QUANTIFYING THE VALUE OF BIOVIA PIPELINE PILOT PREPARED FOR BIOVIA BY ERIC BERGGREN, MANAGING DIRECTOR OF AXIOS PARTNERS WHITE PAPER

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1 QUANTIFYING THE VALUE OF BIOVIA PIPELINE PILOT PREPARED FOR BIOVIA BY ERIC BERGGREN, MANAGING DIRECTOR OF AXIOS PARTNERS WHITE PAPER

2 Getting successful new products to market has never been more important. As a result, scientists across industries from pharmaceuticals to energy to consumer packaged goods are demanding tools (e.g., software) to work smarter and faster. Meanwhile, management is putting increasing pressure on IT to reduce costs. IT is caught in the middle with no off-the-shelf answers as to what tools are providing the most value to their organizations. How does one measure the value of a software application? The appropriate metrics are unclear. Data on the software s impact on users is often limited or non-existent. And, organizations typically rely on their vendors asserting value instead of proving it. With increasingly limited time for analysis, IT managers are forced to fall back on intuition and user perceptions. BIOVIA PIPELINE PILOT ENABLING THE SCIENTIFIC ENTERPRISE Pipeline Pilot, BIOVIA s scientific workflow authoring application, optimizes the research innovation cycle, increases operational efficiency and reduces costs for both research and IT by providing tools for scientific analysis and allowing for the automation and standardization of manual, repetitive data preparation and collation tasks. Pipeline Pilot automates scientific data analysis, enabling scientists across the enterprise to rapidly explore, visualize and report research results, facilitating collaboration throughout the wider scientific community. For BIOVIA Pipeline Pilot, BIOVIA decided to answer this question by utilizing Axios proven customer value modeling (CVM) methodology. Developed jointly with Professor James C. Anderson at Northwestern University s Kellogg School of Management, CVM creates data-driven estimates of what a present or prospective market offering is worth in monetary terms to targeted customers relative to the next-best alternative offering. Some vendors have built what they regard as customer value models, but these models often have the character of being data light and assumption heavy. It s very common that customers are skeptical of such models, claiming that they do not accurately reflect their businesses. In contrast, customer value modeling stresses building value models that are data heavy and assumption light in cooperation with the customer. Wherever possible, suppliers gather data to minimize the number of assumptions made and to ensure that the assumptions that are made are reasonable. Customer value models go beyond recycling opinions to generate new knowledge for both the vendor and their customers. The more than 300 survey respondents and in-person participants reported signifigant user time savings, increased productivity and faster time to market across industries. CVM differs from other Return on Investment (ROI) or Total Cost of Ownership (TCO) studies by focusing exclusively on the points of difference between the offering and the customers next best alternative to that offer. By definition, TCO studies require the customer to provide all the data that a vendor s product impacts. This data request is usually quite long and discourages participation and rigor. If the customers choices perform the same on a dimension, then there cannot be any differential value. This paper outlines our research approach and highlights the research findings to answer the question, What is the value of Pipeline Pilot to an organization?

3 STEP 1: DESIGN THE RESEARCH PROJECT Conceptualize value: The first step was to hypothesize how BIOVIA Pipeline Pilot creates value for customer firms. Working with BIOVIA, we identified six (6) potential sources of value: 1. Elapsed time savings (Faster Results) 2. Avoidance of unproductive experiments (Better Results) 3. End user time savings (Personal Productivity) 4. Developer time savings (Personal Productivity) 5. IT backlog savings (Enablement) 6. Other IT cost savings (Reduction of Software Point Solutions) The first two value elements are derived from the same capabilities. BIOVIA Pipeline Pilot enables collaboration across organizational boundaries (both intra- and inter-company) allowing researchers to eliminate redundant experiments and more quickly standardize best practices, particularly in rapidly advancing scientific processes. By enabling access to (previously unavailable or difficult to access) data where they currently reside, Pipeline Pilot enables scientists to make better decisions from better access to the data. Lastly, Pipeline Pilot gives researchers with limited programming experience the ability to automate their manual tasks without waiting for IT to respond to their requests, otherwise known as the IT backlog. Together, these capabilities allow teams to complete their research in fewer days which can accelerate time to market or reduce the duration and cost of a project. These same capabilities can also help researchers avoid unproductive experiments and their resulting expense. Beyond shortening the duration of a research project, Pipeline Pilot improves users personal productivity in both developing protocols and conducting analysis by executing protocols developed by others. Protocol users save time by automating manual tasks when conducting analysis and reporting results. Developers save time by reusing code, being able to leave data where it currently resides and interacting with an easy-to-use graphical interface. Rapid extension facilitates adapting protocols to rapidly changing scientific processes. Lastly, developers may spend less time integrating other point solutions with Pipeline Pilot. By enabling researchers to develop their own protocols, IT pushes projects off their backlog. This frees up critical IT resources to focus on more strategic work. Some organizations have also used Pipeline Pilot to eliminate, or at least reduce the number of point solution licenses among their user base. Create Value Word Equations: Once we identified what to measure, we defined how to measure it. The fundamental tool was the Value Word Equation, which states in simple words and mathematical operators the formula that fairly estimates the value in monetary terms. Our research was structured around the following value word equations: 1a. Shorter Time to Market Savings = Days saved in discovery x Net present value of average revenue per day x % probability of payoff - OR - Days saved in discovery = Days to complete a discovery project with the Next-Best-Alternative Days to complete a discovery project with Pipeline Pilot Net present value of average revenue per day = Average revenue per day at launch / (1+Discount rate)^years to launch) 1b. Shorter Time to Discovery Savings = Days saved in discovery x Average cost per day of a discovery project 2. Unproductive Experiment Savings = # of unproductive experiments reduced per team per year x Average cost per item x Number of research teams # of unproductive experiments reduced per team per year = Number of unproductive experiments per team per year with the Next-Best-Alternative - Number of unproductive experiments per team per year with Pipeline Pilot

4 3. Protocol User Time Savings = (Total annual protocol user time savings - Total annual protocol development time spent) x % of time productively redeployed Total annual protocol user time savings = Average hours saved per week per protocol user x 47 weeks x Scientific researcher cost per hour x Number of annual protocol users Average hours saved per week per protocol user = Average time spent to run and report analysis with Next-Best-Alternative - Average time spent to run and report analysis with BIOVIA Pipeline Pilot Total annual protocol development time spent = Protocol development hours per developer per week x 47 weeks x Average protocol developer cost per hour x Number of protocol developers 4. Developer User Time Savings = Average development hours per developer per week x 47 weeks % of development time saved x Average developer cost per hour x Number of developer users x % of time productively redeployed % of development time saved = (Average development hours per developer per week with the Next-Best-Alternative - Average development hours per developer per week with Pipeline Pilot) / Average development hours per developer per week with the Next-Best- Alternative The variable % of time productively redeployed allows customers to estimate how much of any time savings would be realized. For example, saving users only 5 minutes per day is not enough time for them to efficiently perform another task. Thus, 0% of that time would be productively redeployed. Alternatively, saving an hour per day would allow a user to complete other work, and thereby productively redeploy close to 100% of that time. These value word equations were developed to realistically estimate the monetary impact of Pipeline Pilot. Value word equations were also developed for IT backlog and other IT cost savings. While the participating customers agreed on these sources of value and the corresponding value word equations, the customers found it difficult to provide the data required to quantify these value elements. These are considered Value Placeholders which cannot be measured, yet still have value. STEP 2: PERFORM VALUE RESEARCH Validate with Customers: Our next step was to validate our concept of value with a cross section of customers. We met in-person with 12 Pipeline Pilot customer organizations across North America (5) and Europe (7). These customers were from the pharmaceutical (5), biotech/cro (4), consumer packaged goods (2) and chemical (1) industries. Overall, these customers confirmed all six sources of value, including validating the value word equations as an accurate way to estimate that value; however, not all value elements were relevant to all customers. These customers further agreed that the value word equations would fairly estimate Pipeline Pilot s monetary value. Gather Research Data: The 12 participating organizations were invited to provide the data for each value word equation that they deemed relevant to their situation. Five customers provided data to quantify the first four value word equations. To provide an additional perspective, we also conducted a web-survey of Pipeline Pilot users in October An invitation to participate was sent to over 1,600 Pipeline Pilot users and 293 usable responses were received. Respondents were split across academic (21%), pharma (50%), and non-pharma (29%) industries. In creating the customer value model, median values were used to prevent a single outlier from skewing the results. In addition, where data were collected from both the in-person customer visits and the web-survey, the lower (more conservative) estimate was used. For the in-person customers, the median number of protocol developers was 4 and protocol users was 75.

5 STEP 3: REPORT RESEARCH FINDINGS Faster Time to Market: Across all participants, the median days saved on discovery projects was 21 days. Non-pharma users tended to get products from discovery to market in three years or less. These customers preferred to measure the value of saving days in terms of getting to market faster. In this case, Pipeline Pilot creates over $1.2 million in annual value (Table A). Table A: Faster Time to Market Days saved in discovery 21 Average revenue per day at launch $257,200 Discount rate 10% Years to launch 3.00 NPV of average revenue per day $193,238 % probability of payoff 30% Annual value of shorter time to market savings $1,217,400 Shorter Discovery Project: On the other hand, Pharma customers had products take over 14 years to reach the market, and most of their discovery work does not make it to the market. Thus, they preferred to value the 21 days saved in discovery in terms of saving discovery project team days. This measure of value was significantly lower, but still relevant (see Table B). Table B: Lower Cost of Project Days saved in discovery per year 21 Average cost per day of discovery project $2,700 Annual value of shorter time to discovery $56,700 Unproductive experiments: The median number of experiments reduced per team was 60. With a median of three research teams, customers in this sample would expect to save over $470,000 from fewer unproductive experiments (as shown in Table C). Table C: Avoid Unproductive Experiments Number of research teams 3 Average cost per item $2,623 Reduction in unproductive experiments per team 60 Annual savings from fewer unproductive experiments $472,140

6 Protocol user productivity: Protocol users received the greatest benefit from Pipeline Pilot. While the web survey median was 12 hours saved per week, we used the more conservative 10 hours per week based on feedback from the customer visits. Since 10 hours per week is a substantial time savings, participants estimated that 90% of that time was productively redeployed. With a median of 75 protocol users, the annual value of user time savings was greater than $1.5 million (Table D). Table D: Protocol User Time Savings Average hours saved per week per protocol user 10 Scientific researcher cost per hour $49 Number of protocol users 75 Total annual protocol user time savings $1,727,250 Average protocol development hours spent per developer per week 4 Average protocol developer cost per hour $42 Number of protocol developers 4 Total annual protocol development time spent $31,584 Net annual time savings $1,695,666 % of time productively redeployed 90% Annual value of protocol user time savings $1,526,099 Developer productivity: For developer time savings, 38% time savings is significant, but the median Pipeline Pilot development hours time was only 4 hours per week. As a result, about 1.5 hours per week was saved. With a median of only 4 Pipeline Pilot Professional Client users, the annual savings was under $20,000. In other words, if not much time is being spent, there is little time to be saved (Table E). More intensive Pipeline Pilot Professional Client users could see much larger savings. Table E: Developer Time Savings Average development hours per developer per week 4 % of development time saved 38% Average developer cost per hour $42 Number of developer users 4 Total annual developer user time savings $19,358 % of time productively redeployed 90% Annual value of protocol user time savings $17,422 VALUE SUMMARY Customers agreed that all six of our original value elements could be valuable, but given the data available for our analysis, Protocol User Time Savings, Avoiding Unproductive Experiments, and Reducing Time to Market were quantified and proved to be valuable to customers (as shown in Table F). Shorter time to result: Table F: Value Summary Time to market $1,217,400 Lower cost of discovery $56,700 Reduced unproductive analyses $472,140 Save researcher time (protocol user) $1,526,099 Save developer time (protocol developer) $17,422 Annual value of protocol user time savings $3,289,761

7 While all of the customers agreed on the sources of value, most customers indicated that at least one of the sources was either not relevant given their specific implementation/usage, or it was virtually impossible to obtain the necessary data. Most customers found quantifiable value in two or three of the areas. The median payback on Pipeline Pilot licensing fees was 6.5 to 1, with paybacks ranging from 3.4 to Contact BIOVIA at if you would like to utilize their new value calculator to estimate the value of Pipeline Pilot to your organization. Or visit their website to learn more about Pipeline Pilot: ABOUT THE AUTHOR Eric Berggren is Managing Director of Axios Partners, which specializes in innovating and managing customer value. Throughout his 25 year career, Mr. Berggren has developed and implemented highly effective differentiation strategies for clients across a variety of industries such as professional & and financial services, high-tech, energy, health care, telecommunications & industrial products and across diverse regions including Africa, Asia, Australia, Europe & and the Americas. His creative, yet pragmatic approach consistently generates tangible results that have been highlighted in Harvard Business Review, Fortune & several business books. He has also lectured at Northwestern University s Kellogg School of Management and taught numerous marketing excellence programs for Fortune 500 companies. Eric earned his M.B.A. with distinction from Northwestern s Kellogg School of Management with concentrations in management policy, marketing & and finance. While at Kellogg, he was elected to Beta Gamma Sigma. He earned his B.A., magna cum laude with highest honors in economics, from Kenyon College where he was elected to Phi Beta Kappa and awarded the Kenyon Economics Prize for the outstanding economics student. 2011Axios Partners Inc. and BIOVIA, Inc., all rights reserved * * * BIOVIA Pipeline Pilot is a registered trademark of BIOVIA, Inc. Customer Value Modeling is a proprietary methodology of James C. Anderson, LLC, the William L. Ford Chair in Marketing and Wholesale Distribution and a professor of management behavioral science at the Kellogg School of Management, Northwestern University. Professor Anderson is a faculty affiliate of Axios Partners Inc. Further reading on customer value modeling: Anderson, Kumar, and Narus, Value Merchants, Harvard Business School Press, Anderson, Narus & van Rossum, Customer Value Propositions in Business Markets Harvard Business Review. Mar Anderson & Narus, Business Market Management: Understanding, Creating, and Delivery Delivering Value. Prentice Hall Chapter 2. Our 3DEXPERIENCE Platform powers our brand applications, serving 12 industries, and provides a rich portfolio of industry solution experiences. Dassault Systèmes, the 3DEXPERIENCE Company, provides business and people with virtual universes to imagine sustainable innovations. Its world-leading solutions transform the way products are designed, produced, and supported. Dassault Systèmes collaborative solutions foster social innovation, expanding possibilities for the virtual world to improve the real world. The group brings value to over 170,000 customers of all sizes in all industries in more than 140 countries. For more information, visit Dassault Systèmes. All rights reserved. 3DEXPERIENCE, the Compass icon and the 3DS logo, CATIA, SOLIDWORKS, ENOVIA, DELMIA, SIMULIA, GEOVIA, EXALEAD, 3D VIA, BIOVIA and NETVIBES are commercial trademarks or registered trademarks of Dassault Systèmes or its subsidiaries in the U.S. and/or other countries. All other trademarks are owned by their respective owners. Use of any Dassault Systèmes or its subsidiaries trademarks is subject to their express written approval. Dassault Systèmes Corporate Dassault Systèmes 175 Wyman Street Waltham, Massachusetts USA BIOVIA Corporate Americas BIOVIA 5005 Wateridge Vista Drive, San Diego, CA USA BIOVIA Corporate Europe BIOVIA 334 Cambridge Science Park, Cambridge CB4 0WN England WP