Marketing Planning for Caliper
Technologies’ Labchips
Mgmt. 266A: Product Management (Cooper)
William Fang, Greg Kim, Bryant Kong,
Simon Male, Rohit Talwani
March 13, 2002
Planning Objective
To determine the likelihood of various levels of
revenue growth for Caliper Technologies’ labchip
product line over the coming year.
2
Agenda
•
•
•
•
•
•
•
•
•
•
What Are Labchips?
Caliper Technologies
Market Overview
Critical Issues
Hugin Network
Probabilities
Results and Decision Nodes
Sensitivity Analysis
Recommendations
Questions?
3
What Are Labchips?
• Labchips are miniature silicon devices used for biomedical
applications on a micro-dimensional scale
– Use MicroElectroMechanical systems (MEMS) technology
• Can reduce duration of experiments by orders of
magnitude
– Automate previously manual laboratory processes
– Require much smaller amounts of sample and reagents
• Offer mission-critical benefits to researchers
– Faster throughput
– Cost savings
– Reduced human error
4
Caliper Technologies
• Public biotechnology company with $32 M in revenues
from two main sources:
– Labchips and Agilent analyzer system (est. $19.2 M)
– High-throughput screening systems
• Labchip systems are used in chemistry, biomedical
research, and drug discovery and development
–
–
–
–
–
DNA, RNA, protein, and cell analysis
Market leader in labchips
Principal strategic partner is Agilent Technologies
Uses lead customer programs to identify new product applications
Recently settled patent litigation with competitor ACLARA
5
Market Overview
• Labchip market estimated at $300 M in 2000
– Projected annual growth rates of 30-40%
• Early stages of development
– Fragmented competition
•
•
•
•
Public labchip companies: ACLARA, Cepheid, Nanogen, Orchid
Large bioscience players: Applied Biosystems, IBM, Motorola
Private companies: Many players
Acadamic and government instiutitions: MIT, Dept. of Defense
• Significant market trends
– Escalating R&D costs, expiring patents drive customer need
– Intellectual property battles —» patent litigation or cross-licensing
– Lack of technology standards
6
Critical Issues
• Derived from preceding market analysis
– Also regulatory, manufacturing, social and behavioral issues
– Affect research applications or future uses of labchips
Political
Behav iora l
Econo mic
Social
Technological
Caliper Technologies
 FDA regu lations for device and
assay app rova l
 Foreign regu lations
 Patent liti gation
 FDA regu lations for cli nical use
 Customer process changes
(R&D processes, techn icia n
training)
 Access to capit al
 Pric e
 Manufa cturing capacit y and cost
 Complementary produc ts
(See Infrastructure )


Product customiz ation
Mic ro-scale constraints



Business Ecosystem
Gove rnment fund ing o f
hea lt hcare R&D
HMO reim bur sement of
medical use s
Cross-lic ens ing



Escalating R&D costs
Expi ring p atents
Partner ships wit h e stabli shed
companies (Agil ent)
(See Infrastructure )

Lack of standa rds







Infrastructure
Uses fo r protection aga inst
bioterrorism
Alt ered delivery of medication
Desire for non- invasive medical
diagno stic procedures
Valuation of publi c labchip
companies
Aging popul ation in industrial
nations
Protests aga inst gene tic eng inee ring
Interoperabilit y with other
laboratory devices
7
Hugin Network
Internal
Economics
Demand
Produc
t
Design
Competition
Customer
Need
Competition
Product
Success
Major Forces
Regulation
Regulation
8
Internal Economics
•
•
Technical factors dictate
product complexity and
manufacturing cost
Combined with pricing
decision, this determines
Caliper’s margins
Microdimensional
Constraints
Problematic
Not a Problem
Standards
Customization
High
Medium
Low
Leader
Follower
Product
Design
Interoperability
Yes No
Complex
Moderate
Simple
Manufacturin
g Cost
Not Costly
Costly
Very Costly
Price
Low Medium
High
Low
Medium
High
Margins
Good
Acceptable Poor
Demand
Product
Success
9
Demand
•
•
Primary driver of demand
is labchips’ ability to
meet customer needs
Secondary driver of
demand is value-based
price of product
Aging
Population
Growing
Plateauing
Process
Change
Government
Funding
Significant
Medium
Insignificant
High
Medium
Low
Interoperability
Customer
Need
Yes
No
Rising
Plateauing
R&D Cost
High Impact
Low Impact
Patent
Expiration
High
Medium
Low
Demand
Price
Low
Medium
High
High
Medium
Low
Product
Success
10
Competition
•
•
Patent
Litigation
Strategic partnerships and
cross-licensing determine
degree of competition
Intense
Few
Intensity of competition
directly impacts Caliper’s
margins
Strategic
Partnership
s
CrossLicensing
Many
Moderate
Few
High
Medium
Low
Competitio
n
Margin
11
Regulation Can Hinder Growth
•
Regulation and low access
to capital can slow
Caliper’s growth
Access to
Capital
FDA
Product
Success
International
Regulation
Favorable
Unfavorable
Approval
Unfavorable
12
Four Major Forces Impact Product Success
Price
High
Medium
Low
Demand
Access to
Capital
High
Medium
Low
Competitio
n
Margin
Good
Acceptable
Poor
Product
Success
Bull Market
Bear Market
Favorable
Unfavorable
Regulatio
n
High
Medium
Low
Utility
(Revenues)
High
Medium
Low
$ 30.7 M
$ 25.0 M
$ 21.1 M
(60% growth)
(30% growth)
(10% growth)
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Estimating Probabilities
• Probabilities for starting nodes were straightforward
– No other nodes influencing them
• Probabilities for nodes with inputs were more difficult.
We
– Decided the order of strength in which input nodes influence the
node
– Arranged in ordinal orders each probability set
– Determined the graphical behavior of the probability
– Assigned probabilities
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Demand Example
Customer Need has a larger influence on
Demand. So we ordered each permutation and
set the two extreme values.
Price
CN
High
Medium
Low
Low
High
0.700
0.200
0.100
Medium
High
High
High
Low
Medium
Medium
Medium
High
Medium
Medium
Low
High
Low
Low
Low
0.000
0.100
0.900
We then determined the graph of the probability appears as follows:
1.000
0.900
0.800
0.700
0.600
0.500
0.400
0.300
0.200
0.100
0.000
1
2
3
4
5
High
Medium
6
7
8
9
Low
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Demand Example continued
Then we interpolate the in-between values to complete the table:
Price
Low
Medium High
Low
Medium High
Medium High
Low
CN
High
High
High
Medium Medium Medium Low
Low
Low
High
0.700
0.420
0.189
0.095
0.047
0.043
0.038
0.034
0.000
Medium
0.200
0.374
0.554
0.584
0.551
0.456
0.334
0.201
0.100
Low
0.100
0.206
0.257
0.321
0.401
0.502
0.627
0.765
0.900
16
Results and Decision Nodes
• Caliper’s expected labchip revenues are $24.9 M
Default
High
Medium
Low
Expected
% of default
0.291
0.252
0.457
Price
High
Medium
Low
Expected
% of default
High
0.324
0.26
0.416
Customization
High
Medium
Low
Expected
% of default
High
0.298
0.253
0.448
30.7
25.0
21.1
24.9
100.0%
30.7
25.0
21.1
25.2
101.4%
30.7
25.0
21.1
24.9
100.2%
Best Case
Worst Case
High Price
Medium Price
High Customization Low Customization
0.331
30.7
0.265
30.7
0.261
25.0
0.246
25.0
0.408
21.1
0.49
21.1
25.3
24.6
101.7%
99.0%
Medium
0.268
0.247
0.486
Medium
0.289
0.251
0.460
30.7
25.0
21.1
24.7
99.1%
30.7
25.0
21.1
24.9
99.9%
Low
0.281
0.149
0.471
Low
0.286
0.251
0.464
30.7
25.0
21.1
22.3
89.6%
30.7
25.0
21.1
24.8
99.9%
17
Sensitivity Analysis
Default
Undecided
High
Medium
Low
Expected
Best Case
High Customization
High Price
High
Medium
Low
Expected
Worst Case
Medium Price
Low Customization
High
Medium
Low
Expected
Product Design
Customer Need
Decrease favorable Increase favorable
Competition
Access to Capital
Decrease favorable Increase favorable
Regulation
Increase favorable
0.291
0.252
0.457
30.7
25.0
21.1
24.8764
0.290
0.252
0.458
30.7
25.0
21.1
24.8668
0.293
0.252
0.455
30.7
25.0
21.1
24.8956
0.291
0.252
0.457
30.7
25.0
21.1
24.8764
0.291
0.252
0.457
30.7
25.0
21.1
24.8764
0.2930
0.2524
0.4546
30.7
25.0
21.1
24.8970
0.331
0.261
0.408
30.7
25.0
21.1
25.2955
0.331
0.261
0.408
30.7
25.0
21.1
25.2955
0.333
0.261
0.406
30.7
25.0
21.1
25.3147
0.331
0.261
0.408
30.7
25.0
21.1
25.2955
0.331
0.261
0.408
30.7
25.0
21.1
25.2955
0.334
0.261
0.405
30.7
25.0
21.1
25.3243
0.265
0.246
0.490
30.7
25.0
21.1
24.6245
0.264
0.245
0.491
30.7
25.0
21.1
24.5899
0.281
0.249
0.470
30.7
25.0
21.1
24.7687
0.264
0.245
0.491
30.7
25.0
21.1
24.5899
0.265
0.246
0.490
30.7
25.0
21.1
24.6245
0.266
0.246
0.488
30.7
25.0
21.1
24.6026
Average favorable probability
Change
% change in
favorable
probability
% change in
expected outcome
% change in best
outcome
% change in worst
outcome
Undecided
Best
Worst
0.334
(0.010)
0.310
0.010
0.403
(0.010)
0.400
0.010
0.475
0.010
-2.99%
3.23%
-2.48%
2.50%
2.11%
-0.04%
0.08%
0.00%
0.00%
0.08%
0.00%
0.08%
0.00%
0.00%
0.11%
-0.14%
0.0129
0.0000
0.0469
0.59%
0.0239
0.0235
0.1815
-0.14%
0.0000
0.0000
0.0566
0.00%
0.0000
0.0000
0.0000
-0.09%
0.0393
0.0541
-0.0423
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Recommendations
• Caliper should focus on the factors that most strongly
influence product success
– Build customer demand
– Lobby for favorable regulations
• Caliper should use its lead customer programs to identify
and develop labchip applications that are widely
valued in its beachhead market
– Risk of building too many customized applications
• Could get stuck in early market forever
– Need to cross chasm with application that will enable company to
dominate pharmaceutical market
19
Questions?
20