Transcript of Capstone Presentation Prepared for Dr. Ian Lee and the Strategic Management Class of Fall 2003...
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- Capstone Presentation Prepared for Dr. Ian Lee and the
Strategic Management Class of Fall 2003 Carleton University
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- Introduction Invitrogen is a manufacturer of biotech equipment
and supplies used by academic, government and corporate
researchers.
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- Part I Macro Environment A. Technological Environment B.
Economic Environment C. Socio-Cultural Environment D.
Political-Legal Environment
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- 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
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- 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
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- 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 Source: U. S. Food and Drug Administration (FDA)
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- 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
natures hard drive Extension of current industry Bioterrorism
Increasing bioterrorism, using sophisticated technologies, Anthrax,
Sarin gas Provides demand for remedies
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- Economic Environment Source: The Statistical Yearbook of the
Economic Commission for Europe 2003
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- Economic Environment Source: The Statistical Yearbook of the
Economic Commission for Europe 2003
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- Economic Environment Source: The Statistical Yearbook of the
Economic Commission for Europe 2003
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- 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.
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- Economic Environment Source: Ernst & Young Biotechnology
Industry North America accounts for 77% of global biotech
revenues
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- 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%
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- Increasing Death Due to Illness Increasing trend for the
population over the age of 44 Opportunity for innovation, and
development of remedies Socio-Cultural Environment
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- 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
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- Industry Analysis
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- Strategic Group Map Level ofIntegration Innovativeness
Biopharmaceuticals Amgen Inc. Genentech Chiron Biogen Medimmune
Biopharma R&D IDEC Celltech Imclone Corixa Protein Design Labs
Biotech Equipment/Supplies Applera Invitrogen BD Biosciences Qiagen
Affymetrix Molecular Devices Ciphergen Emerging Genomics &
Bioinformatics Exelixis Lexicon Genetics LION Biosciences CuraGen
DeltaGen Inc.
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- Pharmaceutical Industry
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- Revenues (June 30, 2003)
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- Profitability
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- Market Capitalization (Nov.10, 2003)
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- Five Force Analysis Threat of Direct Competitors : 9 Threat of
Entry : 3 Substitutes : 5 Suppliers : 2 Buyers : 9 Average : 5.6 /
10
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- Direct Competitors (9) Many Competitors. Technologies can be
rendered obsolete!
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- Threat of New Entrants (3) Many competitors. High costs:
R&D, HR. Strategic Alliances, Patents.
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- Little Threat Profitability
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- Market Capitalization
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- Biotechnology Funding
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- Threat of Substitutes (5) Moderate. New Technologies being
developed. Biochemical markets secure.
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- Power of Suppliers (2) Low. Numerous suppliers for most inputs.
Outsourcing. FBS.
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- Power of Buyers (9) High. Biopharmas faced with high costs. New
entrants = more buyers = lower buyer power.
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- Five Forces Summary Moderately Unattractive Industry. Major
forces: buyers, competitors. Profitability Measures.
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- NAICS 325414 - Biological Product (except Diagnostic)
Manufacturing
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- NAICS 334516 Analytical Laboratory Instrument
Manufacturing
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- NAICS 541710 Research and Development in the Physical,
Engineering, and Life Sciences
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- Key Success Factors Human Resources. Networking and alliances.
Access to capital. National Policies. Product Strategy.
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- Driving Forces Success of Biopharmaceuticals. Government
policy. Bioterrorism defense spending. IP
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- Industry Summary A moderately unattractive industry.
Profitability is negative. Capital markets are volatile. ButGrowth
is high!
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- 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.
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- 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.
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- 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.
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- Value Creating Activities Research & Development Research
& Development Sales & Marketing Sales & Marketing
Technology Licensing Technology Licensing Patents and Proprietary
Technologies Patents and Proprietary Technologies Suppliers
Suppliers
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- 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.
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- 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
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- 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.
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- 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.
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- 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.
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- 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.
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- Core Competencies Large amounts of valuable intellectual
property is one of Invitrogens 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.
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- Strategic Acquisitions and Mergers An important component of
Invitrogens 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.
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- 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
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- Financial Analysis Cash represented 20% of total assets.
Liabilities represent 37% of total assets. 200220012000 Gross
Margin58.39%54.60%49.35% R&D (000s)$33,698$38,145$23,620
R&D %5.20%6.26%9.29%
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- 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.
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- Financial Analysis Profitability
Ratios12/31/200212/31/200112/31/2000 Return on Equity2.9-8.84-3.05
Return on Assets1.82-5.54-2.29 Return on Investment7.06-21.83-30.23
EBITDA of Revenue24.622.0210.78 Operating Margin10.57-23.93-27.33
Effective Tax Rate31.2-6.80.94 Liquidity
Indicators12/31/200212/31/200112/31/2000 Quick Ratio4.7683.73
Current Ratio6.879.524.39 Working Capital/Total
Assets0.320.40.22
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- Financial Analysis Debt
Management12/31/200212/31/200112/31/2000 Current
Liabilities/Equity0.090.080.09 Total Debt to Equity0.410.40.1 Long
Term Debt to Assets0.260.250.08 Asset
Management12/31/200212/31/200112/31/2000 Revenues/Total
Assets0.250.240.1 Revenues/Working Capital0.780.580.47 Interest
Coverage3.95-11.15-5.1
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- Industry Avg.Invitrogen Profitability Ratios ROE-42.32.9
ROA-145.321.82 EBITDA of Revenue-1212.0324.6 Operating
Margin492155617.210.57 Effective Tax Rate0.1331.2 Liquidity
Indicators Quick Ratio5.794.76 Current Ratio6.236.87 Working
Capital/Total Assets-0.950.32 Debt Management Current
Liabilities/Equity3065.820.09 Long-term Debt/Equity230719.590.41
Debt/Total Assets0.180.26 Asset Management Revenues/Total
Assets0.590.25 Revenues/Working Capital1.50.78 Interest
Coverage-159.543.95
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- Corporate Strategy Current Strategies. Strategy Analysis.
Recommendations.
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- Vertical Positioning
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- Core Business Molecular Biology (NAICS 325414 Biological
Product (except Diagnostic) Manufacturing). 66% of Revenues.
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- Horizontal Diversification Cell Culture (NAICS 335416
Analytical Laboratory Instrument Manufacturing). 34% of Revenues.
Highly Related.
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- 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.
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- Regional Revenue
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- Asset Allocation
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- Subsidiaries Serum Technologies Pty Ltd. Informax Invitrogen
B.V. Research Genetics Ethrog Biotechnologies Gene Express
Inc.
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- Corporate Strategy Analysis Global International Strategy.
Growth Strategy. Informax PanVera LLC, Molecular Probes
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- Selected CPI Data
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- Relative Labour Wages
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- Recommendations Manufacturing Abroad. Slow rate of acquisition.
Reduce Debt/Increase Flexibility.
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- 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!
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- 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.
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- Differentiation Invitrogen has over 10,000 products, which is
not itself a source of differentiation. What is unique about
Invitrogens strategy is that they are developing and optimizing
application-centered technology platforms.
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- 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.
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- Differentiation Many of Invitrogens 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.
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- 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
Invitrogens solid reputation, Invitrogens customers know they are
getting good value for their money.
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- 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.
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- Reach This refers to a firms 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
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- 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.
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- 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.
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- 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.
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- 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.
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- Competitor Threats to Business Strategy Competitors could offer
a good substitute at a lower price. Competitor could develop
products which render Invitrogens products obsolete.
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- Research & Development Invitrogens 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.
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- Sales and Marketing For differentiation to be successful,
customers must perceieve value for which they are willing to pay.
Invitrogens large and highly qualified sales and marketing staff
help make the differentiation strategy successful.
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- Licensing Invitrogens 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 Invitrogens differentiation
strategy.
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- Patents and Proprietary Technology For the differentiation
strategy to be successful, Invitrogens 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 Invitrogens source of
differentiation.
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- 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 Invitrogens business strategy.
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- 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.
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- 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.
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- Continue to Improve Customer Relations For continued success,
strong customer relations are successful. A good product is useless
if customers dont trust Invitrogen. Invitrogen does well in this
area, but must continue to seek new ways to improve access and
connections with customers.
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- 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.
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- 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.