Rationalizing ABgene and Matrix

Lines in Liquid Handling Business

David Follette, Mike Irwin, Chad Sailer, Paul

Witinski, Chris Lin

Massachusetts Institute of Technology

November 8, 2008
Executive summary

• Inorganic growth has increased complexity,

Strategic generating potential savings through SKU
context reduction

• High overlap in ABgene and Matrix products; low

Operational redundancy with nunc
situation

• Rationalize SKUs by gradually eliminating ABgene

Proposed product design
solution • Transition to ABMatrix brand globally

2
Agenda

• Strategic context

• Current operational situation

• Rationalization strategy

• Implementation/challenges and
takeaways

3
Acquisitions have resulted in growth, but
added complexity

100%
1.1 1.2
37
90%

80%

70
70%

60% 12.0
11.4

50%
nunc
Matrix
40%
Abgene
30% 149

20%

5.0
10% 3.3

0%

Revenue ($M) Inventory on hand (K) SKUs

Note: Revenues are for full year 2007, Inventory on hand and # of SKUS are at year-end 2007 4
Currently, similar products are being shipped
across the ocean at substantial time & cost

Matrix shipped to UK

28 days

28 days

ABgene shipped to US
Legend
Distribution center
Manufacturing facility 5
Agenda

• Strategic context

• Current operational situation

• Rationalization strategy

• Implementation/challenges and
takeaways

6
ABgene and Matrix have highly overlapping
product portfolios
Matrix
Percentage of Matrix with a
corresponding ABgene product
ABgene
Percentage of ABgene with a
corresponding Matrix product

100% 97% 98% 98% 100% 97% 98%

85%

75% 75%

50% 50%

25% 25%

0% 0%
SKU Units Revenue SKU Units Revenue
Note: Only tubes included
7
Matrix and ABgene have similar distribution
strategies; ~90% TFS controlled
% of sales by channel

100%

80%

60%
Distributor
TFS-owned partner
40%
Direct

20%

0%
Matrix ABgene

8
Despite some hurdles, ABgene and Matrix
could largely be substituted for one another
Factors suggesting Factors suggesting
high similarity low similarity
• Product mix • Unique branding (esp.
• Channel mix ABgene)

• Raw materials • Integration with

automation will take
• Compete for same time
customers

High probability of successfully integrating

ABgene and Matrix product portfolios
9
nunc is very different, and should not be
considered part of SKU rationalization

End customer • Used in high density, very low temperature

use applications
• Low volume customers with specific needs

• Sold only through distribution channels

Distribution

Product • Built as a honeycomb, not rack, system

features

Rationalizing nunc SKUs would likely hurt

sales due to customer attrition
10
Matrix has the highest gross margin of all
the 3 brands

Gross margin by brand (2007)

80%

70%

60%

50%

40%
68.7%
30%

20%
34.2%
26.9%
10%

0%
ABgene Matrix nunc

11
Agenda

• Strategic context

• Current operational situation

• Rationalization strategy

• Implementation/challenges and
takeaways

12
Key goals of rationalization strategy

• Move to common architecture on ABgene and Matrix

to reduce redundancy

• Leverage strengths of existing brands

• End wasteful shipping across ocean

• Leave nunc alone

13
Key components of solution

1• Migration of ABgene designs to Matrix

designs

2• Introduce new ABMatrix brand to global

market

14
Standardized designs implemented
gradually, driving $3M/year of savings
• Three year phased implementation
-Standardize tube manufacturing system
-Set Matrix design as the standard
-Work closely with customers throughout process
• UK manufacturing to match US (Matrix) manufacturing
-Focused productivity improvements as necessary
• End with 119 fewer SKU’s due to redundant ABgene
designs
• Pass through manufacturing savings onto customers

Leverage ABgene name and Matrix design

manufacturing to drive $3M savings
15
Customer impact of migration to Matrix design
while maintaining ABgene brand strength
1
Highly automated, $100M • Pass through savings
pharma in Bristol, UK, • Eventual transition to
ABgene user ABMatrix

Small cancer research • No impact due to low

startup in Munich, automation
Germany, ABgene user

3
Regional branch of major
French biotech firm, located • Pass through savings
in Columbus, Ohio using • Eventual transition to
ABgene like its parent ABMatrix
company
16
Financial impact is significant

One-time savings Ongoing savings Revenue impact

• Safety stock • Safety stock • Minimal impact to

reduction: $188k reduction: $21k top-line revenue
• Elimination of
transit costs:
$145k
• Manufacturing
savings: up to $3M

Total 3 year savings of $0.7-$4M, with little

to no impact to revenue
17
Agenda

• Strategic context

• Current operational situation

• Rationalization strategy

• Implementation/challenges and
takeaways

18
Implementation timeline is a phased
approach

Year 1 Year 2 Year 3

• Introduce unified • Design migration • Design migration

global brand continues complete
(ABMatrix) • Lower number of • Complete
• Move new trans-Atlantic rationalization of
customers to shipments SKUs
rationalized SKUs • Continue to honor • All products sold
• Continue to honor declining need of under single
current customers’ old SKUs ABMatrix brand
old SKU needs for 3
years

19
Risks and mitigations

Risks Mitigation

• Customer pushback on design • Phased implementation plan

changes • Pass on portion of savings to
customers

• Manufacturing productivity • Proven in US

does not meet targets • Best practice sharing w/ US
site

• Lose revenue with brand • Pass on portion of savings to

transition through customer customers
attrition

20
Change and risks fit with TFS core values

• Honor commitments to customers whose

Integrity specific product needs span several years

• Take calculated risks during

Innovation implementation to capitalize on significant
opportunities

• Focus on desire to streamline product

Intensity offering to achieve higher standards of
efficiency

• Encourage communication between

Involvement regions, functions, and customers
21
Key takeaways

• ABgene and Matrix merge into ABMatrix to

leverage relative strengths of each brand

• After 3 years of phased implementation,

achieve savings of $0.5M-$3.5M per year

• Good for customers, good for core values,

and good for bottom line

22
Q&A

23