10-K Part 3:
OUR DRUG SCREENING STRATEGY
Our successful market introductions in 1998 of two instruments and our TKX
assay kit, followed by our introduction of one additional instrument and four
additional assays in 1999, helped to establish our brand and set the stage for
other new products. Our proprietary technologies are already increasing the
efficiencies and reducing the cost of identifying drugs that show potential as
new medicines. In addition, we have a pipeline of instruments and consumables
that we are developing in concert with our customers, such as SmithKline Beecham
in the case of our FLARe-TM- fluorescence technology.
Building upon this background, our objective is to become a leader in the
development and commercialization of advanced technologies and products that
accelerate the pace and improve the productivity of the drug discovery process.
To implement this strategy, we intend to:
PROVIDE HIGH THROUGHPUT SOLUTIONS. Our technology platform is comprised of
two principal proprietary components: instrumentation and assay
technologies. We intend to leverage this technology platform and our proven
expertise in rapid product development and manufacturing of automated
instrumentation systems to be the first to market with effective high
throughput solutions.
PURSUE AN EVOLUTIONARY APPROACH TO PRODUCT DEVELOPMENT. We anticipate that
the high throughput needs of the pharmaceutical industry will continue to
change rapidly over the coming years and are difficult to predict at this
time. We intend to offer products with features and capabilities that
provide solutions to the current and evolving high throughput needs of drug
discovery laboratories. For example, our Analyst product line can perform
seven major types of optically detected assays (and can perform multi-mode
protocols) in both the industry standard 96-well and 384-well microplate
formats. Additionally, our ultra-high throughput instrument, Acquest, is
designed to read the higher-density 1,536-well microplates at a rate of up
to 200,000 wells per day.
EXTEND INSTRUMENTATION AND ASSAY PRODUCTS INTO OTHER STAGES OF THE DRUG
DISCOVERY PROCESS. We believe that our screening products are well suited
for primary and secondary screening and other closely related stages of the
drug discovery process such as assay development, genotyping of SNPs,
toxicology and lead optimization, which require repetitive screening. We
believe that users will benefit from using integrated high performance
screening products.
GENERATE RECURRING REVENUE THROUGH THE SALE OF REAGENTS, ASSAY KITS AND
CONSUMABLES. We believe that establishing an installed base of high
throughput instruments will enable us to generate recurring revenue from the
sale of reagents, assay kits and consumables. These products are envisioned
as high value-added, application-specific tools that are optimized for use
in high throughput systems and specifically with our high throughput
instruments. We believe that customers will prefer to purchase reagents and
instruments from one source for convenience, ongoing support and
accountability.
DEVELOP AND ACQUIRE NOVEL SCREENING TECHNOLOGIES. We believe our FLARe
technology, a platform of patented bioassay technologies, will address a
number of the current limitations associated with fluorescence-based high
throughput assays. We are also developing internally certain reagent
technologies and have licensed and intend to license or acquire additional
screening technologies in order to establish and maintain a market advantage
for our products.
PROVIDE EARLY ACCESS TO STRATEGIC CUSTOMERS. In September 1998, SmithKline
Beecham signed a collaborative agreement with us, which gives them early
access to our FLARe technology. In October 1999, AstraZeneca signed a Master
Technology Partnership Agreement (MTPA) with us,
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which gives them early access to emerging technologies such as FLARe and our
assay development services. In addition to these agreements, we intend to
provide strategic customers early access to certain of our technologies,
which will provide insight into next generation product requirements and
technology needs. We believe this insight will allow us to provide products
that more closely meet the needs of our customers.
OUR SNP GENOTYPING PLATFORM AND BUSINESS STRATEGY
SNP genotyping generally involves a multi-step chemical reaction, the
results of which are detected using a specialized hardware platform. We have
developed a proprietary implementation of polarization technology that enables
sensitive and robust detection, called High-Efficiency Fluorescence Polarization
(HEFP-TM-). During the second half of 1999, our customers and our staff have
demonstrated that this HEFP platform has the ability to perform highly accurate,
cost effective, high throughput SNP genotyping, using off-the-shelf consumables.
We believe that our HEFP genotyping platform has significant advantages because
it requires only a simple "mix and measure" chemical reaction, without the need
to attach any molecules to a solid surface and the attendant washing and
separation steps. In addition, our approach to genotyping does not require
labeled primers, thus further reducing costs and complexity. Similar to our high
throughput technologies used in drug discovery, we intend to expand our genomics
product portfolio and augment this HEFP hardware platform with proprietary
software solutions and LJL consumables. In addition to HEFP, we are developing
other high throughput technologies.
Our goal is to become the leader in the commercialization of high throughput
SNP analysis technology, capitalizing on what we believe is the quickly emerging
demand for SNP genotyping. Our strategy is to initially focus on the drug
discovery and development markets, where we already have a customer base. We
intend to expand our penetration within our customer base into related areas
such as clinical and pre-clinical trials to perform patient stratification by
genetic traits. We believe that there are other significant potential
applications areas for our HEFP platform in SNP genotyping, including human DNA
diagnostics and other life science areas. To implement this strategy, we created
the Genomics Sciences Group at LJL in August 1999. We have started selling and
shipping our HEFP platform for high throughput SNP genotyping. Customers at
several leading genomics organizations are already successfully utilizing our
high throughout HEFP-SNP platform. We intend to grow the genomics business in a
manner similar to the way we are growing our business in high throughput drug
discovery.
CRITERION PRODUCT LINE
ANALYST PRODUCT LINE
Starting in May 1998, we began commercial shipments of Analyst HT, the first
assay detection instrument system in our Analyst product line. Analyst HT is a
multi-mode analyzer designed specifically for use in high throughput settings.
The term "assay detection" refers to the instrument's ability to read and
analyze how potential drug compounds perform when tested against specific
biological targets. Analyst HT can read several major types of fluorescence and
other assays, including HEFP. We believe that our SmartOptics-TM- proprietary
technology enables Analyst HT to detect assay results with improved sensitivity
in smaller volumes, thus saving costs. With a built-in capability of reading
both 96-well and 384-well plates, our customers are currently using our
Analyst HT to perform up to 70,000 tests per day.
Starting in June 1999, we began commercial shipments Analyst AD, which is
designed specifically to allow for an efficient transfer of assays from assay
development to the screening and lead optimization part of the drug discovery
process. Analyst AD is a cost-effective system with flexible assay development
capabilities and is fully compatible with our other products. Having this
compatibility eliminates the need to modify or re-validate assays upon their
transfer from assay development into screening and lead optimization.
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ACQUEST PRODUCT LINE
Starting in September 1998, we began commercial shipments of Acquest, our
first ultra-high throughput system. This high-density analyzer is an evolution
of the Analyst technology platform, which dramatically increases the number of
screens that can be performed at any one time. Current assay throughput is
estimated at up to 200,000 tests per day. The Acquest is also multi-modal and
accepts microplates with both 384-well and 1,536-well formats. In addition,
Acquest performs screens using significantly reduced assay volumes, thus
reducing the costs of reagents, assays and compounds. We are developing
1,536-well microplates to operate with Acquest. We believe that high throughput
system performance will be optimized with the use of these proprietary plates in
conjunction with Acquest due to the lower error tolerance between system
components in this miniaturized format. In addition, Acquest operates with third
party 1,536-well microplates, reagents and liquid handling systems. We also plan
to bring to market additional reagents and assay kits and intend to miniaturize
certain of our first generation reagents and assays for use in the high-density
format.
REAGENTS, ASSAYS AND PLATES
In 1998, we began offering high value-added, application-specific reagents
and assay kits that are optimized for use in high throughput and specifically
for use with our CRITERION product line instruments. We intend to develop
additional reagents and assay kits in a single-step format. We believe that a
single-step assay format is better suited to the high throughput environment
because it is faster, less expensive and easier to automate than multi-step
assays. We also believe that our reagents and assay kits will provide two major
benefits to our customers. First, overall assay performance is expected to
improve as these consumables are being optimized for use with our Analyst and
Acquest product lines. Second, we believe that customers will prefer to purchase
reagents and instruments from a single source for convenience, integrated
support and accountability.
The use of fluorescence-based assays in high throughput is increasing due to
their sensitivity, versatility, adaptability, safety and lack of waste-disposal
problems associated with radioactive isotopic assays. Among fluorescence-based
assays, fluorescence polarization assays are especially well suited for high
throughput because they can be used in a single-step format and are relatively
insensitive to volume variations.
We believe the increased sensitivity and precision of our Analyst and
Acquest product lines in the HEFP format will improve the performance of
fluorescence polarization assays. We are currently developing a new,
long-lifetime fluorescence polarization reagent based on our proprietary FLARe
assay technology. Currently available fluorescence polarization reagents have
short lifetimes and cannot be used in screening certain targets. We believe that
our long- lifetime fluorescence polarization reagent has the potential to expand
the class of available targets for certain major diseases, including
cardiovascular and immunodeficiency diseases, that can be screened in a
single-step, fluorescence polarization format.
We also introduced High Efficiency (HE-TM-) microplates in 1998 to provide a
"tuned" solution that optimizes assay performance in the Analyst system. These
microplates allow users to reduce assay volume and as a result, dramatically
reduce the costs without loss of performance.
NEW CRITERION TECHNOLOGIES BEING DEVELOPED
SCREENSTATION-TM-. In September 1999, we demonstrated a prototype and
announced the introduction of our next generation instrument platform, the
ScreenStation. ScreenStation is being developed to permit unattended operations,
non-contact micro-volume dispensing, and multiple detection modes. We believe
ScreenStation technology represents a significant advance in high throughput
screening as it enables pharmaceutical companies to easily implement homogeneous
assays that are fast, miniaturized, and non-radioactive. We plan to start
shipments in 2000.
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FLARE TECHNOLOGY AND SMITHKLINE BEECHAM COLLABORATION. FLARe (Fluorescence
Lifetime Assay Repertoire) is our patented and patent pending instrumentation
and reagent platform for addressing next generation solutions for critical drug
discovery challenges. Many targets, compounds and microplates have transient
fluorescent properties that obscure the assay specific signal by transient
background signal, or noise. Through a combination of advanced biophysics and
electronics, FLARe reduces the effect of background noise by 98% in certain
fluorescence-based assays.
Fluorescence-based assay technologies are well suited to high throughput
because they are:
- sensitive,
- versatile,
- easy to automate and
- safer than radioisotopic assays.
However, use of fluorescence-based high throughput assays has been limited due
to the high level of background noise in the fluorescence signal within the
assay, which obscures the assay-specific signal and results in loss of
sensitivity and reduced accuracy. We believe our FLARe technology may
significantly reduce false readings when running these assays.
In September 1998, we entered into a collaboration agreement with SmithKline
Beecham which provides them early access to our FLARe technology. In May 1999,
we announced the successful completion of the first milestone in our
collaboration with SmithKline Beecham, which demonstrated the unique enabling
performance of FLARe. In September 1999, we demonstrated a prototype of our
proprietary platform for drug discovery assays based on the measurement of
fluorescence lifetime using our FLARe technology.
SALES AND MARKETING
We market our CRITERION product line worldwide through a direct sales force
in North America and Europe and distributors in other parts of the world. We
currently have a marketing and sales organization consisting of more than 24
professionals including a staff of sales, service and applications support
people in the United States and the UK. Because our products are technically
sophisticated and our customers are Ph.D.-level researchers, the sales force
consists primarily of scientifically qualified personnel to address the
technical sophistication of our products and customers. An in-house applications
team provides sales support. We have entered into a distribution agreement with
Sumitomo in Japan, with Lab Services in the Netherlands and are currently
evaluating other distributors in certain geographical areas that are currently
selling products into the pharmaceutical R&D market.
We are marketing our Analyst and Acquest product lines, reagents, assay kits
and HE plates under the CRITERION name. We sell reagents primarily to
laboratories that perform relatively large numbers of assays. We sell assay
kits, which include a combination of reagents and detailed instructions on
protocol and use, to laboratories where convenience and ease of use are more
important than volume purchases of reagents.
Historically, we sold clinical diagnostics products through original
equipment manufacturing relationships to third parties. Thus, in 1999, 1998 and
1997, Chiron Corporation and Ventana Medical Systems, Inc., customers of
clinical diagnosis products, together accounted for a total of 0%, 10% and 88%,
respectively, of net sales. In 1999, net sales from original equipment
manufacturing products accounted for 8% of net sales representing a decline from
10% of net sales in 1998. Although we intend to continue to manufacture one
original equipment manufacturing product through 2000, original equipment
manufacturing product sales as a percentage of net sales are expected to further
decline in future periods. |
