Caliper Life Sciences, Inc.

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Caliper Life Sciences, Inc.

68 Elm Street
Hopkinton, Massachusetts 01748-1602
U.S.A.
Telephone: (508) 435-9500
Fax: (508) 435-3439
Web site: http//:www.caliperls.com

Public Company
Incorporated: 1995 as Caliper Technologies Corporation
Employees: 454
Sales: $49.4 million
Stock Exchanges: NASDAQ
Ticker Symbol: CALP
NAIC: 325410 Pharmaceutical and Medicine Manufacturing; 325411 Medicine and Botanical Manufacturing; 325412 Pharmaceutical Preparation Manufacturing; 325413 In-vitro Diagnostic Substance Manufacturing; 325414 Biological Product Manufacturing; 334413 Semiconductor and Related Device Manufacturing; 334516 Analytical Laboratory Instrument Manufacturing; 541710 Research and Development in the Physical, Engineering, and Life Sciences

Caliper Life Sciences, Inc. uses its core technologies of liquid handling, automation, and LabChip microfluidics to produce innovative tools for the life sciences industry. Within the life sciences field, Caliper seeks to address three primary markets: drug discovery and development, genomics and proteomics, and molecular diagnostics. Caliper's customers include leading pharmaceutical and biotechnology customers, universities, government research laboratories, and other research organizations throughout the world.

Origins

Caliper Life Sciences, Inc. was founded in 1995 in Palo Alto, California, by technologist Mike Ramsey and Calvin Y.H. Chow to develop and market the potential of microfluidics, the business of creating new tools for automated bioprocessing and analysis enabling the controlled movement of minute amounts of fluids on the surface of a microchip. Caliper sought to develop rapid, affordable, and easy-to-use medical test chips to enable basic medical testing at a much cheaper price and without the use of expensive laboratory equipment. The new automated tool for biochemical analysis offered the functional equivalent of a chemistry laboratory on a microchip. By applying advanced microfabrication from the semiconductor industry to the automated handling of fluids, Caliper hoped to fundamentally change the way that chemical, biological, and clinical information was generated and used.

Cofounder and head of development Calvin Chow said he wanted Caliper to be the Intel of the diagnostic testing business. Caliper fashioned its chips with the aim of mimicking what big medical lab machines could do in processing vials of blood. The testing process used a series of simple steps that involved taking a precisely measured quantity of fluid, mixing it with a test solution, adding fluorescent markers that bind to reaction products, and shining a light on the mix in order to compare the test with a color standard. The colors would be identified not by lab technicians but by a miniature photosensor, similar to the millions of photosensors in a home video camera. Microfluidics would perform the job because the channels on the testing chip would admit only a few microdroplets of fluid as several thousands of volts spiked across the intersections and endpoints of the channels in a rolling pattern that governed the flow as needed. The chip moved around molecules in time with electrostatic pulses according to the clock cycles of the operating computer. In addition, the chip could decipher information at any point by sensing how fast a particular droplet moved in response to the electronic stimulus. The chip also kept track by adding fluorescent markers to the fluid, enabling specimens to be identified each time they passed over a photosensor.

Caliper Pursues Corporate Partnerships

In its first year, Caliper raised $6.6 million from private investors and venture capital firms with the expectation that it would have products within 18 months. In March 1997, Caliper signed a collaboration deal with Dow Chemical Company to develop polymers for Caliper's chemical microchips. Under the agreement, Dow would conduct research on the technology at its materials engineering center and make a financial investment in Caliper Technologies. By producing microchips from less expensive polymers rather than from silicon or quartz, Caliper could make the technology feasible for a range of applications requiring disposable chips, including medical, pharmaceutical, industrial, and environmental analysis, as well as potential consumer products.

In May 1997, Caliper announced the appointment of David K. Lam as president and chief executive officer. Lam was the founder of Lam Research Corporation, a pioneer developer of semiconductor process equipment based on plasma etching technology. Immediately before joining Caliper, Lam was president and chief executive officer of ExpertEdge, where he directed software development and marketing from 1989 to 1996. Under Lam's leadership, in May 1998 Caliper signed an agreement with Hewlett-Packard to develop jointly a first-generation, miniature analytical instrument and information system based on Caliper's lab-on-a-chip technology. The deal provided for the companies to invest $20 million for the first year and another $80 million for the following four years to develop and market the technology. In June 1998, the company announced it raised an additional $7.4 million, bringing total financing since its founding to more than $40 million to accelerate the development of its LabChip technology for chemical and biochemical research and analysis.

Caliper earned its revenues primarily from collaborative agreements with corporate partners through a fee-based technology access program. Caliper also sought to use these partnerships to commercialize its technology. As a result, in May 1998 the company signed a deal with Agilent Technologies to create a line of commercial research products based on Caliper's LabChip technologies. The agreement provided Caliper with the scale and expertise of a leading analytical instrumentation firm to bring these novel products to market. Under the agreement, both companies pledged to invest $100 million collectively over a period of five years. The agreement further provided that Caliper focus on developing technology and LabChip applications while Agilent focus on developing instruments and software, manufacturing instruments, and marketing and selling. By December 1998, Caliper also had signed strategic relationships with Dow Chemical, Hewlett-Packard, Hoffman-La Roche, Amgen, and Eli Lilly, and established partnerships with leading academic institutions, including Harvard University, the University of Pennsylvania, Northwestern University, Princeton University, and Oak Ridge National Laboratories, to develop new applications for its LabChip technologies. In addition, in September and October 1998, Caliper received federal grants from the National Cancer Institute and the National Institute of Standards and Technology to adapt its LabChip platform to discover potential anti-cancer agents and to develop a separate DNA diagnostic platform for use in centralized clinical laboratories.

In February 1999, Caliper announced the appointment of Dr. Daniel L. Kisner as its new president and chief executive officer. Kisner came to Caliper from Isis Pharmaceuticals, Inc., where he was president and chief operating officer. With additional prior experience in senior roles at the National Cancer Institute, SmithKline Beckem, and Abbott Laboratories, Kisner arrived with a business background and an understanding of the pharmaceutical industry. His appointment was considered especially important at a time when Caliper was trying to market its LabChip devices and device-based systems that enabled high-throughput experimentation and information access for faster drug discovery, better medical treatment, and more accurate and cost-effective biological and genetic research. Earlier in 1999, Caliper had announced the availability of its new high-throughput screening Technology Access Program (TAP) for pharmaceutical discovery companies. The program attracted Amgen, Hoffman La Roche, and, in August 1999, Eli Lilly to subscribe to Caliper's nanoscale screening systems for biochemical and cellular pharmaceutical targets. Caliper also introduced its proprietary LabChip technology platform, which functioned like a liquid integrated circuit in managing complex laboratory processes on a microchip. The LabChip devices worked by processing fluids containing DNA, proteins, or cells in the same way that semiconductors processed electrons, executing biological tests in seconds. This technology promised applications in a broad range of industries, including pharmaceuticals, agriculture, chemicals, and diagnostics.

In April 1999, Caliper completed the construction of a new 53,000-square-foot corporate and manufacturing facility in Mountain View, California. The facility included an advanced state-of-the-art high throughput drug screening facility, clean room production capabilities, and numerous laboratories for research and development. In late 1999, Caliper's commercial partner, Agilent, introduced the first microfluidic LabChip system, the 2100 Bioanalyzer. Following the introduction of this system, Caliper focused on introducing its own instrument systems while continuing to expand the range of applications for the 2100 Bioanalyzer.

In December 1999, Caliper went public, raising $75 million. After the first day of trading, Caliper's shares rose 145 percent to $39.25, indicating enormous interest in a biochip market that promised $950 million in sales by 2005. For 1999, Caliper reported revenues of $12.1 million compared to $8.2 million in 1998, an increase of 48 percent. Caliper attributed growth in revenue to its collaboration with Agilent Technologies and to its Technology Access Program customers. Nonetheless, the company reported a net loss of $14.4 million, up from $3 million in 1998. The increased loss reflected primarily the company's rise in operating expenses related to the growth of research and development operations.

Company Perspectives:

Caliper Life Sciences uses its advanced liquid handling and LabChip technologies to create leading edge tools that accelerate drug discovery and enhance the diagnosis of disease.

Caliper Forms a New Company

Caliper's rapid rise in research and development spending stemmed from the potential payoff for drug and bioresearch firms in the emerging genomics revolution. With the mapping of the human genome nearing completion in the summer of 2000, Caliper was in the midst of a race to market miniaturized DNA analyzers and other products to major biotechnology research firms. What once took days or weeks to perform in research labs could now be done in less than twenty minutes. Caliper's chips could process up to twelve samples, perform sample separation, compare a drug company's collection of molecular compounds against a sample, and find the results of drug and gene interactions.

Caliper also saw opportunity in creating and commercializing a comprehensive database of chemical genomics information. As a result, in September 2001 Caliper formed a new company, Amphora Discovery Corp., to develop the database for use in preclinical drug discovery and to increase the success rate of drugs through clinical development. Amphora was formed as a separate, independent company from Caliper with its own management team and board of directors with Caliper retaining 25 percent ownership. Caliper created Amphora as an independent firm to pursue new opportunities in the rapidly developing field of genomics technology. The database would provide critical information, linking genomics data with chemical structures and information that could produce new medicines at a faster pace for less cost. Because Caliper had scarce resources to pursue these opportunities within the company, the new entity was spun off as an independent firm with separate management that could raise its own venture capital and implement its own corporate strategies. The database would be sold to pharmaceutical companies, biotechnology firms, and academic laboratories involved in preclinical and clinical research in life sciences. In addition, Amphora would rely on Caliper's LabChip high throughput screening systems to develop and expand its chemical genomics database. To lead the new company, Caliper hired Martin Haslanger as chief executive officer. A former president of Sphinx Laboratories of Eli Lilly, Haslanger had more than 25 years experience in pharmaceutical drug discovery with such leading companies as Squibb, Schering Plough, and Eli Lilly. With the backing of $25 million in venture capital, Amphora's set up its headquarters in the Research Triangle Park of North Carolina with offices in Mountain View, California.

During 2001, Caliper also penetrated the Japanese market with an exclusive agreement with Wako Pure Chemical Industries, Ltd. providing Wako with distribution rights to sell the Caliper 250 High Throughput Screening (HTS) system and chips in Japan. The HTS system worked by miniaturizing, integrating, and automating high-throughput screening, the process of testing each component of large chemical compound libraries to discover and characterize compounds with specific biochemical activities. Pharmaceutical companies used these screening methods to uncover compounds of potential therapeutic value. A single high throughput screening project could require critical laboratory analysis of hundreds of thousands of individual chemical compounds. By conducting high throughput screening on a small chip, the Caliper 250 HTP could considerably speed the assay development process, improving data quality and reducing reagent and sample usage. With well-established relationships with major Japanese pharmaceutical companies, Wako offered broad market access to promote Caliper's systems in Japan.

Caliper also introduced four new assays for the Agilent 2100 Bioanalyzer, developed with Caliper's lab chip technology. The assays included the DNA 1000 LabChip kit, the RNA 6000 Nano LabChip kit, the Protein 200 Plus LabChip kit, and the Cell Fluorescence LabChip kit. In addition, Caliper signed an agreement with Bacteria BarCodes, Inc., integrating Caliper's microfluidic technology with Bacteria BarCode's bacterial fingerprinting technology. The company introduced its LabChip Automated Microfluidics System that enabled automated analysis of nucleic acid fragments and began a collaboration with the National Aeronautics and Space Administration to develop macromolecular crystals aboard the International Space Station relying on Caliper's LabChip technology.

As a result of these developments and other continuing operations, Caliper reported that revenue for 2001 increased 59 percent to $29.6 million from $18 million in 2000. Caliper's chief financial officer, Jim Knighton, noted the company had established critical commercial capabilities while maintaining a robust research and development program. In addition, chief executive officer Dan Kisner indicated Caliper's performance was notable considering its transition to a products-based business from a technology access fee company. Previously, Caliper used its automated systems internally to provide screening services to pharmaceutical and biotechnology customers. With the result of Caliper's transition away from a fee-based business to a commercial products strategy, the company no longer offered these fee services to customers.

Key Dates:

1995:: Caliper Technologies Corporation is founded.
1999:: Caliper builds a new corporate headquarters and manufacturing facility and goes public, raising $75 million.
2001:: Caliper forms a new company, Amphora Discovery Corp., and wins a $37.5 million in settlement from Aclara Biosciences.
2002:: Caliper fends off a takeover bid.
2003:: The company acquires Zymark Corporation for $73 million in cash and stock.
2004:: The company changes its name to Caliper Life Sciences, Inc.

Key to Caliper's business strategy was the development and protection of an extensive intellectual property portfolio, leading the firm into litigation with Aclara Biosciences for patent infringement. In January 2001, the two companies settled the litigation with Aclara agreeing to pay Caliper $37.5 million over three years with a combination of stock, cash, and committed minimum royalties. Caliper became entangled in additional litigation when three of its officers, Daniel L. Kisner, David V. Milligan, and James L. Knight, were named as defendants in class action lawsuits in the United States District Court for the Southern District of New York. Similar complaints were filed in the same court against hundreds of other public companies that conducted initial public offerings of common stock since the late 1990s. The complaint against Caliper related to the firm's 1999 initial stock offering, alleging that the underwriters charged excessive, undisclosed commissions to investors and entered into improper agreements with investors concerning aftermarket transactions. In October 2002, however, the claims against Kisner, Milligan, and Knight were dismissed without prejudice. In February 2003, the court also granted Caliper's motion to dismiss all other claims against it.

Caliper Confronts an Economic Downdraft

In July 2002, as a result of the broad economic downturn and a reduction in research and development spending by biopharmaceutical companies, Caliper cut its workforce by 10 percent. With the value of its shares falling, in February 2003 Caliper received an acquisitions offer from hedge fund Little Bear Investments, controlled by investment bank WellFleet Partners Inc. of New York. The offer totaled $101.7 million or $4.15 a share, representing a 38 percent premium over Caliper's latest closing price of $3 a share, down from $14 a share one year earlier. After Caliper's board rejected the offer, Little Bear sweetened the bid to $110 million. The hostile bid stirred considerable excitement on Wall Street concerning whether hedge funds would begin buying up struggling biotech firms whose cash reserves and cheap stock prices made them easy targets. At the end of 2002, Caliper reported $154.3 million in cash, but its market capitalization was only $78.6 million. The hedge fund planned to liquidate Caliper for cash, pocketing the $154.3 million and establishing a $5 million trust to hold Caliper's intellectual property, awarding 80 percent to shareholders, 10 percent to employees, and retaining 10 percent for itself. Like other biotech firms, Caliper's shares nosedived during the stock market downturn beginning in spring 2000. Because Caliper's shares had collapsed from $35.00 to $3 in two years, investors believed the acquisition offer provided shareholders with a reasonable out. Despite Caliper's rejection of the takeover offer, the New York-based investment funds of Xmark Fund, L.P and Xmark Fund, Ltd.—all Caliper shareholders—pressed the company to accept the buyout or distribute its excess cash and proceeds from the sale of the firm to shareholders. Xmark also criticized Caliper for what it considered excessive executive compensation in light of the company's weak performance.

Caliper Reorganizes and Looks to the Future

In June 2003, after weathering the reversals of the takeover bid, Caliper purchased competitor Zymark Corporation of Hopkinton, Massachusetts, for $73 million in cash and stock. Under terms of the buyout, Zymark, a provider of laboratory automation, liquid handling, and robotics solutions to the life sciences, biotechnology, and pharmaceutical industries would become fully integrated into the Caliper business. In addition, Zymark's chief executive officer Kevin Hrusovsky was appointed the new president and CEO of the combined firm and joined the board of directors. As a result of the acquisition, Caliper relocated its headquarters to Hopkinton and announced workforce reductions of 9 percent stemming from consolidated operations. Caliper kept its research and development and manufacturing facilities for LabChip devices in Mountain View, California, with direct sales, service, and applications support in numerous locations around the world. In December 2003, Caliper announced another 12 percent workforce reduction, including the elimination of seven vice-president positions, as a result of efforts to reconfigure its operations and to pursue an aggressive commercialization strategy.

In January 2004, the company announced that it was changing its name to Caliper Life Science, Inc. The company's management believed the new name better reflected the firm's position as a leading life sciences company that provided a range of integrated macro- and microfluidics laboratory solutions for the life sciences industry. With the introduction of new products and a more commercially focused management team in place, Caliper appeared well positioned to take advantage of a recovering business climate and continuing rapid technological advancements in the life sciences field.