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BD-PAS India

Business Case: BD Branded ESR Pipettes

From External Vendor in India (EaSeR) Background: Vacutainer Brand is the market leader in India in the evacuated blood collection systems business with approximately 85% market share in the converted addressable market. The closest competitor is Greiners Vacuette with approximately 10% market share followed by VacuPlus from Medigene (Korea), Israeli, Italian, Chinese & Indian low priced brands. Total blood collection in India is approximately 150 180 million (absolute potential = 300 360 million tubes & 150 180 million multi-sample needles). But due to the nonreimbursed, non-regulated healthcare infrastructure, where preanalytical quality delivery resides in only the limited top end, the currently converted market is only 7-8 % of the absolute potential. BDPAS India has aggressively converted the market from conventional & competitors and have grown revenues 44% in FY03 and 25% in FY04. The projected revenue growth in FY05 is a further 25%. Though a non-specific test, ESR is commonly prescribed and tested in all segments of urban and rural India. The method commonly followed is Westergren, though in some limited parts of the country Wintrobe is practiced. The practice is to primarily do manual ESRs. BDPAS has promoted Sedi15 (ESR automation) for the last 24 months with only limited success (sales of 7 instruments) as users are unwilling to invest on capital instrumentation around ESR. Though ESRs will possibly be an irrelevant test in future and hence not practiced, the test is expected to be practiced for at least the next 5-7 years. Market Size: The various products used to do ESR are (1) low quality reusable glass pipettes of local manufacture (2) high quality reusable imported glass pipettes (3) disposable plastic pipettes Greiner / Easer, etc & (4) some minimal automation. Current estimates are that approximately 50 70 million ESR s are performed in the country. Out of these a potential of 8-10% is the addressable market for disposable plastic pipettes to be used in conjunction with evacuated tubes. As a collateral pointer, in FY04 BDPAS is expected to sell close to 7 million EDTA Vacutainer tubes most commonly used by the hematology dept., who also run the ESR.

Competitive Position: Greiner pipette sales are estimated to be $ 200K (approximately 3 million units) annually, at an ASP of $ 0.07 per unit. The pipettes contribute to about 55 % of Greiners overall revenue from preanalytical products from India. The product is currently sold through a distribution channel (2 importers in the country with about 12-15 distributors). However, Greiner is in the process of establishing a direct subsidiary operation in India with increased sales & marketing engagement and a larger distribution network. EaSeR Bio Tech, a Bangalore based Indian manufacturer, for the last two years, have been able to reach a distant 2nd position (claimed sales 0.7 1 million units per year). Mainly routed through a distribution channel (mostly BDPAS distributors), EaSeR pipettes have gradually gained a degree of market acceptance as a good product. Almost the entire balance market is dominated by local, reusable, glass pipettes. EaSeR Bio Tech Pvt. Ltd: Easer is a Bangalore based partnership company manufacturing disposable ESR pipettes. The company is part of a group that engages in diagnostic distribution (existing relationship with BDPAS) and microbiology manufacturing (uses Difco DCM to manufacture PPM). The company is run by qualified professionals with adequate experience in manufacturing, some development & distribution). The company (as recent as discussions held last week) was keen to partner with BD towards increase of business through their pipettes. As an experiment, BDPAS Australia has supplied about 60,000 units of EaSeR pipettes to M/S. Gribbles Path Labs (a key customer) and has reported customer satisfaction. Easers current production capacity is 3 million units per annum (one shift) but is scalable up to 5 million units (two shifts) in 3 6 months. The manufacturing process is 60% automated and 40% manual now. Maximum cost involves the raw material polyesterine and EaSeR is keen to avail BD global procurement cost benefits, should the relationship proceed. However, EaSeR has expressed desire to have a confidentiality agreement executed with BD before sharing cost / price related information. Rationale why ESR pipettes: Currently, close to 75-80% of Greiners pipette sales are to BD Vacutainer customers. This is driven by the fact that BD does not have a similar offering in the array. Being an entry - level product, this gives Greiner an under our skin advantage. They have a opening both with the end user & purchasing groups of these accounts, thereby

putting BDPAS under a constant pressure of high clinical / commercial engagement with all these customers. A move neutralizing the Greiner pipette advantage will have a double impact it will force them drop off the BDPAS customers (reducing risk to our core product lines) and would impact a significant portion of their revenues, thereby making their preanalytical business less viable in India. The product will add an entry - level conversion tool to our array thereby helping us faster convert conventional accounts (typically those who are currently using test tubes with a disposable pipette OR reusable glass pipette). Additionally (and most importantly), the incremental OIBT generated from the BD ESR Pipettes will allow BD India to locally fund some key growth initiatives designed towards aggressive market conversion. Go To Market Model: BDPAS India will buy pipettes manufactured by EaSeR under a BD brand and distribute to existing & new customers through its already established channel. Primary choice would be to have Easer manufacture on an OEM level under a BD brand. A BD brand will help position the product aggressively against Greiners, as opposed to a local non high quality brand, through better acceptability as BD is already an established brand in the laboratory segment (through Vacutainer & Syringes). This arrangement ensures a win win with Easer not having to invest on market growth and BD not having to engage capital investment, towards neutralizing the Greiner threat. The product will be promoted & sold through the existing BDPAS Core Business sales associates & distributor network and hence would not necessitate incremental sales & marketing investment. The only investment needed in this project would be the evaluations, travel, etc that may be necessary for the BD branding. Launch: Provided the evaluations, branding formalities can be closed in time, BDPAS India will be ready to launch the product by Q2 of FY05. The launch will encompass phase 0 conversion of Vacutainer users using EaSeR pipettes; phase 1 conversion of Vacutainer customers using Greiner pipettes; phase 3 conversion of other users.

Greiner Response: Possibilities Price aggression Action At their current organizational capability levels, their 1st reaction would be to lower prices in order to maintain market share. BD Response Utilize the current Vacutainer base to leverage sales of BD pipettes. Showcase our clinical support capabilities to overcome pricing objections. Maintain / increase focus on techno-clinical engagement. Monthly ESR pipette targets to distributors towards greater focus

Improve capability

Increase investment towards creating a technically capable organization

* The 3rd response could be reduced focus in country for pipettes. Financials*:
@ USD 1 = INR 45.20.

FY05 Units Revenue Estimated GP

0.5- 0.8million
(Q2/Q3/Q4 only)

2.5 million US$ 175K US$ 56K

2.8 million US$ 196K US$ 68K

3.75 million US$ 262K US$ 92K

4.6 million US$ 322K US$ 115K

US$ 45K US$ 13K

ASP assumption => US$ 0.07/unit.

GP same (expected benefit from Scale)

* will be further validated post Confidentiality Agreement with EaSeR with better cost clarity.
Barriers to success: Entry of local / international brands at good quality but lesser price Possibility of automated ESR on regular hematology instrumentation Challenge in establishing / maintaining right working relationship with EaSeR

Extended Opportunity: ESR is a commonly performed test in many AP countries (China, Malaysia, Thailand, etc) and even other regions. Post start up in India, we would evaluate market opportunity for the BD ESR Pipette in those geographies. Any large acceptance will provide scale benefits in terms of costs & GPs. This evaluation / market approximation plan is scheduled for FY06.