History and Background
Anagene is a biotechnology firm started by Mark Hansen and Harold Bergman in 1993. Hansen and Bergman planned to combine microelectronics and molecular biology to develop products that would have broad commercial applications in genomics and other fields. Anagene’s mission was to facilitate breakthrough genetic analysis. The company went public in the year 1998 and raised $42.9 million. The company’s core product was a cartridge which had to be analyzed with a Anagene-designed workstation. Management anticipated a long string of cartridge sales following the sale of each Anagene workstation. Product Information

WORKSTATION
Anagene’s first major product was a proprietary platform technology – The Anagene Molecular Biology Workstation. This included a loader (which could load four cartridges at a time), a reader (which read and analyzed one cartridge at a time) and a disposable cartridge that contained the company’s proprietary microchip. The product was priced at $160,000 – each workstation shipped with four cartridges. CARTRIDGES

Anagene also sold disposable cartridges – priced at $150 each. Each cartridge contained an electronic chip that held test sites laid out in a geometric grid called an array. Cartridges could perform up to 99 tests on any single sample. As the company sold more workstations, it expected the demand for its cartridges to increase rapidly. MANUFACTURING

Anagene’s management decided to outsource the production of workstations to Hitachi. Hitachi and Anagene would work together to cut costs through value engineering thereby enabling the transfer price to continually decrease. Initially, the final testing would be performed at Anagene’s facilities. As the company grew, this activity would also be outsourced to Hitachi. Anagene built its own manufacturing facility for the cartridges in order to capture the profits from the very high forecasted sales of its product.