2010 NORTH AMERICAN TISSUE DIAGNOSTICS PRODUCT LINE STRATEGY AWARD

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1 F R O S T & S U L L I V A N NORTH AMERICAN TISSUE DIAGNOSTICS PRODUCT LINE STRATEGY AWARD We accelerate growth.

2 2010 Frost & Sullivan Page 2

3 2010 NORTH AMERICAN TISSUE DIAGNOSTICS PRODUCT LINE STRATEGY AWARD Award Recipient: Leica Microsystems Award Description The Frost & Sullivan Product Line Strategy Award is presented each year to the company that has demonstrated the most insight into the needs and product demands of its customers. The recipient company has optimized its product line by leveraging products with the various price, performance, and feature points required by one or more market segments. Research Methodology To select the Award recipient, the analyst team tracks end-user requirements and market dynamics within the industry. This process includes interviews with suppliers, end-users, and industry experts. The product lines are compared with customer base demands, and the top-ranking provider is then presented the Award. Measurement Criteria In addition to the methodology described above, there are specific criteria used to ascertain final competitor ranking in this industry. The recipient has excelled by substantially increasing one or more of the following criteria: Introduction of new products, strategically positioned to balance the product line Ability to accommodate different market segments, or different markets within an industry, by repurposing technology Enhancement of product offerings through optimization of packaging, service, delivery, financing, and/or other value-added services Strategic technology or marketing acquisitions or alliances 2010 Frost & Sullivan Page 3

4 PRODUCT LINE STRATEGY AWARD IN THE TISSUE DIAGNOSTICS MARKET FOR NORTH AMERICA 2010 Significance of the Product Line Strategy Award Key Industry Challenges Addressed by a Strong Product Line Strategy Tissue diagnostics, or diagnostic testing that is executed on a carefully preserved histology specimen, is a technical and multi-step process. A biopsy will be sent to a histopathology laboratory where it is preserved in chemical solutions, embedded in paraffin wax to stiffen the specimen, thinly sectioned with a sharp blade, and finally mounted onto a microscope slide. Tissue diagnostic tests are performed next by applying a variety of stains to help visualize the cellular structure in a microscope. The first line of evaluation is a simple stain with hematoxylin and eosin (H&E) to highlight tissue morphology. More advanced stains include antibodies used for immunohistochemistry (IHC) for identifying disease-linked proteins. The most recently developed tests involve nucleic acid probes for in situ hybridization (ISH) for localizing DNA or RNA with mutations linked to disease. After staining, the slides are coverslipped and finally viewed by a pathologist for clinical evaluation. Although tissue diagnostics involves complex laboratory techniques, tissue biopsy and in situ assays will continue to play an important role in healthcare as greater emphasis is placed on diagnostics and disease management. The products that support tissue diagnostics are extensive and diverse. The breadth of products poses a challenge for vendors that service the customers in this industry. There are at least 10 major product groups to cover several processes that span the tissue preparation, routine staining, and advanced staining market segments. Major functions including tissue processing, embedding, slicing, and staining, are serviced by an automation instrument and consumable products. Within reagent consumables, there are hundreds of in vitro diagnostic (IVD) antibodies for IHC alone and even several vendors to choose from. Customers often require guidance in selecting the products that best address their individual needs. On top of the complex product landscape, vendors must compete for a relatively small customer base. There are only an estimated 4,200 sites in the U.S. that actively perform histopathology for tissue diagnostics. Hospitals and reference laboratories make up the majority of the customer base. Current market dynamics in diagnostic test providers indicate that small laboratories are often absorbed by larger laboratories as a means to reduce competition and expand market share. The limited customer base increases the importance of the product line strategy and the ability to meet customer needs with custom solutions. Tissue diagnostic vendors that can provide the total laboratory solution have a competitive edge in an industry with a relatively small customer base. Due to the broad product landscape, customers place value in vendors that conveniently supply high quality goods for the entire histopathology process. Vendors also win customer accounts by helping customers choose the best solutions from the sometimes overwhelming number of products and choices. A strategic product line that completely services all segments of tissue diagnostics is a key factor to for success in the tissue diagnostics market Frost & Sullivan Page 4

5 Key Benchmarking Criteria for Product Line Strategy Award For the Product Line Strategy Award, the following criteria were used to benchmark Leica Microsystems performance against key competitors: Breadth of Product Line Size of Addressable Customer Base Impact on Customer Value Impact on Market Share Breadth of Applications/Markets Served Best Practice Award Analysis for Leica Microsystems The Decision Support Matrix, shown in Chart 1, illustrates the relative importance of each criterion for the Product Line Strategy Award and the ratings for each company under evaluation. To remain unbiased while also protecting the interests of the other organizations reviewed, we have chosen to refer to the other key players as Competitor 1 and Competitor 2. Chart 1: Decision Support Matrix for Product Line Strategy Award Unparalleled Depth and Breadth of Product Offering The Biosystems Division of Leica Microsystems services the modern histopathology lab with a comprehensive portfolio of advanced histology systems and exceptional NovocastraTM reagents for tissue diagnostics. Leica Microsystems histopathology product catalog supplies every process of the tissue diagnostics laboratory starting with the highly technical tissue preparation steps and through the advanced histological stains that are the foundation of tissue diagnostic assays. The Biosystems Division of Leica Microsystems also offers several models within a product group that varies in level of sophistication, automation, and throughput. This approach generates high value to the customer as their needs are met without having to pay for extraneous features. The following products make up a small fraction of Leica Microsystems extensive product catalog. There are cassette and slide printers, microtomes, cryostats, conventional tissue processors, rapid tissue processors, embedding stations, routine stainers for H&E, automated stainers for IHC/ISH, IVD reagents, cover slippers, and a full range of histopathology consumables. Additionally Leica Microsystems continues to develop stand-out products on the market. A tissue diagnostics laboratory that incorporates Leica Microsystems PelorisTM rapid tissue processor, Leica s ParaplastTM highperformance paraffin alternatives, Leica Microsystems fully automated Bond IIITM IHC/ISH stainer, and Novocastra reagents, would be amongst the most modern histopathology facilities in the nation Frost & Sullivan Page 5

6 The breadth of product is impressive yet customers can be confident in the quality of the brand that the tissue diagnostics industry has come to known. Commitment to Providing High Customer Value The product features of Leica Microsystems histopathology product line are highly relevant and specific to the clinical environment. This critical understanding is evident in the scope of barcode registry in it systems. Completely automated computerized registry, by barcode systems is utilized in everything from Bond IHC reagent containers to patient specimens. This feature enables full digital communication and system control which is a necessity for workflow management and optimization. Leica Microsystems further demonstrates clinical relevance with built in safety features like integrated UVC disinfection in the blade area of the Leica CM1950 clinical cryostats. These are only a few examples of their commitment to safety and error elimination in a high throughput clinical environment. The modular design of the histopathology products is also important as it achieves the pinnacle of laboratory customization from a single vendor. They further infuse efficiency in the selection process by offering LEAN histology services to formulate optimal solutions. Optimal workflow solutions for tissue diagnostics are best addressed by a company like Leica Microsystems with a complete product line that does not compromise on quality. Leica Microsystems conveys the commitment to customer value thought different forms of media. The company provides extensive resources and educational material for customers on its website. There are fantastic visualizations of abstract concepts like LEAN histology or communications about the benefits of vibrating microtomes. Attention to customer value enhancement through several forms of publications is rewarded as customers understand how Leica Microsystems products impact their objectives to achieve efficient workflows, higher diagnostic confidence, and ultimately better patient care. Maximizing the Size of Addressable Customer Base Ever since being acquired by Danaher Corporation in 2005, Leica Microsystems and The Biosystems Division of Leica Microsystems in particular, has flourished under the direction of Danaher management. Since that time, Danaher has integrated five companies to create Leica Biosystems comprehensive histopathology product line including Australia-based Vision Biosystems in 2007 for their high-quality IHC solutions. In 2009 the well-known histology consumables brands, McCormick Scientific and Surgipath, were also integrated into their high-quality product portfolio. With those strategic acquisitions Leica Microsystems has expanded its product breadth and consequently captured greater market share. As a result of this product line strategy by acquisition, Leica Biosystems has a formidable presence in the tissue diagnostics market place. Leica Microsystems products are quite competitive on the market across all market segments of tissue diagnostics. The Biosystems Division of Leica Microsystem has captured a major share and a leadership position in the total tissue diagnostics market within only a 5 year period. Market Penetration Across Segments Historically, the tissue diagnostics industry is driven by specialization as certain vendors were preferred for different areas of the histopathology process. To illustrate, vendors that choose to manufacture only instruments for tissue preparation steps, are naturally excluded from the advanced staining markets Frost & Sullivan Page 6

7 Leica Microsystems on the other hand, has acquired a number of specialties within the full scope of tissue diagnostics. As a result, it has etched out a unique market position relative to its competitors. Figure 1 clearly illustrates that Leica Microsystems is at the apex of product breadth and expertise. This powerful combination is attributed to several strategic acquisitions under Danaher. Leica Microsystem s competitors have not or are unable to expand product coverage as quickly because specialization is typically a gradual process when organically developed. Danaher s decisive acquisitions and the company s seamless integration is a winning product line strategy for gaining customer accounts that enjoy the convenience of a single trusted provider. Figure 1: Tissue Diagnostics Market Product Landscape (U.S.) 2010 Key market participants are qualitatively plotted by their product offering in both the pre-analytical and advanced stains market segments. The x-axis represents the number of products for the pre-analytical market and the y-axis represents the number of products in the advanced staining market. The orange box identifies the companies that provide the total laboratory solution in the anatomic pathology laboratory. Breadth of Applications and Markets Served The Biosystems Division of Leica Microsystems makes up one of four divisions within Leica Microsystems. In its other divisions, Leica Microsystems is a market leader in several industries that span microscopy, microscope software, specimen preparation and medical equipment. These specialties are highly applicable to Leica Microsystems tissue diagnostics business moving forward especially with the emergence of digital pathology. Leica Microsystems launched lately a digital slide scanner, the SCN 400, to serve this important upcoming market as well. Furthermore Leica Microsystems acquired Genetix, a UK based company providing one of the leading software solutions in the field of digital pathology. Digital pathology products turn bulky tissue slides into high resolution images that can be computationally analyzed. The digital pathology industry has developed around slide scanners, archive databases, automated microscopes, and software. Leica Microsystems breadth of precision optical applications and analysis could easily position the Biosystems Division of Leica Microsystems favorably against its competitors to capitalize in a new promising market. Leica Microsystems is beginning to leverage its multiple divisions. A blending of expertise is evident in the innovative work station developed for the pathologist of the 21st century. The DMD108 is a network-ready digital microimaging system designed to improve pathology workflows. Crisp images of tissue slides are projected on large monitors which reduces the physical discomfort of microscope viewing. Additionally, network capabilities enable remote collaboration and obtaining second opinions for patient slides. The DMD108 provides the first basic tools to introduce pathologists to digital pathology technologies and represents Leica Microsystems entry into the developing market. Parent company, Danaher has a track record of successful integrations of synergistic businesses and technologies Frost & Sullivan Page 7

8 Under Danaher s influence and specialized product sets across divisions, Leica Microsystems is poised to capitalize on digital pathology and other segments in the healthcare market Conclusions The Biosystems Division of Leica Microsystems has a unique strategy creating a strong value proposition for histopathology laboratories, due to its breadth of products, ability to support tissue diagnostics processes, and in the business leadership of its parent company Danaher. A strong product line strategy is the foundation for Leica Microsystems, Biosystems Division to grow and succeed in the tissue diagnostics market. Accordingly, Frost & Sullivan recognizes the Biosystems Division of Leica Microsystems with the 2010 North American Product Line Strategy Award in the Tissue Diagnostics Markets. About Leica Microsystems Leica Microsystems is a leading global designer and producer of innovative high-tech precision optics systems for the analysis of microstructures. It is one of the market leaders in each of the fields of Microscopy, Confocal Laser Scanning Microscopy, Microscope Software, Specimen Preparation and Medical Equipment. The company manufactures a broad range of products for numerous applications requiring microscopic imaging, measurement and analysis. It also offers system solutions in the areas of Life Science including biotechnology and medicine, as well as the science of raw materials and industrial quality assurance. Comprising 11 manufacturing facilities in 8 countries, sales and service companies in 20 countries and an international network of dealers, the company is represented in over 100 countries. The international headquarters are based in Wetzlar, Germany. About Frost & Sullivan Frost & Sullivan, the Global Growth Consulting Company, partners with clients to accelerate their growth. The company's Growth Partnership Services, Growth Consulting and Career Best Practices empower clients to create a growth focused culture that generates, evaluates and implements effective growth strategies. Frost & Sullivan employs 50 years of experience in partnering with Global 1000 companies, emerging businesses and the investment community from more than 30 offices on six continents. For more information about Frost & Sullivan s Growth Partnerships, visit Frost & Sullivan Jake Wengroff jake.wengroff@frost.com Leica Microsystems Tim Lyons NEED PHONE tim.lyons@leica-microsystems.com Frost & Sullivan Page 8