsuit and also filed counterclaims against Incyte alleging infringement of Affymetrix' U.S. Patent Nos. 6,040,193 (the "'193 Patent") and 5,871,928 (the "'928 Patent"). In response to Affymetrix' counterclaims, Incyte has filed various state law counterclaims against Affymetrix and requests for declaration that the '193 and '928 patents are not infringed, are invalid and are unenforceable. No trial date has been set in this case.

The Incyte patent claims seek damages based on the sale of Affymetrix' products and processes and seek to enjoin commercial activities relating to those products and processes. In addition to subjecting Affymetrix to potential liability for damages, these actions, and any other similar legal actions against Affymetrix, its collaborative partners, or its customers, could require Affymetrix, its collaborative partners, or its customers to obtain a license in order to continue to manufacture, market or use the affected products and processes. While Affymetrix believes that the Incyte complaints are without merit, Affymetrix may not prevail in these actions and Affymetrix, its collaborative partners, or its customers may not prevail in other related actions. Moreover, in the event Affymetrix does not prevail in the Incyte actions and Affymetrix, its partners or its customers are required to obtain a license to continue to manufacture, market or use the affected products and processes, Affymetrix, its partners or its customers may not be able to obtain such a license on commercially acceptable terms, if at all.

Affymetrix believes that Incyte's claims and counterclaims are without merit. However, Affymetrix has expended and is likely to continue to expend substantial financial and managerial resources defending against these and any other claims filed by Incyte and Synteni and others. Affymetrix' failure to successfully enforce and protect its patent rights or defend against claims by Incyte, Synteni, or others could result in a material adverse effect on Affymetrix' business, financial condition and results of operations.

Applera Corporation Litigation

On July 5, 2000, Applera Corporation, previously known as PE Corporation ("Applera"), filed a lawsuit in the United States District Court for the District of Delaware alleging that certain Affymetrix products infringe five Applera patents related to reagents that Affymetrix purchases from Applera licensed vendors. Applera served Affymetrix with the complaint on October 16, 2000 and on December 14, 2000 Affymetrix filed its response to the complaint and asserted various counterclaims against Applera. On January 25, 2001, Affymetrix filed a declaratory judgement action and various state law claims against Applera in the United States District Court for the Southern District of New York seeking, among other things, a declaration that Affymetrix has not infringed any of Applera's subject patents. On January 30, 2001, Affymetrix filed a motion in the Delaware court to dismiss Applera's claims for lack of subject matter jurisdiction. In response, Applera moved for leave to amend its Delaware complaint to correct the alleged jurisdictional defect. Affymetrix has opposed this motion to amend on grounds that the alleged jurisdictional defect could not be corrected to relate back to the filing of the complaint. On March 21, 2001, the District Court for the Southern District of New York held a hearing and stayed the New York action pending a ruling from the Delaware court on Affymetrix' motion to dismiss for lack of subject matter jurisdiction. No trial dates have been set in these actions.

Affymetrix believes that Applera's claims are without merit. However, Affymetrix cannot be certain that it will prevail in these matters.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This Management's Discussion and Analysis of Financial Condition and Results of Operations as of June 30, 2001 and for the three and six month periods ended June 30, 2001 and 2000 should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000.

All statements in this quarterly report that do not discuss past results are forward-looking statements. Forward-looking statements are based on management's current expectations and are therefore subject to certain risks and uncertainties, including those discussed under the section titled "Risk Factors" included in this report. Specific uncertainties which could cause Affymetrix' actual results to differ materially from those projected include: uncertainties relating to technological approaches, product development, manufacturing and market acceptance; uncertainties related to cost and pricing of Affymetrix' products; dependence on collaborative partners; uncertainties relating to sole source suppliers; uncertainties relating to FDA and other regulatory approvals; competition; risks relating to intellectual property of others; and uncertainties of patent protection.

Affymetrix expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Affymetrix' expectations with regard thereto or any change in events, conditions, or circumstances on which any such statements are based.

Overview

Affymetrix has developed and intends to establish its GeneChip® system and related microarray technology as the platform of choice for acquiring, analyzing and managing complex genetic information. The Company's GeneChip® system consists of disposable DNA probe arrays containing gene sequences on a chip, certain reagents for use with the probe arrays, a scanner and other instruments to process the probe arrays, and software to analyze and manage genetic information from the probe arrays. Related microarray technology offered by the Company includes instrumentation, software and licenses for fabricating, scanning and collecting and analyzing results from low density microarrays. The Company commenced commercial sales of the GeneChip® system for research use in April 1996 and currently sells its products directly to pharmaceutical and biotechnology companies, academic research centers and clinical reference laboratories in the United States and Europe. The Company also sells some of its products through certain distributors, principally in Japan.

The Company has incurred operating losses in each year since its inception, including a loss of approximately $9.1 million during the three months ended June 30, 2001 and, as of such date, had an accumulated deficit of approximately $198.1 million. The Company's losses have resulted principally from costs incurred in research and development and manufacturing and from selling, general and administrative costs associated with the Company's operations, including the costs of patent related litigation as well as non-cash charges from its acquisition activities. These costs have exceeded the Company's revenues and interest income, which to date have been generated principally from product sales, technology access and other license fees, royalties, collaborative research and development agreements, government research grants and from interest earned on cash and investment balances. The Company's ability to generate significant revenues and become profitable is dependent in large part on the ability of the Company and its collaborative partners to successfully develop, manufacture and commercialize products incorporating the Company's technologies, and on the ability of the Company to enter into additional supply, license and collaborative arrangements on satisfactory terms.

The Company's operating results vary and depend on numerous factors. Revenues are principally impacted by the volume, mix and price of product sales, the timing of orders and deliveries of products, design fees, royalties, license fees, and other research revenues under collaborative and licensing

agreements. Expenses are principally impacted by the cost of goods for products, the mix of products sold, the magnitude and duration of research and development, sales and marketing and general and administrative expenses. General and administrative expenses are particularly subject to variation as a result of fluctuations in the intensity of legal activities associated with the Company's on-going intellectual property litigation.

The Company's operating results may also fluctuate significantly depending on other factors. Recent market factors, including business uncertainties affecting the pharmaceutical industry, sporadic ordering patterns from several large customers and declines in the spotted array marketplace have adversely affected the Company's operating results for the three months ended June 30, 2001 and may continue to have an adverse effect on its operating results in future periods. To maintain or gain market acceptance of the Company's products in the face of the introduction of new products by the Company's competitors, Affymetrix may have to reduce or discount the price of its products resulting in an adverse impact on revenues and gross margins. Other factors that may significantly impact the Company's operating results include: the outcome of on-going or future litigation; the cost of any additional licenses needed by the Company for freedom to operate; adoption of new technologies; the cost, quality and availability of reagents and components; regulatory actions; and third-party reimbursement policies.

Results of Operations

Three and Six Months Ended June 30, 2001 and 2000

Product Revenue. Product revenue was $42.0 million and $92.5 millions for the three and six months ended June 30, 2001, respectively, compared to $40.2 million and $76.9 million in the three and six months ended June 30, 2000. The increase in product revenue resulted from growth in the sales volume of GeneChip® probe arrays and additional placement of GeneChip® systems, offset by a decline in sales of 428 scanners and 417 arrayers. In the first quarter of 2001, the Company discovered ambiguities in the UniGene U74 database build that was used in the design of the Murine Genome U74 set of GeneChip® arrays. As a result, the Company redesigned these arrays and had discussions with its affected customers to address their individual needs. Based on these discussions, the Company offered certain replacement arrays to these customers. Approximately 80% of these replacement arrays were shipped during the second quarter of 2001 with the remaining 20% expected to be shipped during the third quarter of 2001.

Revenue From Perlegen Sciences, Inc. Revenue from Perlegen Sciences, Inc. ("Perlegen") was $2.9 million for the three and six months ended June 30, 2001. The Perlegen revenue resulted from the sales of wafers at cost to Perlegen, an affiliated company. There were no revenues from Perlegen for the corresponding periods of 2000.

Research Revenue. Research revenue includes custom probe array design fees, milestones, full-time-equivalent ("FTE") support and grant funding. Research revenue increased to $1.3 million for the three months ended June 30, 2001, compared to $0.4 million in the three months ended June 30, 2000 due primarily to the final billings under existing government grants. For the six months ended June 30, 2001, research revenue decreased to $2.4 million compared to $2.9 million for the same period last year. The decreased aggregate research revenue for the six months ended June 30, 2001 was primarily due to lower activity under government grants.

License Fees and Royalty Revenues. License fees and royalty revenues decreased to $3.4 million for the three months ended June 30, 2001, compared to $4.8 million in the three months ended June 30, 2000 primarily due to lower license fee activity in the three months ended June 30, 2001. For the six months ended June 30, 2001 license fees and royalty revenue increased to $6.7 million compared to $5.9 million for the same period last year. The increase was attributed primarily to the increase in

license agreements. Licenses permit the licensees to utilize the Company's intellectual property on a non-exclusive basis over specified periods for either internal research and development, or in some cases, for commercialization of products. The Company generally has no continuing obligations under these agreements.

Cost of Product Revenues and Gross Margins. Cost of product revenue excluding Perlegen decreased to $15.7 million and increased to $34.9 million for the three and six months ended June 30, 2001, respectively, compared to $17.2 million and $30.7 million in the three and six months ended June 30, 2000. The decrease in the quarter ended June 30, 2001 was primarily due to favorable product mix and favorable production variances. The increase in cost of product revenues for the six months ended June 30, 2001 resulted principally from the growth in product sales. Principal factors that favorably impacted gross margins included improved manufacturing yields for GeneChip® probe arrays, increased production volumes of probe arrays and changes in product sales mix offset by an unanticipated warranty expense arising from the replacement of Murine Genome U74 sets of arrays that contained incorrect probe sequences. Specifically, in the first quarter of 2001, the Company recorded an incremental warranty expense of $0.8 million to cover costs associated with the replacement of Murine Genome U74 sets of arrays sold in the first quarter of 2001. The charges recorded in the first quarter of 2001 were based upon estimates of the number of replacement arrays and other compensation deemed necessary to maintain appropriate customer satisfaction. The replacement of the Murine Genome U74 sets of arrays did not have any material impact on cost of goods sold in the second quarter of 2001. The Company began shipping the replacement arrays in April 2001 and will complete the replacement shipments in the third quarter of 2001.

Research and Development Expenses. Research and development expenses, which primarily consist of research, product development and manufacturing process improvement, increased to $16.5 million and $35.8 million for the three and six months ended June 30, 2001, respectively, compared to $12.9 million and $25.2 million in the three and six months ended June 30, 2000. The increase in research and development expenses was attributable primarily to the hiring of additional research and development personnel, including headcount associated with the continued support for Perlegen through the end of the first quarter of 2001. Given the completion of the private financing of Perlegen on March 30, 2001, Affymetrix accounts for Perlegen's financial results using the equity method for the quarter beginning April 1, 2001. As the Company's investment in Perlegen has no basis for accounting purposes, the Company does not record its proportionate share of Perlegen's losses in its financial statements. Affymetrix recorded $4.5 million in research and development expenses associated with Perlegen in the first quarter of 2001.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to $22.0 million and increased to $46.5 million for the three and six months ended June 30, 2001, respectively, compared to $23.0 million and $42.8 million in the three and six months ended June 30, 2000. The decrease in selling, general and administrative expenses for the three months ended June 30, 2001, resulted primarily from reduced legal fees as a result of the Company's settlement of the OGT lawsuit. The increase in selling, general and administrative expenses for the six months ended June 30, 2001 resulted primarily from the Company's expansion of commercial activities and ongoing legal costs arising from patent litigation. On March 23, 2001, the Company and OGT entered into a settlement agreement resolving existing litigation between the two companies. The Company recorded an additional charge of $1.9 million in the quarter ended March 31, 2001 as a result of a fee arrangement entered into with the Company's legal counsel. Selling, general and administrative expenses are expected to continue to increase as the Company expands sales, marketing, and technical support functions, increases headcount in management and administrative functions, prosecutes and defends its intellectual property position and defends against claims made by third parties in ongoing litigation. In particular, the Company expects legal costs to vary substantially as the intensity of legal activity changes in on-going patent litigation with Hyseq, Inc., Incyte Genomics, Inc./Synteni and

Applera Corporation. Depending on the outcome of these lawsuits the Company may be entitled to damages or may be obligated to pay damages. There can be no assurance that Company has adequately estimated its potential damages exposure.

Amortization Deferred Stock Compensation and Purchased Intangibles. During the six months ended June 30, 2001, the Company incurred charges of $6.4 million for amortization of deferred stock compensation and $3.1 million of amortization of purchased intangibles related to the acquisition of Neomorphic, Inc. The Company expects amortization of deferred stock compensation and purchased intangibles related to the Neomorphic acquisition to total approximately $19.0 million in 2001. Amortization of goodwill related to the acquisition of Neomorphic will cease in 2002 as a result of the adoption of SFAS 142 "Goodwill and Other Intangible Assets."

Interest and Other Income, Net. Net interest and other income increased to $3.1 million and $5.5 million for the three and six months ended June 30, 2001, respectively, compared to $1.7 million and $3.1 million in the three and six months ended June 30, 2000 due to higher investment balances from the sale of convertible subordinated notes as well as the realization of $1.5 million in gains within the investment portfolio during the second quarter of 2001.

Income Tax Provision. The provision for tax of approximately $0.2 million consists of current taxes accrued on the profits attributable to the Company's foreign operations for the first quarter of 2001. Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Given the Company's history of operating losses, no deferred tax assets have been recognized to date.

Liquidity and Capital Resources

As of June 30, 2001, the Company had cash, cash equivalents and available-for-sale securities of $372.0 million compared to $419.6 million at June 30, 2000. The decrease is primarily attributable to cash used to settle the Oxford Gene Technology (OGT) lawsuit and fund the Company's operating loss and capital expenditures.

Net cash used in operating activities was $43.8 million for the six months ended June 30, 2001, as compared to $26.0 million for the six months ended June 30, 2000. The increase in net cash used in operating activities resulted primarily from a decrease in accounts payable and accrued liabilities, including the payable to OGT, and inventories and an increase in other current assets, offset by a decrease in accounts receivable.

The Company's investing activities, other than purchases, sales and maturities of available-for-sale securities, consisted of capital expenditures, which totaled $18.1 million for the six months ended June 30, 2001, as compared to $13.0 million for the six months ended June 30, 2000. The increase in capital expenditures during the six months ended June 30, 2001 related primarily to improvements to office and administrative facilities in Sunnyvale, California as well as manufacturing improvements in our facility in Sacramento, California and the relocation of the manufacturing facility in Woburn, Massachusetts to Bedford, Massachusetts. The Company expects to continue to expand its manufacturing and other operating facilities over the next few years.

Financing activities for the six months ended June 30, 2001 consisted primarily of net proceeds of $5.8 million from the exercise of employee stock options. This compares to net proceeds of $231.5 million for the six months ended June 30, 2000 which was primarily the result of a private placement of 4.75% Notes in February 2000.

The Company anticipates that its existing capital resources will enable it to maintain currently planned operations and planned capital expenditures for the foreseeable future. However, this expectation is based on the Company's current operating plan and capital expenditure plan, which is

expected to change, and therefore the Company could require additional funding sooner than anticipated. In addition, the Company expects its capital requirements will remain substantial and may increase over the next several years as it expands its facilities and acquires scientific equipment to support expanded manufacturing and research and development efforts.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company's exposure to interest rate risk relates primarily to its investment portfolio and its convertible subordinated notes. Fixed rate securities and borrowings may have their fair market value adversely impacted due to fluctuations in interest rates, while floating rate securities may produce less income than expected if interest rates fall and floating rate borrowings may lead to additional interest expense if interest rates increase. Due in part to these factors, the Company's future investment income may fall short of expectations due to changes in interest rates or the Company may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates.

The primary objective of the Company's investment activities is to preserve principal while at the same time maximize yields without significantly increasing risk. To achieve this objective, the Company invests its excess cash in debt instruments of the U.S. Government and its agencies and high-quality corporate issuers, and, by policy, restricts its exposure to any single corporate issuer by imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates, the Company maintains investments at an average maturity of generally less than two years.

The table below presents the principal amounts and weighted-average interest rates by year of maturity for the Company's investment portfolio and convertible debt:

	2001			2002			2003			2004			2005		Thereafter			Total		Fair Value at June 30, 2001
	(Dollar amounts in thousands)
ASSETS:
Available-for-sale debt securities	$	68,301		$	103,159		$	139,975		$	8,000		$	—	$	—		$	319,435	$	328,057
Average interest rate		6.1	%		6.6	%		5.4	%		5.1	%
LIABILITIES:
5% convertible subordinated notes due 2006	$	—		$	—		$	—		$	—		$	—	$	150,000		$	150,000	$	107,820
Average interest rate																5.0	%
4.75% convertible subordinated notes due 2007	$	—		$	—		$	—		$	—		$	—	$	225,000		$	225,000	$	142,313
Average interest rate																4.75	%

The Company is exposed to equity price risks on the marketable portion of equity securities in its portfolio of investments entered into to further its business and strategic objectives. The Company typically does not attempt to reduce or eliminate its market exposure on these securities. A 20% adverse change in equity prices would result in a decrease of approximately $1.5 million in the Company's available-for-sale securities based on the Company's position at June 30, 2001. However, actual results may differ materially.

The Company derives a portion of its revenues in foreign currencies, predominantly in Europe. The Company also has subsidiaries in Europe, for which activities to date have been insignificant. Due to the relatively low volume of transactions from these two sources, the Company does not believe that it has significant exposure to foreign currency exchange rate risks. The Company currently does not use derivative financial instruments to mitigate this exposure.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Affymetrix is a party to significant litigation, which will consume substantial financial and managerial resources and which could adversely affect its business, financial condition and results of operations. If in any pending or future intellectual property litigation Affymetrix or its collaborative partners is found to have infringed the valid intellectual property rights of third parties, Affymetrix or its collaborative partners could be subject to significant liability for damages, could be required to obtain a license from a third party, which may not be available on reasonable terms or at all, or could be prevented from manufacturing and selling its products. In addition, if Affymetrix is unable to enforce its patents and other intellectual property rights against others, or if its patents are found to be invalid, third parties may more easily be able to introduce and sell DNA array technologies that compete with Affymetrix' GeneChip® technology, and Affymetrix' competitive position could suffer. Affymetrix expects to devote substantial financial and managerial resources to protect its intellectual property rights and to defend against the claims described below as well as any future claims asserted against it. Further, because of the substantial amount of discovery required in connection with any litigation, there is a risk that confidential information could be compromised by disclosure.

Oxford Gene Technology Settlement

Hyseq, Inc. Litigation

partners, or its customers to obtain a license in order to continue to manufacture, market or use the affected products and processes. While Affymetrix believes that the Hyseq complaints are without merit, Affymetrix may not prevail in these actions and Affymetrix, its collaborative partners, or its customers may not prevail in other related actions. Moreover, in the event Affymetrix does not prevail in the Hyseq actions and Affymetrix, its partners or its customers are required to obtain a license to continue to manufacture, market or use the affected products and processes, Affymetrix, its partners or its customers may not be able to obtain such a license on commercially acceptable terms, if at all. Furthermore, Affymetrix has expended and is likely to continue to expend substantial financial and managerial resources in defending against the claims filed by Hyseq.

Incyte Pharmaceuticals and Synteni Litigation and Proceedings

On January 6, 1998, Affymetrix filed a patent infringement action in the United States District Court for the District of Delaware alleging that certain of Incyte Genomics, Inc.'s ("Incyte") and Synteni, Inc.'s ("Synteni") products infringe United States Patent 5,445,934, (the '934 Patent"). On September 1, 1998, Affymetrix filed a complaint against Incyte and Synteni in United States District Court for the District of Delaware alleging infringement of the '305 Patent and the '992 Patent. These actions were transferred to the United States District Court for the Northern District of California on November 18, 1998. The actions seek to enjoin commercial activities of Incyte and Synteni relating to Affymetrix' patents and, in regard to the '992 Patent, sought a preliminary injunction. Incyte and Synteni moved for summary judgment that certain claims of the '992 Patent were invalid. On May 4, 1999, the court denied Affymetrix' motion for preliminary injunction and denied Incyte and Synteni's motion for summary judgment.

Applera Corporation Litigation

against Applera. On January 25, 2001, Affymetrix filed a declaratory judgement action and various state law claims against Applera in the United States District Court for the Southern District of New York seeking, among other things, a declaration that Affymetrix has not infringed any of Applera's subject patents. On January 30, 2001, Affymetrix filed a motion in the Delaware court to dismiss Applera's claims for lack of subject matter jurisdiction. In response, Applera moved for leave to amend its Delaware complaint to correct the alleged jurisdictional defect. Affymetrix has opposed this motion to amend on grounds that the alleged jurisdictional defect could not be corrected to relate back to the filing of the complaint. On March 21, 2001, the District Court for the Southern District of New York held a hearing and stayed the New York action pending a ruling from the Delaware court on Affymetrix' motion to dismiss for lack of subject matter jurisdiction. No trial dates have been set in these actions.

Affymetrix believes that Applera's claims are without merit. However, Affymetrix cannot be certain that it will prevail in these matters.

Administrative Litigation and Proceedings

Affymetrix' intellectual property is expected to be subject to significant additional administrative and litigation actions. For example, in Europe and Japan, third parties are expected to oppose significant patents owned or controlled by Affymetrix. Currently, Incyte, OGT, Multilyte Ltd. and ProtoGene Laboratories, Inc. have filed oppositions against Affymetrix' EP 0-619-321 Patent in the European Patent Office. This procedure will result in the patent being either upheld in its entirety, allowed to grant in amended form in designated European countries, or revoked. Subsequent to the settlement agreement entered into by the Company and OGT referred to above, OGT has withdrawn its opposition to the Company's EP 0-619-321 Patent.

Further, in the United States, it is expected that third parties will continue to "copy" the claims of Affymetrix' patents in order to provoke interferences in the United States Patent and Trademark Office. These proceedings could result in Affymetrix' patent protection being significantly modified or reduced, and could result in significant costs and consume substantial managerial resources.

Item 4. Submission of Matters to a Vote of Security Holders

(a) Date of Meeting

The Annual Meeting of the Stockholders of Affymetrix, Inc. was held on June 7, 2001.

(b) and (c) Name of Each Director Elected at the Meeting and Description of Each Matter Voted on and Number of Votes Cast

		For	Against	Withheld
1.	To elect directors to serve until the next annual meeting of stockholders or until their successors are elected.
	Stephen P.A. Fodor, Ph.D	44,262,658	0	3,380,415
	Susan E. Seigel	46,741,569	0	901,504
	Paul Berg, Ph.D	46,676,617	0	966,456
	John D. Diekman, Ph.D	44,181,935	0	1,461,138
	Vernon R. Loucks, Jr	44,741,324	0	901,749
	David B. Singer	46,741,294	0	901,779
	John A. Young	46,741,569	0	901,504

				For		Against		Abstain		Broker Non-Votes
2.		To ratify the appointment of Ernst & Young LLP as independent auditors of the Company for the fiscal year ending December 31, 2001		47,574,109		31,762		37,202		0

Item 5. Other Information

Management Changes

As previously disclosed in a press release issued by the Company on July 25, 2001, effective August 10, 2001, Gregory T. Schiffman was promoted to Vice President and Chief Financial Officer of the Company from his previous position of Vice President, Finance and Administration and Principal Accounting Officer. Mr. Schiffman's appointment as Chief Financial Officer replaced Edward M. Hurwitz who assumed a new role with the Company as Senior Vice President, Corporate Strategy and New Ventures effective August 10, 2001.

Risk Factors

An investment in the Company's common stock involves a high degree of risk. The reader should carefully consider the risks described below before making an investment decision.

The Company has a history of operating losses and may incur future losses.

The Company has experienced significant operating losses each year since its inception. For example, it experienced net losses of approximately $26.8 million in 1998, $25.5 million in 1999 and $54.0 million in 2000. It had an accumulated deficit of approximately $178.2 million as of December 31, 2000 and approximately $198.1 million as of June 30, 2001. Its losses have resulted principally from costs incurred in research and development and from general and administrative costs associated with its operations. Historically, these costs have exceeded revenues and interest income, which, to date, have been generated principally from product sales and technology access fees, license fees and royalties, collaborative research and development agreements, government research grants and cash and investment balances.

The Company has had only one quarter of profitability and may never achieve sustained profitability.

Although the Company's operating results for the quarter ended September 30, 2000 marked the first profitable quarter in the Company's history, the Company incurred a net loss of $54.0 million for the year ended December 31, 2000 and a net loss of $9.1 million for the quarter ended June 30, 2001

and cannot guarantee future profitability. Among other things, the Company's ability to achieve sustained profitability will depend upon its ability to:

•: maintain its commercial manufacturing capability for probe arrays and consistently achieve acceptable yields from those capabilities;
•: develop products that are accurate and effective;
•: develop products that are protected from competition by others;
•: cost-effectively manufacture components of the GeneChip® system;
•: develop its marketing capabilities cost-effectively;
•: establish sales and distribution capabilities cost-effectively;
•: establish administrative capabilities and systems that cost-effectively support its business;
•: enter into sufficiently profitable supply agreements with customers desiring to use its products;
•: develop products that are accepted by the marketplace;
•: create a product mix that is appealing to pharmaceutical and biotechnology companies, academic research centers and clinical reference laboratories;
•: avoid infringing on the intellectual property rights of others;
•: enforce its intellectual property rights against others;
•: obtain necessary regulatory approvals in a timely manner; and
•: hire and retain qualified key personnel.

In addition, any delays in receipt of any necessary regulatory approvals or any adverse developments with respect to its ability to enforce its intellectual property relative to its competitors could seriously harm the successful commercialization of its technologies and could have a material adverse effect on its business, financial condition and results of operations.

The Company's quarterly results of operation have historically fluctuated significantly period-to-period, and its stock may decrease in value significantly following an earnings release.

Although the Company believes that period-to-period comparisons of its results of operations are not a good indication of its future performance, its operating results may fall below the expectations of public market analysts or investors in future quarters and the market price of its common stock may fall significantly.

Sales of the Company's Genechip® and spotted array products and its operating results may fluctuate unpredictably from period to period.

The Company expects that its customers' supply requirements and orders will depend, among other things, on the frequency of experiments conducted by them, their inventory of GeneChip® and spotted array products and their expectations as to how long it will take for the Company to fill future orders. In addition, the Company expects that from time to time it will receive relatively large orders with short lead times. As a result, its revenues and operating results may fluctuate significantly from period to period due in part to factors that are outside of its control and which it cannot predict.

The Company's operating results may be negatively impacted in the event of a downturn in the global economic climate or uncertainties or specific factors affecting the industries into which we sell our products.

The revenue growth and profitability of our business depends on the overall demand for our products which can be negatively impacted by general economic conditions affecting the industries into which we sell our products. Weakness in the global economy and challenging market conditions has resulted, and may continue to result, in softening demand for our products. As a consequence, our revenues and earnings may decrease and we may be required to incur charges in connection with inventory writedowns. In addition, industry specific factors in the pharmaceutical industry, such as consolidation trends, have impacted, and may continue to impact purchasing decisions by pharmaceutical companies for our products. This and other industry specific factors in the pharmaceutical industry could significantly reduce demand for our products, and harm our business, operating results, financial condition and prospects.

The Company may lose customers unless it improves its ability to manufacture its products and ensure their proper performance.

The Company produces its GeneChip® and spotted array products in an innovative and complicated manufacturing process. It has experienced and may experience in the future significant variability in the manufacturing yield of its GeneChip® products which has reduced, and may reduce in the future, its gross margins and harm its business. The Company has also experienced, and anticipates that it may again experience, difficulties in meeting customer collaborator and internal demand for some of its probe array products. If the Company cannot deliver products in a timely manner, it could lose customers or be required to delay introduction of new products, and demand for the Company's products could decline. Furthermore, if the Company cannot deliver products to its customers that consistently meet their performance expectations, demand for its products will decline. Because the Company has a limited manufacturing history, it does not fully understand all of the factors that affect its manufacturing processes. As a result, manufacturing and quality control problems have arisen in the past and may arise again as the Company attempts to increase the production rate at its manufacturing facilities. The Company may not be able to increase production rates at these facilities in a timely and cost-effective manner or at commercially reasonable costs.

If the Company cannot continuously develop and introduce new products and keep pace with the latest technological changes it will not be able to compete successfully in its highly competitive and rapidly changing market; if the company cannot compete effectively, its revenues may decline.

The Company competes in markets that are new, intensely competitive, highly fragmented and rapidly changing, and many of its current and potential competitors have significantly greater financial, technical, marketing and other resources. In addition, many current and potential competitors have greater name recognition, more extensive customer bases and access to proprietary genetic content. The Company may not survive and its revenues may decline if it fails to respond quickly to new or emerging technologies and changes in customer requirements.

Currently, the Company's principal competition comes from existing DNA probe array and other technologies that are used to perform many of the same functions for which the Company markets its GeneChip® products. In order to compete against existing and newly developed technologies and maintain pricing and gross margins, the Company needs to successfully demonstrate to potential customers that its GeneChip® products provide improved performance and capabilities at an acceptable price. A large number of publicly traded and privately held companies including Agilent Technologies, Inc., Corning, Inc., CuraGen, Inc., Gene Logic, Inc., General Scanning, Inc., Genome Solutions, Inc., Hitachi, Ltd., Illumina, Inc., Incyte Genomics, Inc./Synteni, Inc., Lynx Therapeutics, Inc., Motorola, Inc. and Sequenome, Inc. also are developing or have developed DNA probe based assays or other products and services, some of which may be competitive with the Company's.

If the Company is unable to develop the enhancements to its technology necessary to compete successfully with newly emerging technologies and competitors, or if the Company is unable to develop products based on these technologies, its business, financial condition and results of operations will suffer. Moreover, to maintain or gain market acceptance of the Company's products in the face of new products introduced by the Company's competitors, Affymetrix may have to reduce or discount the price of its products resulting in an adverse impact on revenues and gross margins.

The Company expects to face increasing competition in the future.

Future competition in existing and potential markets will likely come from existing competitors as well as other companies seeking to develop new technologies for sequencing and analyzing genetic information. In addition, pharmaceutical and biotechnology companies have significant needs for genomic information and may choose to develop or acquire competing technologies to meet these needs.

In the disease management field, competition will likely come from established diagnostic companies, companies developing and marketing DNA probe tests for genetic and other diseases and other companies conducting research on new technologies to ascertain and analyze genetic information.

Established diagnostic companies could compete with the Company by developing new products. Companies such as Abbott Laboratories, Becton Dickinson, Bayer A.G., Roche Boehringer Mannheim and Johnson & Johnson have the strategic commitment to diagnostics, the financial and other resources to invest in new technologies, substantial intellectual property portfolios, substantial experience in new product development, regulatory expertise, manufacturing capabilities and the distribution channels to deliver products to customers. Established diagnostic companies also have an installed base of instruments in several markets, including clinical and reference laboratories, which are not compatible with the GeneChip® system and could deter acceptance of the Company's products. In addition, these companies have formed alliances with genomics companies which provide them access to genetic information that may be incorporated into their diagnostic tests.

As the Company continues to scale up manufacturing of its products, it may encounter problems due to a relatively limited manufacturing history, the complexity of its products and ambiguities in genetic sequence databases upon which its products are based.

The GeneChip® system is a complex set of products and includes DNA probe arrays, which are produced in an innovative and complicated manufacturing process. The Company tests only selected probe arrays from each wafer and only selected probes on such probe arrays. The Company therefore relies on internal quality control procedures to verify the correct completion of the manufacturing process. Also, the Company and its customers rely on the accuracy of genetic sequence information contained in databases upon which its products are based. It is therefore possible that probe arrays that do not meet all of the Company's performance specifications may not be identified before they are

shipped. Due to the complexity and limited operating history of these products, the Company has from time to time experienced technical problems. The Company has plans to continue to invest substantial resources to ensure the accuracy of the sequence information used to design its probe arrays prior to the commercial release of its products but there can be no assurance that additional technical problems will not occur. The Company believes its recent acquisition of Neomorphic, Inc., a privately held bioinformatics company, will further enable it to refine and ensure the accuracy of the public domain sequence databases. Despite these efforts, because of the rapidly evolving nature of the public domain sequence databases, sequence errors and ambiguities may not be found prior to the commercial release of a product. The magnitude and importance of these errors depends on multiple and complex factors that the Company considers in determining appropriate actions to meet customer needs.

For example, in the first quarter of 2001 the Company discovered ambiguities in the UniGene U74 database build that was used in the design of the Murine Genome U74 Set of GeneChip® arrays. As a result, the Company has redesigned these arrays and has had discussions with its affected customers to address their individual needs and to offer certain replacement arrays to these customers. The Company has evaluated the financial impact of providing these replacement arrays and has taken a charge in the fourth quarter of 2000 of $1.8 million and has taken an additional charge of approximately $0.8 million in the first quarter of 2001. In addition, due to customer concern over the accuracy of the probe sequences on its arrays, sales of the Murine Genome U74 set of arrays as well as other products may be delayed or negatively impacted. The inability of the Company to timely deliver acceptable products would likely adversely affect the Company's relationship with its customers, and could have a material adverse effect on its business, financial condition and results of operations.

Patent positions in the Company's industry are generally uncertain and litigation is prevalent.

The patent positions of pharmaceutical and biotechnology companies are generally uncertain and involve complex legal and factual questions. In addition, the Company believes that there will continue to be significant litigation in the industry regarding patent and other intellectual property rights. As a result, the Company cannot guarantee any of the following:

•: that any of its pending patent applications will result in issued patents;
•: that the Company will develop additional technologies that are patentable;
•: that any patents issued to the Company or its strategic partners will provide a basis for commercially viable products;
•: that any patents issued to the Company or its strategic partners will provide the Company with any competitive advantages;
•: that any patents issued to the Company or its strategic partners will not be challenged by third parties; or
•: that the patents of others will not have an adverse effect on its ability to do business.

In addition, patent law relating to the scope of claims in the technology fields in which the Company operates is still evolving and the extent of future protection for its proprietary rights is uncertain.

Others may independently develop similar or alternative technologies, duplicate any of its technologies, or design around or invalidate the Company's patented technologies. In addition, the Company has and expects to continue to incur substantial costs in litigation to defend against the patent suits brought by third parties and when the Company initiates such suits. In addition, administrative proceedings such as "interferences," in the United States Patent Office could substantially impact the scope of the Company's patent protection as well as result in the expenditure of substantial funds in legal fees.

Others have filed, and in the future are likely to file, patent applications that are similar or identical to those of the Company or those of its licensors. To determine the priority of inventions, the Company will have to participate in interference proceedings declared by the United States Patent and Trademark Office that could result in substantial cost to the Company. The Company cannot assure investors that any such patent applications will not have priority over its patent applications.

The Company may be exposed to liability due to product defects.

The Company's business exposes it to potential product liability claims that are inherent in the testing, manufacturing, marketing and sale of human diagnostic and therapeutic products. The Company intends to acquire additional insurance, should it be desirable, for clinical liability risks. The Company may not be able to obtain such insurance or general product liability insurance on acceptable terms or at reasonable costs. In addition, such insurance may not be in sufficient amounts to provide the Company with adequate coverage against potential liabilities. A product liability claim or recall could have a serious adverse effect on the Company's business, financial condition and results of operations.

The Company is engaged in significant litigation with its competitors regarding its intellectual property rights and its survival depends on its ability to avoid infringing the intellectual property of others.

Intellectual property rights are essential to the Company's business. The Company is engaged in significant litigation with its competitors regarding its intellectual property rights. The Company has filed patent infringement actions against Incyte Genomics and Synteni to enforce its U.S. Patent Nos. 5,445,934, 5,744,305, 5,800,992, 6,040,193 and 5,871,928. Incyte has filed patent infringement claims against the Company alleging infringement of certain of its patents and also has asserted various state law claims against the Company in the cases. Incyte and Synteni have also asserted that certain of Affymetrix' patents that are the subject of the litigation are not infringed, are invalid and are unenforceable. In addition, Hyseq has filed three patent infringement actions against the Company and the Company has filed suits against Hyseq to enforce its U.S. Patent Nos. 5,795,716, 5,744,305 and 5,800,992. On January 22, 2001, the U.S. District Court for the Northern District of California issued a Markman ruling interpreting the claims in certain of the U.S. patents that the Company has asserted in litigation against Incyte and Hyseq. Subsequently, Incyte filed a summary judgment motion asserting some of its products are not covered by some of the claims asserted by the Company. On May 2, 2001, the Court entered partial summary judgment that certain of Incyte's products do not infringe the "934 patent or certain claims of the "305 patent. On May 8, 2001, the Court determined that the term "substantially complementary," as used in claims 1 and 3 of the Affymetrix "992 patent, is indefinite within the meaning of the federal Patent Act. The Special Master administering this case has recommended a trial date of April 8, 2002.

On January 30, 2001, the USPTO issued to Affymetrix a Notice Declaring Interference and has ordered the commencement of an interference proceeding between Affymetrix and Hyseq involving certain claims of Affymetrix' "716 Patent, and certain claims of Hyseq's patent application.

In addition, on July 5, 2000, Applera Corporation ("Applera") filed a patent infringement action against the Company alleging that certain Affymetrix products infringe five patents related to reagents that Affymetrix purchases from Applera licensed vendors.

All of these cases are pending and consume, and will continue to consume, substantial portions of the Company's financial and managerial resources. A loss of a significant litigation could prevent the Company from producing its current products or developing new ones and could also result in the payment of significant penalties and royalties, which could make it too costly to produce some or all of its products. For a complete discussion of the Company's legal proceedings, see Part II, Item 1. "Legal Proceedings."

The Company's survival depends on its ability to maintain, enforce and obtain intellectual property rights necessary to continue or expand its business; if the Company is subject to additional litigation claims on its intellectual property rights, they could be costly and disrupt the company's business.

If the Company cannot maintain, enforce or obtain intellectual property rights, competitors can design probe array systems with similar competitive advantages to the Company's GeneChip® technology without paying the Company royalties. In order to continue the Company's current business, the Company must successfully:

•: defend against third parties asserting that it infringes their intellectual property rights;
•: enforce its intellectual property rights against third parties infringing its rights;
•: meet applicable regulatory standards in a timely manner;
•: obtain licenses to the intellectual property it needs to continue or expand its business;
•: obtain enforceable patent rights to its product and process innovations; and
•: defend the scope of its existing or pending patents in administrative proceedings, such as oppositions or interferences.

Moreover, even if the Company defends and enforces its intellectual property rights, others may independently develop similar or alternative technologies, duplicate any of its technologies, or design around or invalidate its patented technologies. These developments would reduce the value of the Company's intellectual property assets. Additional litigation involving the Company regarding its intellectual property rights could consume substantial portions of the Company's financial and managerial resources.

The Company's facilities in California are vulnerable to power outages which could disrupt the Company's operations and increase its expenses.

Several of the Company's facilities, including key manufacturing sites, are located in the state of California, which has recently experienced an energy crisis. The Company may in the future experience increased electricity prices, power shortages and rolling blackouts. Although the Company maintains backup generators to supply electricity for key operations, it cannot provide any assurances that such generators will be sufficient to provide adequate power to the Company, if any, in the event of a blackout. If blackouts interrupt the Company's power supply, the Company may be temporarily unable to continue operations at its California facilities. Any such interruption in the Company's ability to continue operations at it facilities could delay its ability to develop or provide its products, which could result in lost revenue and seriously harm its business, financial condition and results of operations. The Company cannot be sure that the insurance it maintains against general business interruptions will be adequate to cover its losses in this particular case, if at all.

Risks Associated with Export Sales and Operations.

The Company intends to continue to expand its international presence in order to increase its export sales. Export sales to international customers entail a number of risks, including:

•: unexpected changes in, or impositions of, legislative or regulatory requirements;
•: delays resulting from difficulty in obtaining export licenses for certain technology, tariffs, quotas and other trade barriers and restrictions;
•: longer payment cycles and greater difficulty in accounts receivable collection;
•: potentially adverse taxes;
•: currency exchange fluctuations;
•: the burdens of complying with a variety of foreign laws; and
•: other factors beyond the Company's control.

The Company is also subject to general geopolitical risks in connection with international operations, such as political, social and economic instability, potential hostilities and changes in diplomatic and trade relationships. Although the Company has not to date experienced any material adverse effect on its operations as a result of such regulatory, geopolitical and other factors, the Company cannot assure investors that such factors will not adversely affect its operations in the future or require it to modify its current business practices. The Company cannot assure the investors that one or more of the foregoing factors will not have a material adverse effect on its business, financial condition and operating results or require it to modify its current business practices.

The loss of a key customer could substantially reduce the Company's revenues and be perceived as a loss of momentum in the Company's business.

The Company's customers are concentrated in a small number of pharmaceutical and biotechnology companies, academic research centers and clinical reference laboratories. The Company expects that a small number of customers, such as Aventis Pharma, Ltd., F. Hoffman-La Roche, Ltd., American Home Products Inc., Gene Logic, Inc. and other key customers, will in aggregate continue to account for a substantial portion of revenues for the foreseeable future.

The Company depends on a limited number of suppliers and it will be unable to manufacture its products if shipments from these suppliers are delayed or interrupted.

Key parts of the GeneChip® product line, such as the scanner, certain reagent kits and lithographic masks as well as certain raw materials used in the synthesis of probe arrays, are currently available only from a single source or limited sources. The Company relies on Agilent Technologies to manufacture its scanners and on Enzo Diagnostics, Inc. to manufacture key expression analysis reagents used with probe arrays and various labeling kits recommended for the processing of samples. Agilent has publicly announced its intention to commercialize its own DNA array technology. There can be no assurance that Agilent's commercial activity will not adversely impact the Company's sales and supply agreements. In addition, Agilent has a life sciences instrumentation business, providing it with an existing sales and support infrastructure. There can be no assurance that Agilent's commercial activities will not adversely impact the market potential for the Company or other genetic analysis technologies. In addition, components of the Company's manufacturing equipment and certain raw materials used in the synthesis of probe arrays are available from one of only a few suppliers. In the event that supplies from these vendors were delayed or interrupted for any reason, the Company would not be able to get manufacturing equipment, produce probe arrays, or sell scanners or other components for its GeneChip® product in a timely fashion or in sufficient quantities or under acceptable terms.

Even if alternative sources of supply are available, it could be time consuming and expensive for the Company to qualify new vendors. In addition, it is dependent on its vendors to provide components of appropriate quality and reliability and to meet applicable regulatory requirements. Consequently, in the event that supplies from these vendors were delayed or interrupted for any reason, the Company could be delayed in its ability to develop and deliver products to its customers.

If the Company is unable to maintain its relationships with collaborative partners, it may have difficulty selling its products and services.

The Company believes that its success in penetrating its target markets depends in part on its ability to develop and maintain collaborative relationships with key companies as well as with key academic researchers. The Company's collaborative partners, however, may not be able to perform their obligations as expected or devote sufficient resources to the development, clinical testing, supply or marketing of its potential products developed under these collaborations.

Currently, the Company's significant collaborative partners include Agilent Technologies in the making of its scanners, Amersham Pharmacia Biotech KK and Takara Shuzo Co., Ltd. in distributing its products in Japan, MWG-Biotech AG in distributing its products in Europe, and Roche Molecular Systems and bioMerieux in the development of its diagnostic chip products. Relying on these or other collaborative relationships is risky to the Company's future success because:

•: its partners may develop technologies or components competitive with its GeneChip® product such as Agilent Technologies, which has announced its intention to commercialize a competing DNA array technology platform;
•: its existing collaborations may preclude it from entering into additional future arrangements;
•: its partners may not obtain regulatory approvals necessary to continue the collaborations in a timely manner;
•: some of its agreements may prematurely terminate due to disagreements between it and its partners;
•: its partners may not devote sufficient resources to the development and sale of its products;
•: its partners may be unable to supply products to it on a timely basis;
•: its collaborations may be unsuccessful; or
•: it may not be able to negotiate future collaborative arrangements on acceptable terms.

The Company's current sales, marketing and technical support organization may limit its ability to sell its products.

The Company currently has limited sales, marketing and technical support services. To assist its sales and support activities, the Company entered into distribution agreements through certain distributors, principally in Japan. In addition, the Company also has in place with several third parties a series of distribution agreements covering the Affymetrix spotted array instruments product line that was acquired in the GMS acquisition. These and other third parties, such as Amersham Pharmacia Biotech KK on whom the Company relies for sales, marketing and technical support may decide to develop and sell competitive products or otherwise become its competitors, which could harm its business. For instance, Agilent Technologies has announced its intention to commercialize a competing DNA array technology platform. Although the Company has invested significant other resources to expand its direct sales force and its technical and support staff, it may not be able to establish a sufficiently sized sales, marketing or technical support organization to sell, market or support its products.

Because the Company's business is highly dependent on key executives and scientists, its inability to recruit and retain these people could hinder its business expansion plans.

The Company is highly dependent on its executive officers and its senior scientists and engineers, including scientific advisors. The Company's product development and marketing efforts will be delayed or curtailed if it loses the services of any of these people.

The Company relies on its scientific advisors and consultants to assist it in formulating its research, development and commercialization strategy. All of these individuals are engaged by employers other than the Company and have commitments to other entities that may limit their availability to the Company. Some of them also consult for companies that may be competitors of the Company's. A scientific advisor's other obligations may prevent him or her from assisting the Company in developing its technical and business strategies.

To expand its research, product development and sales efforts the Company needs additional people skilled in areas such as bioinformatics, organic chemistry, information services, regulatory affairs, manufacturing, sales, marketing and technical support. Competition for these people is intense and their turnover rate is high. The Company will not be able to expand its business if it is unable to hire, train and retain a sufficient number of qualified employees.

Because Glaxo Wellcome owns a substantial portion of the Company's outstanding capital stock, Glaxo may be able to influence the outcome of stockholder votes or the market price of the Company's stock.

As of June 30, 2001, Glaxo Wellcome plc, ("Glaxo") and its affiliates beneficially own approximately 13% of the Company's outstanding common stock. Accordingly, Glaxo may be able to exercise influence over the Company's business and over matters subject to stockholder votes, including votes concerning the election of directors, adoption of amendments to the Company's certificate of incorporation and bylaws and approval of mergers and other significant corporate transactions. Moreover, the Company's stock price may drop if Glaxo or any of its affiliates sells a significant amount of the Company's stock or if investors interpret any sale of the Company's stock by Glaxo or any of its affiliates as a sign of weakness in the Company's business.

The Company may not be able to realize the benefits of recent acquisitions.

The Company acquired Genetic MicroSystems, Inc., a privately held instrumentation company specializing in DNA array technology in February, 2000 and Neomorphic, Inc., a privately-held, computational genomics company in October, 2000. These transactions may not be as beneficial to the Company as it expects.

Future acquisitions may disrupt the company's business and distract Company management.

The Company has recently engaged in acquisitions and expects to continue to do so. The Company may not be able to identify suitable acquisition candidates, and if the Company does identify suitable candidates, it may not be able to make such acquisitions on commercially acceptable terms or at all. If the Company acquires another company, the Company may not be able to successfully integrate the acquired business into the Company's existing business in a timely and non-disruptive manner or at all. The Company may have to devote a significant amount of time and resources to do so. Even with this investment of time and resources, an acquisition may not produce the revenues, earnings or business synergies that the Company anticipates. If the Company fails to integrate the acquired business effectively or if key employees of that business leave, the anticipated benefits of the acquisition would be jeopardized. The time, capital management and other resources spent on an acquisition that fails to meet the Company's expectations could cause the Company's business and financial condition to be materially and adversely affected. In addition, acquisitions can involve non-recurring charges and

amortization of significant amounts of goodwill and deferred stock compensation that could adversely affect the Company's results of operations.

The market price of the Company's common stock is extremely volatile, and the value of its common stock may decrease suddenly.

For a number of reasons, the market price of the Company's common stock is extremely volatile, and the value of its common stock may be significantly less than the market value of that stock today. To demonstrate the volatility of the Company's stock price, during the twelve month period ending on June 30, 2001, the volume of its common stock traded on any given day has ranged from 271,000 to 15,480,900 shares, a 5,613% difference. Moreover, during that period, its common stock has traded as low as $20.25 per share and as high as $98.59 per share, a 387% difference. Based on the reported high and low prices, the market price of the Company's common stock has changed as much as $15.38 per share in a single day and its market price has changed more than $10 per share 10 times in a single day during the twelve month period ending June 30, 2001.

The Company is at risk of securities class action litigation due to stock price volatility

In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. Due to the potential volatility of its stock price, the Company may be the target of such litigation in the future. Securities litigation could result in substantial costs and divert management's attention and resources, which could seriously harm the Company's business, financial condition and results of operations.

Item 6. Exhibits and Reports on Form 8-K

(a): Exhibits:

Exhibit Number		Description of Document
3.1	(1)	Restated Certificate of Incorporation.
3.2	(2)	Bylaws.
3.3	(3)	Amendment No. 1 to the Bylaws dated as of April 25, 2001.
4.1	(4)	Rights Agreement dated October 15, 1998 between Affymetrix, Inc. and American Stock Transfer & Trust Company, as Rights Agent.
4.2	(5)	Indenture dated as of September 22, 1999, between Affymetrix, Inc. and The Bank of New York, as Trustee.
4.3	(6)	Amendment No. 1 to Rights Agreement, dated as of February 7, 2000, between Affymetrix, Inc. and American Stock Transfer & Trust Company, as Rights Agent.
4.4	(7)	Indenture, dated as of February 14, 2000 between Affymetrix, Inc. and The Bank of New York, as Trustee.
4.5	(8)	Registration Rights Agreement, dated as of February 14, 2000, between Affymetrix, Inc. and certain purchasers listed on the signature page thereto.
10.51		Amended and Restated 2000 Equity Incentive Plan.

(1): Incorporated by reference to Exhibit 3.1 to the Registrant's Form 8-K as filed on June 13, 2000 (File No. 000-28218).
(2): Incorporated by reference to Appendix C to the Registrant's definitive proxy statement on Schedule 14A as filed on April 29, 1998 (File No. 000-28218).

(3): Incorporated by reference to Exhibit 3.3 to the Registrant's Form 10-Q as filed on May 15, 2001 (File No. 000-28218).
(4): Incorporated by reference to Exhibit 1 to the Registrant's Form 8-A as filed on October 16, 1998 (File No. 000-28218).
(5): Incorporated by reference to Exhibit 4.2 to the Registrant's registration statement on Form S-4 as filed on October 14, 1999 (File No. 333-88987).
(6): Incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-A/A as filed on March 29, 2000 (File No. 000-28218).
(7): Incorporated by reference to Exhibit 4.4 to the Registrant's registration statement on Form S-3 as filed on May 11, 2000 (File No. 333-36790).
(8): Incorporated by reference to Exhibit 4.3 filed with Registrant's registration statement on Form S-3 as filed on May 11, 2000 (File No. 333-36790).
(b): Reports on Form 8-K.

On April 3, 2001, the Company filed a Report on Form 8-K to report under Item 5 (Other Events) that the Company and Perlegen Sciences, Inc. completed a series of intercompany agreements in connection with the consummation of Perlegen's Series B Preferred Stock private placement round of equity financing to third-party outside investors.

On June 11, 2001, the Company filed a Report on Form 8-K to report under Item 5 (Other Events) and Item 9 (Regulation FD Disclosure) that the Company announced that it expected lower than anticipated revenues and earnings for the second quarter of 2001.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

August 13, 2001	AFFYMETRIX, INC.
	By:	/s/ GREGORY T. SCHIFFMAN
	Name:	Gregory T. Schiffman
	Title:	Vice President and Chief Financial Officer

AFFYMETRIX, INC.

EXHIBIT INDEX
JUNE 30, 2001

Exhibit Number		Description of Document
3.1	(1)	Restated Certificate of Incorporation.
3.2	(2)	Bylaws.
3.3	(3)	Amendment No. 1 to the Bylaws dated as of April 25, 2001.
4.1	(4)	Rights Agreement dated October 15, 1998 between Affymetrix, Inc. and American Stock Transfer & Trust Company, as Rights Agent.
4.2	(5)	Indenture dated as of September 22, 1999, between Affymetrix, Inc. and The Bank of New York, as Trustee.
4.3	(6)	Amendment No. 1 to Rights Agreement, dated as of February 7, 2000, between Affymetrix, Inc. and American Stock Transfer & Trust Company, as Rights Agent.
4.4	(7)	Indenture, dated as of February 14, 2000 between Affymetrix, Inc. and The Bank of New York, as Trustee.
4.5	(8)	Registration Rights Agreement, dated as of February 14, 2000, between Affymetrix, Inc. and certain purchasers listed on the signature page thereto.
10.51		Amended and Restated 2000 Equity Incentive Plan.

(1): Incorporated by reference to Exhibit 3.1 to the Registrant's Form 8-K as filed on June 13, 2000 (File No. 000-28218).
(2): Incorporated by reference to Appendix C to the Registrant's definitive proxy statement on Schedule 14A as filed on April 29, 1998 (File No. 000-28218).
(3): Incorporated by reference to Exhibit 3.3 to the Registrant's Form 10-Q as filed on May 15, 2001 (File No. 000-28218).
(4): Incorporated by reference to Exhibit 1 to the Registrant's Form 8-A as filed on October 16, 1998 (File No. 000-28218).
(5): Incorporated by reference to Exhibit 4.2 to the Registrant's registration statement on Form S-4 as filed on October 14, 1999 (File No. 333-88987).
(6): Incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-A/A as filed on March 29, 2000 (File No. 000-28218).
(7): Incorporated by reference to Exhibit 4.4 to the Registrant's registration statement on Form S-3 as filed on May 11, 2000 (File No. 333-36790).
(8): Incorporated by reference to Exhibit 4.3 filed with Registrant's registration statement on Form S-3 as filed on May 11, 2000 (File No. 333-36790).

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AFFYMETRIX, INC.
Table of Contents
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AFFYMETRIX, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands)
AFFYMETRIX, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts) (Unaudited)
AFFYMETRIX, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (In Thousands) (Unaudited)
AFFYMETRIX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2001 (Unaudited)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosures about Market Risk

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 4. Submission of Matters to a Vote of Security Holders

Item 5. Other Information

Item 6. Exhibits and Reports on Form 8-K

SIGNATURES
AFFYMETRIX, INC. EXHIBIT INDEX JUNE 30, 2001
EX-10.51 3 a2056357zex-10_51.htm EX-10.51 Prepared by MERRILL CORPORATION
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Exhibit 10.51

AFFYMETRIX, INC.
AMENDED AND RESTATED
2000 EQUITY INCENTIVE PLAN

(AS ADOPTED EFFECTIVE MARCH 9, 2000
AND AMENDED AND RESTATED AS OF
JULY 19, 2001)

TABLE OF CONTENTS

		Page
ARTICLE 1. INTRODUCTION		1
ARTICLE 2. ADMINISTRATION		1
	2.1 Committee Composition	1
	2.2 Committee Responsibilities	1
	2.3 Committee for Non-Officer Grants	1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS		1
	3.1 Basic Limitation	1
	3.2 Additional Shares	2
	3.3 Dividend Equivalents	2
ARTICLE 4. ELIGIBILITY		2
	4.1 Incentive Stock Options	2
	4.2 Other Grants	2
ARTICLE 5. OPTIONS		2
	5.1 Stock Option Agreement	2
	5.2 Number of Shares	2
	5.3 Exercise Price	2
	5.4 Exercisability and Term	2
	5.5 Effect of Change in Control	3
	5.6 Modification or Assumption of Options	3
	5.7 Buyout Provisions	3
ARTICLE 6. PAYMENT FOR OPTION SHARES		3
	6.1 General Rule	3
	6.2 Surrender of Stock	3
	6.3 Exercise/Sale	3
	6.4 Exercise/Pledge	3
	6.5 Promissory Note	4
	6.6 Other Forms of Payment	4
ARTICLE 7. STOCK APPRECIATION RIGHTS		4
	7.1 SAR Agreement	4
	7.2 Number of Shares	4
	7.3 Exercise Price	4
	7.4 Exercisability and Term	4
	7.5 Effect of Change in Control	4
	7.6 Exercise of SARs	4
	7.7 Modification or Assumption of SARs	5
ARTICLE 8. RESTRICTED SHARES		5
	8.1 Restricted Stock Agreement	5
	8.2 Payment for Awards	5
	8.3 Vesting Conditions	5
	8.4 Voting and Dividend Rights	5
ARTICLE 9. STOCK UNITS		5
	9.1 Stock Unit Agreement	5
	9.2 Payment for Awards	5
	9.3 Vesting Conditions	5
	9.4 Voting and Dividend Rights	6
	9.5 Form and Time of Settlement of Stock Units	6

	9.6 Death of Recipient	6
	9.7 Creditors' Rights	6
ARTICLE 10. PROTECTION AGAINST DILUTION		6
	10.1 Adjustments	6
	10.2 Dissolution or Liquidation	7
	10.3 Reorganizations	7
ARTICLE 11. DEFERRAL OF AWARDS		7
ARTICLE 12. AWARDS UNDER OTHER PLANS		8
ARTICLE 13. PAYMENT OF DIRECTOR'S FEES IN SECURITIES		8
	13.1 Effective Date	8
	13.2 Elections to Receive NSOs, Restricted Shares or Stock Units	8
	13.3 Number and Terms of NSOs, Restricted Shares or Stock Units	8
ARTICLE 14. LIMITATION ON RIGHTS		8
	14.1 Retention Rights	8
	14.2 Stockholders' Rights	8
	14.3 Regulatory Requirements	8
ARTICLE 15. WITHHOLDING TAXES		9
	15.1 General	9
	15.2 Withholding in Shares	9
ARTICLE 16. FUTURE OF THE PLAN		9
	16.1 Term of the Plan	9
	16.2 Amendment or Termination	9
ARTICLE 17. LIMITATION ON PAYMENTS		9
	17.1 Scope of Limitation	9
	17.2 Basic Rule	9
	17.3 Reduction of Payments	9
	17.4 Overpayments and Underpayments	10
	17.5 Related Corporations	10
ARTICLE 18. DEFINITIONS		10
ARTICLE 19. EXECUTION		13

AFFYMETRIX, INC.

AMENDED AND RESTATED
2000 EQUITY INCENTIVE PLAN

ARTICLE 1. INTRODUCTION.

The Plan was adopted by the Board effective March 9, 2000 and amended and restated by the Board effective July 19, 2001. The purpose of the Plan is to promote the long-term success of the Company and the creation of stockholder value by (a) encouraging Employees, Outside Directors and Consultants to focus on critical long-range objectives, (b) encouraging the attraction and retention of Employees, Outside Directors and Consultants with exceptional qualifications and (c) linking Employees, Outside Directors and Consultants directly to stockholder interests through increased stock ownership. The Plan seeks to achieve this purpose by providing for Awards in the form of Restricted Shares, Stock Units, Options (which may constitute incentive stock options or nonstatutory stock options) or stock appreciation rights.

The Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware (except for choice-of-law provisions).

ARTICLE 2. ADMINISTRATION.

2.1 Committee Composition. The Plan shall be administered by the Committee. The Committee shall consist exclusively of two or more directors of the Company, who shall be appointed by the Board. In addition, except as otherwise determined by the Board, the composition of the Committee shall satisfy:

(a) Such requirements as the Securities and Exchange Commission may establish for administrators acting under plans intended to qualify for exemption under Rule 16b-3 (or its successor) under the Exchange Act; and

(b) Such requirements as the Internal Revenue Service may establish for outside directors acting under plans intended to qualify for exemption under section 162(m)(4)(C) of the Code.

2.2 Committee Responsibilities. The Committee shall (a) select the Employees, Outside Directors and Consultants who are to receive Awards under the Plan, (b) determine the type, number, vesting requirements and other features and conditions of such Awards, (c) interpret the Plan and (d) make all other decisions relating to the operation of the Plan. The Committee may adopt such rules or guidelines as it deems appropriate to implement the Plan. The Committee's determinations under the Plan shall be final and binding on all persons.

2.3 Committee for Non-Officer Grants. The Board may also appoint another committee of the Board, which shall be composed of one or more directors of the Company who need not satisfy the requirements of Section 2.1. Such other committee may administer the Plan with respect to Employees and Consultants who are not considered officers or directors of the Company under section 16 of the Exchange Act, may grant Awards under the Plan to such Employees and Consultants and may determine all features and conditions of such Awards. Within the limitations of this Section 2.3, any reference in the Plan to the Committee shall include such secondary committee.

ARTICLE 3. SHARES AVAILABLE FOR GRANTS.

3.1 Basic Limitation. Common Shares issued pursuant to the Plan may be authorized but unissued shares or treasury shares. The aggregate number of Options, SARs, Stock Units and Restricted Shares awarded under the Plan shall not exceed (a) 5,000,000 (as adjusted for the 2-for-1 stock split in August 2000) plus (b) the additional Common Shares described in Section 3.2. The limitations of this Section 3.1 and Section 3.2 shall be subject to adjustment pursuant to Article 10.

3.2 Additional Shares. If Restricted Shares are forfeited, then such Common Shares shall again become available for Awards under the Plan. If Stock Units, Options or SARs are forfeited or terminate for any other reason before being exercised, then the corresponding Common Shares shall again become available for Awards under the Plan. If Stock Units are settled, then only the number of Common Shares (if any) actually issued in settlement of such Stock Units shall reduce the number available under Section 3.1 and the balance shall again become available for Awards under the Plan. If SARs are exercised, then only the number of Common Shares (if any) actually issued in settlement of such SARs shall reduce the number available under Section 3.1 and the balance shall again become available for Awards under the Plan. The foregoing notwithstanding, the aggregate number of Common Shares that may be issued under the Plan upon the exercise of ISOs shall not be increased when Restricted Shares are forfeited or Common Shares are not issued pursuant to Stock Units, Options or SARs.

3.3 Dividend Equivalents. Any dividend equivalents paid or credited under the Plan shall not be applied against the number of Restricted Shares, Stock Units, Options or SARs available for Awards, whether or not such dividend equivalents are converted into Stock Units.

ARTICLE 4. ELIGIBILITY.

4.1 Incentive Stock Options. Only Employees who are common-law employees of the Company, a Parent or a Subsidiary shall be eligible for the grant of ISOs. In addition, an Employee who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company or any of its Parents or Subsidiaries shall not be eligible for the grant of an ISO unless the requirements set forth in section 422(c)(6) of the Code are satisfied.

4.2 Other Grants. Employees, Outside Directors and Consultants shall be eligible for the grant of Restricted Shares, Stock Units, NSOs or SARs.

ARTICLE 5. OPTIONS.

5.1 Stock Option Agreement. Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company. Such Option shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The Stock Option Agreement shall specify whether the Option is an ISO or an NSO. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical. Options may be granted in consideration of a reduction in the Optionee's other compensation. A Stock Option Agreement may provide that a new Option will be granted automatically to the Optionee when he or she exercises a prior Option and pays the Exercise Price in the form described in Section 6.2.

5.2 Number of Shares. Each Stock Option Agreement shall specify the number of Common Shares subject to the Option and shall provide for the adjustment of such number in accordance with Article 10. Options granted to any Optionee in a single fiscal year of the Company shall not cover more than 1,000,000 Common Shares. The limitations set forth in the preceding sentence shall be subject to adjustment in accordance with Article 10.

5.3 Exercise Price. Each Stock Option Agreement shall specify the Exercise Price; provided that the Exercise Price shall in no event be less than 100% of the Fair Market Value of a Common Share on the date of grant. In the case of an NSO, a Stock Option Agreement may specify an Exercise Price that varies in accordance with a predetermined formula while the NSO is outstanding.

5.4 Exercisability and Term. Each Stock Option Agreement shall specify the date or event when all or any installment of the Option is to become exercisable. The Stock Option Agreement shall also specify the term of the Option; provided that the term of an ISO shall in no event exceed 10 years from the date of grant. A Stock Option Agreement may provide for accelerated exercisability in the

event of the Optionee's death, disability or retirement or other events and may provide for expiration prior to the end of its term in the event of the termination of the Optionee's service. Options may be awarded in combination with SARs, and such an Award may provide that the Options will not be exercisable unless the related SARs are forfeited.

5.5 Effect of Change in Control. The Committee may determine, at the time of granting an Option or thereafter, that such Option shall become exercisable as to all or part of the Common Shares subject to such Option in the event that a Change in Control occurs with respect to the Company or in the event that the Optionee is subject to an Involuntary Termination after a Change in Control. However, in the case of an ISO, the acceleration of exercisability shall not occur without the Optionee's written consent. In addition, acceleration of exercisability may be required under Section 10.3.

5.6 Modification or Assumption of Options. Within the limitations of the Plan, the Committee may modify, extend or assume outstanding options or may accept the cancellation of outstanding options (whether granted by the Company or by another issuer) in return for the grant of new options for the same or a different number of shares and at the same or a different exercise price. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, alter or impair his or her rights or obligations under such Option.

5.7 Buyout Provisions. The Committee may at any time (a) offer to buy out for a payment in cash or cash equivalents an Option previously granted or (b) authorize an Optionee to elect to cash out an Option previously granted, in either case at such time and based upon such terms and conditions as the Committee shall establish.

ARTICLE 6. PAYMENT FOR OPTION SHARES.

6.1 General Rule. The entire Exercise Price of Common Shares issued upon exercise of Options shall be payable in cash or cash equivalents at the time when such Common Shares are purchased, except as follows:

(a) In the case of an ISO granted under the Plan, payment shall be made only pursuant to the express provisions of the applicable Stock Option Agreement. The Stock Option Agreement may specify that payment may be made in any form(s) described in this Article 6.

(b) In the case of an NSO, the Committee may at any time accept payment in any form(s) described in this Article 6.

6.2 Surrender of Stock. To the extent that this Section 6.2 is applicable, all or any part of the Exercise Price may be paid by surrendering, or attesting to the ownership of, Common Shares that are already owned by the Optionee. Such Common Shares shall be valued at their Fair Market Value on the date when the new Common Shares are purchased under the Plan. The Optionee shall not surrender, or attest to the ownership of, Common Shares in payment of the Exercise Price if such action would cause the Company to recognize compensation expense (or additional compensation expense) with respect to the Option for financial reporting purposes.

6.3 Exercise/Sale. To the extent that this Section 6.3 is applicable, all or any part of the Exercise Price and any withholding taxes may be paid by delivering (on a form prescribed by the Company) an irrevocable direction to a securities broker approved by the Company to sell all or part of the Common Shares being purchased under the Plan and to deliver all or part of the sales proceeds to the Company.

6.4 Exercise/Pledge. To the extent that this Section 6.4 is applicable, all or any part of the Exercise Price and any withholding taxes may be paid by delivering (on a form prescribed by the Company) an irrevocable direction to pledge all or part of the Common Shares being purchased under

the Plan to a securities broker or lender approved by the Company, as security for a loan, and to deliver all or part of the loan proceeds to the Company.

6.5 Promissory Note. To the extent that this Section 6.5 is applicable, all or any part of the Exercise Price and any withholding taxes may be paid by delivering (on a form prescribed by the Company) a full-recourse promissory note. However, the par value of the Common Shares being purchased under the Plan, if newly issued, shall be paid in cash or cash equivalents.

6.6 Other Forms of Payment. To the extent that this Section 6.6 is applicable, all or any part of the Exercise Price and any withholding taxes may be paid in any other form that is consistent with applicable laws, regulations and rules.

ARTICLE 7. STOCK APPRECIATION RIGHTS.

7.1 SAR Agreement. Each grant of an SAR under the Plan shall be evidenced by an SAR Agreement between the Optionee and the Company. Such SAR shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various SAR Agreements entered into under the Plan need not be identical. SARs may be granted in consideration of a reduction in the Optionee's other compensation.

7.2 Number of Shares. Each SAR Agreement shall specify the number of Common Shares to which the SAR pertains and shall provide for the adjustment of such number in accordance with Article 10. SARs granted to any Optionee in a single calendar year shall in no event pertain to more than 200,000 Common Shares. The limitations set forth in the preceding sentence shall be subject to adjustment in accordance with Article 10.

7.3 Exercise Price. Each SAR Agreement shall specify the Exercise Price. An SAR Agreement may specify an Exercise Price that varies in accordance with a predetermined formula while the SAR is outstanding.

7.4 Exercisability and Term. Each SAR Agreement shall specify the date when all or any installment of the SAR is to become exercisable. The SAR Agreement shall also specify the term of the SAR. An SAR Agreement may provide for accelerated exercisability in the event of the Optionee's death, disability or retirement or other events and may provide for expiration prior to the end of its term in the event of the termination of the Optionee's service. SARs may be awarded in combination with Options, and such an Award may provide that the SARs will not be exercisable unless the related Options are forfeited. An SAR may be included in an ISO only at the time of grant but may be included in an NSO at the time of grant or thereafter. An SAR granted under the Plan may provide that it will be exercisable only in the event of a Change in Control.

7.5 Effect of Change in Control. The Committee may determine, at the time of granting an SAR or thereafter, that such SAR shall become fully exercisable as to all Common Shares subject to such SAR in the event that the Company is subject to a Change in Control or in the event that the Optionee is subject to an Involuntary Termination after a Change in Control. In addition, acceleration of exercisability may be required under Section 10.3.

7.6 Exercise of SARs. Upon exercise of an SAR, the Optionee (or any person having the right to exercise the SAR after his or her death) shall receive from the Company (a) Common Shares, (b) cash or (c) a combination of Common Shares and cash, as the Committee shall determine. The amount of cash and/or the Fair Market Value of Common Shares received upon exercise of SARs shall, in the aggregate, be equal to the amount by which the Fair Market Value (on the date of surrender) of the Common Shares subject to the SARs exceeds the Exercise Price. If, on the date when an SAR expires, the Exercise Price under such SAR is less than the Fair Market Value on such date but any portion of such SAR has not been exercised or surrendered, then such SAR shall automatically be deemed to be exercised as of such date with respect to such portion.

7.7 Modification or Assumption of SARs. Within the limitations of the Plan, the Committee may modify, extend or assume outstanding SARs or may accept the cancellation of outstanding SARs (whether granted by the Company or by another issuer) in return for the grant of new SARs for the same or a different number of shares and at the same or a different exercise price. The foregoing notwithstanding, no modification of an SAR shall, without the consent of the Optionee, alter or impair his or her rights or obligations under such SAR.

ARTICLE 8. RESTRICTED SHARES.

8.1 Restricted Stock Agreement. Each grant of Restricted Shares under the Plan shall be evidenced by a Restricted Stock Agreement between the recipient and the Company. Such Restricted Shares shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various Restricted Stock Agreements entered into under the Plan need not be identical.

8.2 Payment for Awards. Subject to the following sentence, Restricted Shares may be sold or awarded under the Plan for such consideration as the Committee may determine, including (without limitation) cash, cash equivalents, full-recourse promissory notes, past services and future services. To the extent that an Award consists of newly issued Restricted Shares, the consideration shall consist exclusively of cash, cash equivalents or past services rendered to the Company (or a Parent or Subsidiary) or, for the amount in excess of the par value of such newly issued Restricted Shares, full-recourse promissory notes, as the Committee may determine.

8.3 Vesting Conditions. Each Award of Restricted Shares may be subject to vesting as determined by the Committee. Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Restricted Stock Agreement. A Restricted Stock Agreement may provide for accelerated vesting in the event of the Participant's death, disability or retirement or other events. The Committee may determine, at the time of granting Restricted Shares or thereafter, that all or part of such Restricted Shares shall become vested in the event that a Change in Control occurs with respect to the Company or in the event that the Participant is subject to an Involuntary Termination after a Change in Control.

8.4 Voting and Dividend Rights. The holders of Restricted Shares awarded under the Plan shall have the same voting, dividend and other rights as the Company's other stockholders. A Restricted Stock Agreement, however, may require that the holders of Restricted Shares invest any cash dividends received in additional Restricted Shares. Such additional Restricted Shares shall be subject to the same conditions and restrictions as the Award with respect to which the dividends were paid.

ARTICLE 9. STOCK UNITS.

9.1 Stock Unit Agreement. Each grant of Stock Units under the Plan shall be evidenced by a Stock Unit Agreement between the recipient and the Company. Such Stock Units shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various Stock Unit Agreements entered into under the Plan need not be identical. Stock Units may be granted in consideration of a reduction in the recipient's other compensation.

9.2 Payment for Awards. To the extent that an Award is granted in the form of Stock Units, no cash consideration shall be required of the Award recipients.

9.3 Vesting Conditions. Each Award of Stock Units may be subject to vesting as determined by the Committee. Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Stock Unit Agreement. A Stock Unit Agreement may provide for accelerated vesting in the event of the Participant's death, disability or retirement or other events. The Committee may

determine, at the time of granting Stock Units or thereafter, that all or part of such Stock Units shall become vested in the event that the Company is subject to a Change in Control or in the event that the Participant is subject to an Involuntary Termination after a Change in Control. In addition, acceleration of vesting may be required under Section 10.3.

9.4 Voting and Dividend Rights. The holders of Stock Units shall have no voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under the Plan may, at the Committee's discretion, carry with it a right to dividend equivalents. Such right entitles the holder to be credited with an amount equal to all cash dividends paid on one Common Share while the Stock Unit is outstanding. Dividend equivalents may be converted into additional Stock Units. Settlement of dividend equivalents may be made in the form of cash, in the form of Common Shares, or in a combination of both. Prior to distribution, any dividend equivalents which are not paid shall be subject to the same conditions and restrictions as the Stock Units to which they attach.

9.5 Form and Time of Settlement of Stock Units. Settlement of vested Stock Units may be made in the form of (a) cash, (b) Common Shares or (c) any combination of both, as determined by the Committee. The actual number of Stock Units eligible for settlement may be larger or smaller than the number included in the original Award, based on predetermined performance factors. Methods of converting Stock Units into cash may include (without limitation) a method based on the average Fair Market Value of Common Shares over a series of trading days. Vested Stock Units may be settled in a lump sum or in installments. The distribution may occur or commence when all vesting conditions applicable to the Stock Units have been satisfied or have lapsed, or it may be deferred to any later date. The amount of a deferred distribution may be increased by an interest factor or by dividend equivalents. Until an Award of Stock Units is settled, the number of such Stock Units shall be subject to adjustment pursuant to Article 10.

9.6 Death of Recipient. Any Stock Units Award that becomes payable after the recipient's death shall be distributed to the recipient's beneficiary or beneficiaries. Each recipient of a Stock Units Award under the Plan shall designate one or more beneficiaries for this purpose by filing the prescribed form with the Company. A beneficiary designation may be changed by filing the prescribed form with the Company at any time before the Award recipient's death. If no beneficiary was designated or if no designated beneficiary survives the Award recipient, then any Stock Units Award that becomes payable after the recipient's death shall be distributed to the recipient's estate.

9.7 Creditors' Rights. A holder of Stock Units shall have no rights other than those of a general creditor of the Company. Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Stock Unit Agreement.

ARTICLE 10. PROTECTION AGAINST DILUTION.

10.1 Adjustments. In the event of a subdivision of the outstanding Common Shares, a declaration of a dividend payable in Common Shares or a combination or consolidation of the outstanding Common Shares (by reclassification or otherwise) into a lesser number of Common Shares, corresponding adjustments shall automatically be made in each of the following:

(a) The number of Options, SARs, Restricted Shares and Stock Units available for future Awards under Article 3;

(b) The limitations set forth in Sections 5.2 and 7.2;

(d) The Exercise Price under each outstanding Option and SAR; or

(e) The number of Stock Units included in any prior Award which has not yet been settled.

In the event of a declaration of an extraordinary dividend payable in a form other than Common Shares in an amount that has a material effect on the price of Common Shares, a recapitalization, a spin-off or a similar occurrence, the Committee shall make such adjustments as it, in its sole discretion, deems appropriate in one or more of the foregoing. Except as provided in this Article 10, a Participant shall have no rights by reason of any issuance by the Company of stock of any class or securities convertible into stock of any class, any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class.

10.2 Dissolution or Liquidation. To the extent not previously exercised or settled, Options, SARs and Stock Units shall terminate immediately prior to the dissolution or liquidation of the Company.

10.3 Reorganizations. In the event that the Company is a party to a merger or other reorganization, outstanding Awards shall be subject to the agreement of merger or reorganization. Such agreement shall provide for (a) the continuation of the outstanding Awards by the Company, if the Company is a surviving corporation, (b) the assumption of the outstanding Awards by the surviving corporation or its parent or subsidiary, (c) the substitution by the surviving corporation or its parent or subsidiary of its own awards for the outstanding Awards, (d) full exercisability or vesting and accelerated expiration of the outstanding Awards or (e) settlement of the full value of the outstanding Awards in cash or cash equivalents followed by cancellation of such Awards.

ARTICLE 11. DEFERRAL OF AWARDS.

The Committee (in its sole discretion) may permit or require a Participant to:

(a) Have cash that otherwise would be paid to such Participant as a result of the exercise of an SAR or the settlement of Stock Units credited to a deferred compensation account established for such Participant by the Committee as an entry on the Company's books;

(b) Have Common Shares that otherwise would be delivered to such Participant as a result of the exercise of an Option or SAR converted into an equal number of Stock Units; or

(c) Have Common Shares that otherwise would be delivered to such Participant as a result of the exercise of an Option or SAR or the settlement of Stock Units converted into amounts credited to a deferred compensation account established for such Participant by the Committee as an entry on the Company's books. Such amounts shall be determined by reference to the Fair Market Value of such Common Shares as of the date when they otherwise would have been delivered to such Participant.

A deferred compensation account established under this Article 11 may be credited with interest or other forms of investment return, as determined by the Committee. A Participant for whom such an account is established shall have no rights other than those of a general creditor of the Company. Such an account shall represent an unfunded and unsecured obligation of the Company and shall be subject to the terms and conditions of the applicable agreement between such Participant and the Company. If the deferral or conversion of Awards is permitted or required, the Committee (in its sole discretion) may establish rules, procedures and forms pertaining to such Awards, including (without limitation) the settlement of deferred compensation accounts established under this Article 11.

ARTICLE 12. AWARDS UNDER OTHER PLANS.

The Company may grant awards under other plans or programs. Such awards may be settled in the form of Common Shares issued under this Plan. Such Common Shares shall be treated for all purposes under the Plan like Common Shares issued in settlement of Stock Units and shall, when issued, reduce the number of Common Shares available under Article 3.

ARTICLE 13. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.

13.1 Effective Date. No provision of this Article 13 shall be effective unless and until the Board has determined to implement such provision.

13.2 Elections to Receive NSOs, Restricted Shares or Stock Units. An Outside Director may elect to receive his or her annual retainer payments and/or meeting fees from the Company in the form of cash, NSOs, Restricted Shares or Stock Units, or a combination thereof, as determined by the Board. Such NSOs, Restricted Shares and Stock Units shall be issued under the Plan.

13.3 Number and Terms of NSOs, Restricted Shares or Stock Units. The number of NSOs, Restricted Shares or Stock Units to be granted to Outside Directors in lieu of annual retainers and meeting fees that would otherwise be paid in cash shall be calculated in a manner determined by the Board. The terms of such NSOs, Restricted Shares or Stock Units shall also be determined by the Board.

ARTICLE 14. LIMITATION ON RIGHTS.

14.1 Retention Rights. Neither the Plan nor any Award granted under the Plan shall be deemed to give any individual a right to remain an Employee, Outside Director or Consultant. The Company and its Parents, Subsidiaries and Affiliates reserve the right to terminate the service of any Employee, Outside Director or Consultant at any time.

14.2 Stockholders' Rights. A Participant shall have no dividend rights, voting rights or other rights as a stockholder with respect to any Common Shares covered by his or her Award prior to the time when a stock certificate for such Common Shares is issued or, if applicable, the time when he or she becomes entitled to receive such Common Shares by filing any required notice of exercise and paying any required Exercise Price. No adjustment shall be made for cash dividends or other rights for which the record date is prior to such time, except as expressly provided in the Plan.

14.3 Regulatory Requirements. Any other provision of the Plan notwithstanding, the obligation of the Company to issue Common Shares under the Plan shall be subject to all applicable laws, rules and regulations and such approval by any regulatory body as may be required. The Company reserves the right to restrict, in whole or in part, the delivery of Common Shares pursuant to any Award prior to the satisfaction of all legal requirements relating to the issuance of such Common Shares, to their registration, qualification or listing or to an exemption from registration, qualification or listing.

ARTICLE 15. WITHHOLDING TAXES.

15.1 General. A Participant or his or her successor shall make arrangements satisfactory to the Company for the satisfaction of any obligations of the Company to withhold income and employment taxes under applicable federal, state, local or foreign law in connection with Awards under the Plan. The Company shall not be required to issue any Common Shares or make any cash payment under the Plan until such obligations are satisfied.

15.2 Withholding in Shares. The Committee may permit such Participant to satisfy all or part of such tax withholding obligations by having the Company withhold all or a portion of any Common Shares that otherwise would be issued to him or her or by surrendering all or a portion of any Common Shares that he or she previously acquired. Such Common Shares shall be valued at their Fair Market Value on the date when they are withheld or surrendered.

ARTICLE 16. FUTURE OF THE PLAN.

16.1 Term of the Plan. The Plan, as set forth herein, shall become effective on March 9, 2000. The Plan shall remain in effect until it is terminated under Section 16.2, except that no ISOs shall be granted on or after the 10th anniversary of the later of (a) the date when the Board adopted the Plan or (b) the date when the Board adopted the most recent increase in the number of Common Shares available under Article 3 which was approved by the Company's stockholders.

16.2 Amendment or Termination. The Board may, at any time and for any reason, amend or terminate the Plan. An amendment of the Plan shall be subject to the approval of the Company's stockholders only to the extent required by applicable laws, regulations or rules. No Awards shall be granted under the Plan after the termination thereof. The termination of the Plan, or any amendment thereof, shall not affect any Award previously granted under the Plan.

ARTICLE 17. LIMITATION ON PAYMENTS.

17.1 Scope of Limitation. This Article 17 shall apply to an Award only if:

(a) The independent auditors most recently selected by the Board (the "Auditors") determine that the after-tax value of such Award to the Participant, taking into account the effect of all federal, state and local income taxes, employment taxes and excise taxes applicable to the Participant (including the excise tax under section 4999 of the Code), will be greater after the application of this Article 17 than it was before the application of this Article 17; or

(b) The Committee, at the time of making an Award under the Plan or at any time thereafter, specifies in writing that such Award shall be subject to this Article 17 (regardless of the after-tax value of such Award to the Participant).

If this Article 17 applies to an Award, it shall supersede any contrary provision of the Plan or of any Award granted under the Plan.

17.2 Basic Rule. In the event that the Auditors determine that any payment or transfer by the Company under the Plan to or for the benefit of a Participant (a "Payment") would be nondeductible by the Company for federal income tax purposes because of the provisions concerning "excess parachute payments" in section 280G of the Code, then the aggregate present value of all Payments shall be reduced (but not below zero) to the Reduced Amount. For purposes of this Article 17, the "Reduced Amount" shall be the amount, expressed as a present value, which maximizes the aggregate present value of the Payments without causing any Payment to be nondeductible by the Company because of section 280G of the Code.

17.3 Reduction of Payments. If the Auditors determine that any Payment would be nondeductible by the Company because of section 280G of the Code, then the Company shall promptly

give the Participant notice to that effect and a copy of the detailed calculation thereof and of the Reduced Amount, and the Participant may then elect, in his or her sole discretion, which and how much of the Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount) and shall advise the Company in writing of his or her election within 10 days of receipt of notice. If no such election is made by the Participant within such 10-day period, then the Company may elect which and how much of the Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount) and shall notify the Participant promptly of such election. For purposes of this Article 17, present value shall be determined in accordance with section 280G(d)(4) of the Code. All determinations made by the Auditors under this Article 17 shall be binding upon the Company and the Participant and shall be made within 60 days of the date when a Payment becomes payable or transferable. As promptly as practicable following such determination and the elections hereunder, the Company shall pay or transfer to or for the benefit of the Participant such amounts as are then due to him or her under the Plan and shall promptly pay or transfer to or for the benefit of the Participant in the future such amounts as become due to him or her under the Plan.

17.4 Overpayments and Underpayments. As a result of uncertainty in the application of section 280G of the Code at the time of an initial determination by the Auditors hereunder, it is possible that Payments will have been made by the Company which should not have been made (an "Overpayment") or that additional Payments which will not have been made by the Company could have been made (an "Underpayment"), consistent in each case with the calculation of the Reduced Amount hereunder. In the event that the Auditors, based upon the assertion of a deficiency by the Internal Revenue Service against the Company or the Participant which the Auditors believe has a high probability of success, determine that an Overpayment has been made, such Overpayment shall be treated for all purposes as a loan to the Participant which he or she shall repay to the Company, together with interest at the applicable federal rate provided in section 7872(f)(2) of the Code; provided, however, that no amount shall be payable by the Participant to the Company if and to the extent that such payment would not reduce the amount which is subject to taxation under section 4999 of the Code. In the event that the Auditors determine that an Underpayment has occurred, such Underpayment shall promptly be paid or transferred by the Company to or for the benefit of the Participant, together with interest at the applicable federal rate provided in section 7872(f)(2) of the Code.

17.5 Related Corporations. For purposes of this Article 17, the term "Company" shall include affiliated corporations to the extent determined by the Auditors in accordance with section 280G(d)(5) of the Code.

ARTICLE 18. DEFINITIONS.

18.1 "Affiliate" means any entity other than a Subsidiary, if the Company and/or one or more Subsidiaries own not less than 50% of such entity.

18.2 "Award" means any award of an Option, an SAR, a Restricted Share or a Stock Unit under the Plan.

18.3 "Board" means the Company's Board of Directors, as constituted from time to time.

18.4 "Cause" shall mean (a) the unauthorized use or disclosure of the confidential information or trade secrets of the Company, which use or disclosure causes material harm to the Company, (b) conviction of, or a plea of "guilty" or "no contest" to, a felony under the laws of the United States or any State thereof, (c) gross negligence, (d) willful misconduct or (e) a failure to perform assigned duties that continues after the Participant has received written notice of such failure from the Board. The foregoing, however, shall not be deemed an exclusive list of all acts or omissions that the Company (or the Parent, Subsidiary or Affiliate employing the Participant) may consider as grounds for the discharge of the Participant without Cause.

18.5 "Change in Control" shall mean:

(a) The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization own immediately after such merger, consolidation or other reorganization 50% or more of the voting power of the outstanding securities of each of (i) the continuing or surviving entity and (ii) any direct or indirect parent corporation of such continuing or surviving entity;

(b) The sale, transfer or other disposition of all or substantially all of the Company's assets;

(c) A change in the composition of the Board, as a result of which fewer than 80% of the incumbent directors are directors who either (i) had been directors of the Company on the date 24 months prior to the date of the event that may constitute a Change in Control (the "original directors") or (ii) were elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the aggregate of the original directors who were still in office at the time of the election or nomination and the directors whose election or nomination was previously so approved; or

(d) Any transaction as a result of which any person is the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing at least 50% of the total voting power represented by the Company's then outstanding voting securities. For purposes of this Paragraph (d), the term "person" shall have the same meaning as when used in sections 13(d) and 14(d) of the Exchange Act but shall exclude (i) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or of a Parent or Subsidiary and (ii) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the common stock of the Company.

A transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company's incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company's securities immediately before such transaction.

18.6 "Code" means the Internal Revenue Code of 1986, as amended.

18.7 "Committee" means a committee of the Board, as described in Article 2.

18.8 "Common Share" means one share of the common stock of the Company.

18.9 "Company" means Affymetrix, Inc., a Delaware corporation.

18.10 "Consultant" means a consultant or adviser who provides bona fide services to the Company, a Parent, a Subsidiary or an Affiliate as an independent contractor. Service as a Consultant shall be considered employment for all purposes of the Plan, except as provided in Section 4.1.

18.11 "Employee" means a common-law employee of the Company, a Parent, a Subsidiary or an Affiliate.

18.12 "Exchange Act" means the Securities Exchange Act of 1934, as amended.

18.13 "Exercise Price," in the case of an Option, means the amount for which one Common Share may be purchased upon exercise of such Option, as specified in the applicable Stock Option Agreement. "Exercise Price," in the case of an SAR, means an amount, as specified in the applicable SAR Agreement, which is subtracted from the Fair Market Value of one Common Share in determining the amount payable upon exercise of such SAR.

18.14 "Fair Market Value" means the market price of Common Shares, determined by the Committee in good faith on such basis as it deems appropriate. Whenever possible, the determination of Fair Market Value by the Committee shall be based on the prices reported in The Wall Street Journal. Such determination shall be conclusive and binding on all persons.

18.15 "Involuntary Termination" means the termination of the Participant's service by reason of:

(a) The involuntary discharge of the Participant by the Company (or the Parent, Subsidiary or Affiliate employing him or her) for reasons other than Cause; or

(b) The voluntary resignation of the Participant following (i) a material adverse change in his or her title, stature, authority or responsibilities with the Company (or the Parent, Subsidiary or Affiliate employing him or her), (ii) a material reduction in his or her base salary or (iii) receipt of notice that his or her principal workplace will be relocated by more than 30 miles.

18.16 "ISO" means an incentive stock option described in section 422(b) of the Code.

18.17 "NSO" means a stock option not described in sections 422 or 423 of the Code.

18.18 "Option" means an ISO or NSO granted under the Plan and entitling the holder to purchase Common Shares.

18.19 "Optionee" means an individual or estate who holds an Option or SAR.

18.20 "Outside Director" shall mean a member of the Board who is not an Employee. Service as an Outside Director shall be considered employment for all purposes of the Plan, except as provided in Section 4.1.

18.21 "Parent" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date.

18.22 "Participant" means an individual or estate who holds an Award.

18.23 "Plan" means this Affymetrix, Inc. 2000 Equity Incentive Plan, as amended from time to time.

18.24 "Restricted Share" means a Common Share awarded under Article 8 of the Plan.

18.25 "Restricted Stock Agreement" means the agreement between the Company and the recipient of a Restricted Share which contains the terms, conditions and restrictions pertaining to such Restricted Share.

18.26 "SAR" means a stock appreciation right granted under the Plan.

18.27 "SAR Agreement" means the agreement between the Company and an Optionee which contains the terms, conditions and restrictions pertaining to his or her SAR.

18.28 "Stock Option Agreement" means the agreement between the Company and an Optionee that contains the terms, conditions and restrictions pertaining to his or her Option.

18.29 "Stock Unit" means a bookkeeping entry representing the equivalent of one Common Share, as awarded under the Plan.

18.30 "Stock Unit Agreement" means the agreement between the Company and the recipient of a Stock Unit which contains the terms, conditions and restrictions pertaining to such Stock Unit.

18.31 "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.

ARTICLE 19. EXECUTION.

To record the amendment and restatement of the Plan by the Board on July 19, 2001, the Company has caused its duly authorized officer to execute this document in the name of the Company.

		AFFYMETRIX, INC.
		By:		/s/ STEPHEN P.A. FODOR, PH.D. Name: Stephen P.A. Fodor, Ph.D. Title: Chairman and Chief Executive Officer

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Exhibit 10.51

TABLE OF CONTENTS
AFFYMETRIX, INC.
AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN
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