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Kellogg on Biotech

The Emerging Molecular Diagnostics Industry: Applera's Path to a Leadership Role

John Fadlovich KSM '04 Carl Finamore KSM '04, Jodi Flax KSM '04, Kevin Lynch KSM '04 and Rebecca Wildman KSM '04

For decades diagnostic labs have relied upon clinical chemistry and immunoassays to detect disease, but with the mapping of the human genome and advances in instrumentation technology, physicians of the future will have access to molecular diagnostic tools that will revolutionize the way medicine is practiced. Applied Biosystems, a division of Applera, is dominant in the life sciences industry market with respect to instruments and reagents, including nucleic acid detection and synthesis. Another division of Applera, Celera Genomics, has been securing intellectual property on gene expression patterns and single nucleotide polymorphisms (SNPs) faster than anyone in the industry today. With this combination of assets, Applera may be poised to capture the majority of the molecular diagnostics industry, the fastest growing segment of the $22B in vitro diagnostics industry.

This paper will first review the current structure of the diagnostics industry; and in particular the nascent but fast-growing molecular diagnostics segment. Next, we will introduce Applera Corporation and its key subsidiaries, Applied Biosystems, Celera Genomics and Celera Diagnostics, a joint venture between Applied Biosystems and Celera Genomics. We will analyze Applera’s intellectual property and complementary assets, key pieces to Applera’s strategy within the molecular diagnostics industry. Using this understanding of the company’s strategy we will assess the current commercialization environment and explain why Applera may not retain a majority of the value from its innovations. However, we will then consider a standard setting approach, which is an alternative that Applera can consider in efforts to increase the value it may obtain from its position in the molecular diagnostics industry. We will compare the strategy in this industry to the competitive structure of the computer industry, one that is dominated by standard setters such as IBM and Microsoft. Finally, strategic recommendations for achieving maximum growth and sustainability in this segment will be discussed.

©2007 Kellogg School of Management, Northwestern University