Marketing Planning for Caliper Technologies’ Labchips

1. Marketing Planning for Caliper Technologies’ Labchips Mgmt. 266A: Product Management (Cooper) William Fang, Greg Kim, Bryant Kong,Simon Male, Rohit Talwani March 13, 2002

2. Planning Objective To determine the likelihood of various levels of revenue growth for Caliper Technologies’ labchip product line over the coming year.

3. Agenda • What Are Labchips? • Caliper Technologies • Market Overview • Critical Issues • Hugin Network • Probabilities • Results and Decision Nodes • Sensitivity Analysis • Recommendations • Questions?

4. 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

5. 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

6. 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

7. Critical Issues • Derived from preceding market analysis • Also regulatory, manufacturing, social and behavioral issues • Affect research applications or future uses of labchips

8. Competition Regulation Hugin Network Internal Economics Demand Product Design Customer Need Competition Product Success Major Forces Regulation

9. Internal Economics • Technical factors dictate product complexity and manufacturing cost • Combined with pricing decision, this determines Caliper’s margins Standards Customization High Medium Low Leader Follower Micro-dimensional Constraints Product Design Inter-operability Problematic Not a Problem Yes No Complex Moderate Simple Manufacturing Cost Demand Price Not Costly Costly Very Costly Low Medium High Low Medium High Margins Product Success Good Acceptable Poor

10. Demand Aging Population • Primary driver of demand is labchips’ ability to meet customer needs • Secondary driver of demand is value-based price of product Growing Plateauing Process Change Government Funding Significant Medium Insignificant High Medium Low Inter-operability Customer Need R&D Cost Patent Expiration Rising Plateauing High Impact Low Impact Yes No High Medium Low Price Demand Low Medium High High Medium Low Product Success

11. Competition Patent Litigation • Strategic partnerships and cross-licensing determine degree of competition • Intensity of competition directly impacts Caliper’s margins IntenseFew Cross-Licensing HighMediumLow ManyModerateFew Strategic Partnerships Competition IntenseModerateLittle Margin

12. Regulation Can Hinder Growth • Regulation and low access to capital can slow Caliper’s growth Access to Capital Bull Market Bear Market FDA Approval Rejection Product Success International Regulation FavorableUnfavorable ApprovalUnfavorable

13. Four Major Forces Impact Product Success Price Demand High Medium Low Access to Capital Competition High Medium Low Bull Market Bear Market Margin Product Success Regulation Favorable Unfavorable Good Acceptable Poor High Medium Low Utility (Revenues) High $ 30.7 M (60% growth) Medium $ 25.0 M (30% growth) Low $ 21.1 M (10% growth)

14. 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

15. Demand Example Customer Need has a larger influence on Demand. So we ordered each permutation and set the two extreme values. We then determined the graph of the probability appears as follows:

16. Demand Example continued Then we interpolate the in-between values to complete the table:

17. Results and Decision Nodes • Caliper’s expected labchip revenues are $24.9 M

18. Sensitivity Analysis

19. 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

20. Questions?