Capstone Presentation Prepared for Dr. Ian Lee and the Strategic Management Class of Fall 2003 Carleton University

1. Capstone Presentation Prepared for Dr. Ian Lee and the Strategic Management Class of Fall 2003 Carleton University

2. Introduction • Invitrogen is a manufacturer of biotech equipment and supplies used by academic, government and corporate researchers.

3. Part I Macro Environment • A. Technological Environment • B. Economic Environment • C. Socio-Cultural Environment • D. Political-Legal Environment

4. 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

5. 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

6. 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

7. 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

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

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

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

11. 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.

12. Source: Ernst & Young Economic Environment • Biotechnology Industry • North America accounts for 77% of global biotech revenues

13. 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%

14. 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

15. 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

16. Industry Analysis

17. 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

18. Pharmaceutical Industry

19. Revenues (June 30, 2003)

20. Profitability

21. Market Capitalization (Nov.10, 2003)

22. Five Force Analysis • Threat of Direct Competitors : 9 • Threat of Entry : 3 • Substitutes : 5 • Suppliers : 2 • Buyers : 9 • Average : 5.6 / 10

23. Direct Competitors (9) • Many Competitors. • Technologies can be rendered obsolete!

24. Threat of New Entrants (3) • Many competitors. • High costs: R&D, HR. • Strategic Alliances, Patents.

25. ‘Little Threat’ Profitability

26. Market Capitalization Market Capitalization

27. Biotechnology Funding

28. Threat of Substitutes (5) • Moderate. • New Technologies being developed. • Biochemical markets secure.

29. Power of Suppliers (2) • Low. • Numerous suppliers for most inputs. • Outsourcing. • FBS.

30. Power of Buyers (9) • High. • Biopharmas faced with high costs. • New entrants = more buyers = lower buyer power.

31. Five Forces Summary • Moderately Unattractive Industry. • Major forces: buyers, competitors. • Profitability Measures.

32. NAICS 325414 - Biological Product (except Diagnostic) Manufacturing

33. NAICS 334516 Analytical Laboratory Instrument Manufacturing

34. NAICS 541710 Research and Development in the Physical, Engineering, and Life Sciences

35. Key Success Factors • Human Resources. • Networking and alliances. • Access to capital. • National Policies. • Product Strategy.

36. Driving Forces • Success of Biopharmaceuticals. • Government policy. • Bioterrorism defense spending. • IP

37. Industry Summary • A moderately unattractive industry. • Profitability is negative. • Capital markets are volatile. • But…Growth is high!

38. 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.

39. 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.

40. 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.

41. Value Creating Activities • Research & Development • Sales & Marketing • Technology Licensing • Patents and Proprietary Technologies • Suppliers

42. 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.

43. 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

44. 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.

45. 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.

46. 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.

47. 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.

48. 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.

49. 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.

50. 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