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Capstone Presentation Prepared for Dr. Ian Lee and the Strategic Management Class of Fall 2003 Carleton University. Introduction. Invitrogen is a manufacturer of biotech equipment and supplies used by academic, government and corporate researchers. Part I Macro Environment.

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slide1
Capstone Presentation

Prepared for Dr. Ian Lee and the Strategic Management Class of Fall 2003

Carleton University

introduction
Introduction
  • Invitrogen is a manufacturer of biotech equipment and supplies used by academic, government and corporate researchers.
part i macro environment
Part I Macro Environment
  • A. Technological Environment
  • B. Economic Environment
  • C. Socio-Cultural Environment
  • D. Political-Legal Environment
technological environment
Technological Environment
  • Nanotechnology
    • Development of super small products
    • Technology still in its infancy
    • Currently 100 startups
    • Nanobiotechnology, most promising for the Biotech industry
    • Creation of drugs as well as diagnostic tools
  • Gene Chip
    • Ability to store entire human genome onto a single chip
    • Technology still in its infancy, 5 years old
    • Making personalized medicine a reality
    • Ability to expand the biotech industry
technological environment5
Technological Environment
  • Gene Testing
    • Direct analysis of DNA molecules
    • Newborn screening, prenatal diagnostic testing, risk analysis of adult cancers
    • Few tests exist today, many waiting to be discovered
technological environment6

Source: U. S. Food and Drug Administration (FDA)

Technological Environment
  • Gene Therapy
    • Correct defective genes
    • Replacing, repairing, regulating non-functional genes
    • Technology still in an experimental stage
    • FDA has placed a temporary ban on gene therapy
technological environment7
Technological Environment
  • DNA Computing
    • Developed in 1994, by L.M. Adleman
    • Information density greater then that of silicon
    • Allowing large mathematical calculations to be performed
    • DNA is nature’s hard drive
    • Extension of current industry
  • Bioterrorism
    • Increasing bioterrorism, using sophisticated technologies, Anthrax, Sarin gas
    • Provides demand for remedies
economic environment
Economic Environment

Source: The Statistical Yearbook of the Economic Commission for Europe 2003

economic environment9
Economic Environment

Source: The Statistical Yearbook of the Economic Commission for Europe 2003

economic environment10
Economic Environment

Source: The Statistical Yearbook of the Economic Commission for Europe 2003

slide11

Economic Environment

  • Beyond 2003

SOURCES: Congressional Budget Office; Department of Commerce, Bureau of Economic Analysis; Department of Labor, Bureau of Labor Statistics; Federal Reserve Board.

slide12

Source: Ernst & Young

Economic Environment

  • Biotechnology Industry
    • North America accounts for 77% of global biotech revenues
socio cultural environment
Socio-Cultural Environment
  • Aging Demographic
    • North American and European Population is aging
    • The elderly population will require proper diagnostic tools, as well as various treatments
    • Increased demand for the industry
  • Health Care Expenditure
    • Increasing trend
    • 58% increase in spending since 1990
    • Increase in spending for Prescription drugs by 17%
socio cultural environment14
Socio-Cultural Environment
  • Increasing Death Due to Illness
    • Increasing trend for the population over the age of 44
    • Opportunity for innovation, and development of remedies
political legal environment
Political-Legal Environment
  • Heavily regulated, largely to benefit the industry
  • North American states are attempting to lure the industry
  • Large number of regulating bodies around the world,
    • APHIS, EPA, FDA, DFO
strategic group map

Biopharmaceuticals

Amgen Inc.

Genentech

Chiron

Biogen

Medimmune

Biopharma R&D

IDEC

Celltech

Imclone

Corixa

Protein Design Labs

Level ofIntegration

Biotech Equipment/Supplies

Applera

Invitrogen

BD Biosciences

Qiagen

Affymetrix

Molecular Devices

Ciphergen

Emerging Genomics & Bioinformatics

Exelixis

Lexicon Genetics

LION Biosciences

CuraGen

DeltaGen Inc.

Innovativeness

Strategic Group Map
five force analysis
Five Force Analysis
  • Threat of Direct Competitors : 9
  • Threat of Entry : 3
  • Substitutes : 5
  • Suppliers : 2
  • Buyers : 9
  • Average : 5.6 / 10
direct competitors 9
Direct Competitors (9)
  • Many Competitors.
  • Technologies can be rendered obsolete!
threat of new entrants 3
Threat of New Entrants (3)
  • Many competitors.
  • High costs: R&D, HR.
  • Strategic Alliances, Patents.
market capitalization
Market Capitalization

Market Capitalization

threat of substitutes 5
Threat of Substitutes (5)
  • Moderate.
  • New Technologies being developed.
  • Biochemical markets secure.
power of suppliers 2
Power of Suppliers (2)
  • Low.
  • Numerous suppliers for most inputs.
  • Outsourcing.
  • FBS.
power of buyers 9
Power of Buyers (9)
  • High.
  • Biopharmas faced with high costs.
  • New entrants = more buyers = lower buyer power.
five forces summary
Five Forces Summary
  • Moderately Unattractive Industry.
  • Major forces: buyers, competitors.
  • Profitability Measures.
key success factors
Key Success Factors
  • Human Resources.
  • Networking and alliances.
  • Access to capital.
  • National Policies.
  • Product Strategy.
driving forces
Driving Forces
  • Success of Biopharmaceuticals.
  • Government policy.
  • Bioterrorism defense spending.
  • IP
industry summary
Industry Summary
  • A moderately unattractive industry.
  • Profitability is negative.
  • Capital markets are volatile.
  • But…Growth is high!
firm analysis
Firm Analysis
  • Listed on the Nasdaq, Invitrogen has a market capitalization of about $3 billion.
  • They offer an integrated technology platform to support their customers’ efforts in molecular and cell biology research, drug discovery, and commercial biomolecule production.
firm analysis 2002 summary
Firm Analysis – 2002 Summary
  • Wide-ranging plan of new product innovation.
  • Emphasis on high growth, high margin products.
  • Revenues increased to $649 million
  • Pro forma EPS grew to $1.81.
  • Over $1 billion in cash puts Invitrogen in strong position for further investment.
employees
Employees
  • At the end of 2002, Invitrogen had 2744 employees, 916 of whom were employed outside the United States.
  • Strong competition for talented employees in the industry.
  • Continues success dependant on ability to attract and retain qualified employees.
value creating activities
Value Creating Activities
  • Research & Development
  • Sales & Marketing
  • Technology Licensing
  • Patents and Proprietary Technologies
  • Suppliers
research development
Research & Development
  • Invitrogen has 213 employees principally engaged in R&D.
  • 5.20%, 6.06% and 9.59% were the percentage of revenues spent on R&D in 2002, 2001, and 2000 respectively
  • 2002 was a transition year; R&D was co-located with marketing and manufacturing facilities in Carlsbad to improve speed and efficiency of product development.
sales marketing
Sales & Marketing
  • Invitrogen sells directly in 24 countries
  • Sell through agents and distributors in 45 additional countries
  • There are 893 employees in the Sales and Marketing group
  • They employ scientists as their technical sales representatives.
  • Marketing departments across the globe
  • Comprehensive website
technology licensing
Technology Licensing
  • Many products are manufactured or sold under terms of licensing agreements.
  • Most expire at various times over the next 15 years.
  • Must pay royalties to licensors based upon a percentage of sales which involve licensed product.
  • Renewing licenses involves significant risk.
patents and proprietary technologies
Patents and Proprietary Technologies
  • Company protects proprietary technology using patents, licenses, copyrights, and trademarks.
  • Invitrogen enters into confidentiality agreements with third parties, employees, and consultants.
  • In U.S. alone, Invitrogen has over 100 patents, which tend to last for 20 years.
suppliers
Suppliers
  • Materials are bought from many different suppliers.
  • The company is not dependant on any one supplier or group of suppliers.
  • Raw materials, with the exception of fetal bovine serum (FBS) are available from multiple suppliers.
  • Invitrogen acquired Serum Technologies which provides the company with its own source of FBS from Australia.
emerging market opportunities
Emerging Market Opportunities
  • Invitrogen has developed a reputation as a pioneer for developing new technologies and packaging them into kit format.
  • Currently refocusing beyond individual products to develop application-centered technology platforms to address an emerging market opportunity.
  • They hope to become a total integrated solutions provider to their customers.
core competencies
Core Competencies
  • Large amounts of valuable intellectual property is one of Invitrogen’s strengths.
  • Currently owns over 125 patents in the U.S., and has almost 300 licenses covering 400 patents.
  • A strong line of products is another strength, with a catalogue of over 10000 products.
strategic acquisitions and mergers
Strategic Acquisitions and Mergers
  • An important component of Invitrogen’s business strategy is identifying growing or emerging markets, and entering these markets through strategic acquisitions.
  • Invitrogen uses strategic acquisitions to improve its market share and acquire new technologies.
summary of value adding factors
Summary of Value Adding Factors
  • Brand Leadership
  • Commitment to Innovation
  • Strategic Acquisitions
  • Emphasis on Customer Service and Product Quality
  • Strong Global Presence
  • Constant Improvement of Operational Efficiency and Financial Performance
financial analysis
Financial Analysis
  • Cash represented 20% of total assets.
  • Liabilities represent 37% of total assets.
financial analysis52
Financial Analysis
  • 2002 was the first time in 3 years Invitrogen had a positive net income (7.35% of revenues)
  • 2001 and 2000 had net losses, mainly due to restructuring and large acquisitions.
  • 2002 shows that this restructuring and acquisitions are paying off.
corporate strategy
Corporate Strategy
  • Current Strategies.
  • Strategy Analysis.
  • Recommendations.
core business
Core Business
  • Molecular Biology (NAICS 325414 Biological Product (except Diagnostic) Manufacturing).
  • 66% of Revenues.
horizontal diversification
Horizontal Diversification
  • Cell Culture (NAICS 335416 Analytical Laboratory Instrument Manufacturing).
  • 34% of Revenues.
  • Highly Related.
life technologies merger
Life Technologies Merger
  • Spawned creation of two segments.
  • Combined income in 1999: 477.9 million.
  • Invitrogen revenue in 2001: 629.3 million.
  • A 31% increase.
  • Staff reduction: 2,981 to 2,744.
  • Pro forma income reporting.
subsidiaries
Subsidiaries
  • Serum Technologies Pty Ltd.
  • Informax
  • Invitrogen B.V.
  • Research Genetics
  • Ethrog Biotechnologies
  • Gene Express Inc.
corporate strategy analysis
Corporate Strategy Analysis
  • Global International Strategy.
  • Growth Strategy.
  • Informax
  • PanVera LLC, Molecular Probes
recommendations
Recommendations
  • Manufacturing Abroad.
  • Slow rate of acquisition.
  • Reduce Debt/Increase Flexibility.
a new strategy
A New Strategy
  • Gateway Technology Open Architecture®
  • Open licensing, Market driven pricing.
  • Enables sharing of information amongst researchers.
  • Speeds research / drug development.
  • Creates a bigger market for equipment and supplies!
business strategy
Business Strategy
  • Invitrogen currently employs a differentiation strategy.
  • This means they offer something which their competitors can not provide, and which their customers are willing to pay for.
  • Invitrogen differentiates itself by refocusing beyond individual products.
differentiation
Differentiation
  • Invitrogen has over 10,000 products, which is not itself a source of differentiation.
  • What is unique about Invitrogen’s strategy is that they are developing and optimizing application-centered technology platforms.
differentiation71
Differentiation
  • Instead of presenting their customers with the list of their many products, Invitrogen, through these technology platforms, is positioning themselves as an integrated solutions provider.
  • The value of these platforms is greater then the sum of its parts.
differentiation72
Differentiation
  • Many of Invitrogen’s competitors offer substitutes to the over 10,000 products which Invitrogen offers.
  • However none of the competitors are providing these products in the form of application-centred technology platforms.
  • This is one area that differentiates Invitrogen.
differentiation73
Differentiation
  • These platforms are unique, and customers are willing to pay for the value they provide.
  • Invitrogen can offer custom solutions or a complete package, and combined with Invitrogen’s solid reputation, Invitrogen’s customers know they are getting good value for their money.
differentiation74
Differentiation
  • Another area in which Invitrogen differentiates themselves from their competitors is through their strong customer relations.
  • Invitrogen creates a competitive advantage through their relationships with their customers through the dimensions of richness, reach and affiliation.
reach
Reach
  • This refers to a firm’s access and connections to customers.
  • With a presence in over 75 countries, marketing centres in U.S., Europe, and the Asia-Pacific, and a comprehensive website, Invitrogen has good reach with its customers
richness
Richness
  • Richness is concerned with the depth and detail of the two-way flow of information between the firm and the customer.
  • Sales force of almost 900 is composed of scientists with extensive backgrounds in biology and molecular biology.
  • They are able to provide provide meaningful answers and information to customers.
affiliation
Affiliation
  • Affiliation is concerned with facilitating useful interactions with customers
  • Invitrogen\'s direct sales presence in 24 countries gives them strong affiliation.
  • Their affiliation is further improved by their on-line catalogue on the Invitrogen website.
business strategy analysis
Business Strategy Analysis
  • For differentiation to succeed, all functional level strategies must support the business level strategy.
  • The company must ensure it is aware of and able to respond to competitors threats to their business strategy.
  • Company must be able to adapt to ensure strategy remains effective.
competitor threats to business strategy
Competitor Threats to Business Strategy
  • Any strategy can lose its effectiveness.
  • Because of this, it is important to closely monitor the activities throughout the value chain to ensure that they are continuing to add value and have not become obsolete
  • It is also important to closely monitor the actions of competitors.
competitor threats to business strategy80
Competitor Threats to Business Strategy
  • Competitors could offer a good substitute at a lower price.
  • Competitor could develop products which render Invitrogen’s products obsolete.
research development81
Research & Development
  • Invitrogen’s functional R&D strategy corresponds to the business-level differentiation strategy.
  • To be an integrated solutions provider, Invitrogen must be on the cutting edge of product development.
  • Failure to continue to develop new products could result in failure of diffentiation strategy and loss of market share.
sales and marketing
Sales and Marketing
  • For differentiation to be successful, customers must perceieve value for which they are willing to pay.
  • Invitrogen’s large and highly qualified sales and marketing staff help make the differentiation strategy successful.
licensing
Licensing
  • Invitrogen’s differentiation strategy consists of offering complete solutions to meet customer needs.
  • Because needs vary greatly, Invitrogen cannot meet customer needs exclusively with internally developed products.
  • For this reason, licensing is an important part of the success of Invitrogen’s differentiation strategy.
patents and proprietary technology
Patents and Proprietary Technology
  • For the differentiation strategy to be successful, Invitrogen’s products must offer added value compared to the products of competitors.
  • Patents and proprietary technologies help to prevent competitors from copying Invitrogen, and as such, protect Invitrogen’s source of differentiation.
business strategy recommendations
Business Strategy Recommendations
  • The corporate level strategy of acquiring new technologies and entering new markets through acquisitions has been complemented by the business level strategy of differentiation.
  • Because of this, there is no reason for any dramatic changes to Invitrogen’s business strategy.
business strategy recommendations86
Business Strategy Recommendations
  • It is important to be flexible and to adapt to an ever changing market.
  • For this reason, it is important that Invitrogen does not become complacent and continues to refine and improve.
  • Monitoring the external environment and competitors is essential.
closely monitor competitors
Closely Monitor Competitors
  • Invitrogen must be aware if its products are becoming obsolete.
  • It also must ensure that its customers are willing to pay a premium for the unique features Invitrogen offers.
  • Must be aware if competitors are offering similar products at lower price.
  • Invitrogen must be ready to quickly respond if any of these things occur.
continue to improve customer relations
Continue to Improve Customer Relations
  • For continued success, strong customer relations are successful.
  • A good product is useless if customers don’t trust Invitrogen.
  • Invitrogen does well in this area, but must continue to seek new ways to improve access and connections with customers.
move away from licensing
Move Away from Licensing
  • Although licensing is important to the business strategy, it brings high risk.
  • As much as possible, Invitrogen should move away from licensing and increase internal product development.
  • By doing so, Invitrogen ensures it is responsible for its own fate, and cannot be held hostage by licensors.
be a moving target
Be a Moving Target
  • It is only a matter of time before competitors copy the features that make Invitrogen unique.
  • For this reason, Invitrogen must continue to focus on innovation and the development of new products and technologies.
  • They must stay one step ahead of competitors to maintain competitive advantage.
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