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I made this post over at Silicon Investor on the G&K thread because it is just as relevant here, I will post it.

RE: Gorillas outside of high technology....

It is April Fool's day, but I'm not going to use the opportunity to pull a prank.

But in the end I guess it is Frank's and the elder's call.

FATBOY


Not that the issue has been void of attention in the past 24 hours, but I believe it goes far beyond the elder's call. Otherwise, it will be a constant effort of 'maintenance' to keep on topic. It goes to the core of what gorilla gaming in high technology is all about. A highly specialized method of understanding high technology so that people like us (retail investors) can successfully invest in the space using the criteria so well presented by Moore/Kippola/Johnson in the two versions of The Gorilla Game. Combine this with the original intent of this specific thread and we owe it to ourselves to respect both the intent of the thread and the intent of gorilla gaming.

If we sat down and chatted with the combined industry knowledge and talent of Tom Kippola, Paul Johnson and Geoff Moore in terms of gorilla gaming and asked them "Hey, guys. We love your stuff. Okay if we lop it off onto other fields like biotechnology?" What do you think their answers would be? As has been pointed out, many of those answers are in the manual as it stands.

Many of us do invest in companies that are far removed from high technology. The Gorilla Game applies to the portion of our portfolio that is dedicated to high technology. Do I apply gorilla game criteria when I am looking in other areas like financial stocks, brokerage stocks, retail stocks, recreation stocks, drug stocks, health care stocks, etc...? No way. There are plenty of fundamental methods of investing in those categories that are efficient and time tested and proven. Likewise, as a growth investor, when I am looking for companies outside of technology I have very strict criteria that I apply and the results are very effective.

Investing is complicated enough as it is. There are many methods and fundamental criteria for all segments of the market place. Technology investing is one of the more difficult areas to grasp. It may not look like it to those who have been enjoying the 1995 to 2000 run when a few seeds easily turned into acres and acres of rich crop. However, those of us who have been investing a lot longer than that can attest to the fact that this has been an 'abnormal' run and there indeed will be a day when appreciation of the specific criteria being applied to specific areas will come to the fore with a vengeance. Moore/Kippola/Johnson put together a strict method to help several groups of people - one being we retail investors - when it comes to investing money in high technology. That 'game' is, in and of itself, difficult enough to grasp. Not taking the time to focus on it and where it should be applied has the potential to end in a very unpleasant manner.

Likewise, if a retail investor is going to take the time to invest in growth stocks outside of technology, REIT's, fixed income, junk bonds, financial stocks, industrials or whatever. Take the time to learn and apply proven criteria to those spaces as well. If one doesn't have the time and attempts to cut corners, then I fear using a professional to make the decisions would be a much wiser move.

It has never been said that one must invest only in technology or only in another field. However, as investors, we have to understand and use the best criteria we know is available to 'master' each of those investing fields. It is also not easy to 'master' more than a few fields.

Although I am no 'elder', I will certainly support the focus of gorilla gaming on the G&K thread. I know exactly where to go to discuss and polish up my criteria for investing in companies outside of high technology. If one hasn't taken the time to find these places for discussion, I would encourage one to look for them. Investing is not easy. It takes time to learn, develop and implement strategies over the years. Mistakes are made along the way which we use to focus on the basics in hopes that we recover.

Biotechnology is such a huge field and there are so many great discussion groups and threads devoted entirely to the subject, that I would encourage those interested to seek those locations out for focus and discussion. We've got plenty of work on this thread to keep our hands more than full in the high technology field for years and years to come.

BB
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How many of you out there have actually looked at companies like Aurora and Caliper? They're not biotech companies, they're technology companies making products for the biotech industry. Most people here consider Echelon (ELON) a potential Gorilla or King of the tech sector, but if ELON makes a chip that goes inside your refrigerator, wouldn't that mean it was in the home appliance market? Of course not. How is this any different than Caliper making a chip that can be used by biotech companies? These two companies are as much tech companies as ELON or almost any other.

The reason I like companies like these is because they're like the Levi Strauss of biotech. I think we've all heard the story of how while very few people struck it rich during the gold rush, Levi Strauss made a mint selling pick axes and other equipment. Very few companies will strike it rich in the biotech sector but that doesn't matter to companies like Caliper and Aurora, everyone will still buy their technology, regardless.

If I'm on the wrong track, someone please correct me.

Krash
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Y2Karsh,

How is this any different than Caliper making a chip that can be used by biotech companies?

The primary difference is found in the strength of the value chain. Naturally, the customers are a significant part of the value chain. The customers are the biotech companies. The customers are subject to the whims of government. Therefore, the value chain made up of biotech companies can not possibly exert the power of a value chain made up of high-tech companies.

--Mike Buckley
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In my previous post I wrote, "Therefore, the value chain made up of biotech companies can not possibly exert the power of a value chain made up of high-tech companies.

I'm not comfortable with the precise wording I used. Change "possibly" to "predictably."

--Mike Buckley

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Long reply

The primary difference is found in the strength of the value chain. Naturally, the customers are a significant part of the value chain. The customers are the biotech companies. The customers are subject to the whims of government. Therefore, the value chain made up of biotech companies can not possibly exert the power of a value chain made up of high-tech companies

As far as "Lab-on-a-chip" companies are concerned, I beg to differ on several points:

1) the value chain is VERY strong i.e. agriculture, forensic medecine, legal forensics, diagnostic medecine, industrial and research genomics/genetics, environmental engineering, hydrography etc. etc. etc. Simply put, a lot of fields of application when put together means mucha cashola.

2) Power of a value chain: Health Care (the biggest sector of the US economy BTW) may be in disarray right now, but hospitals and clinics are not going to stop buying better diagnostic and therapeutic equipment tomorrow. Quite the contrary, in spite of the HMOs and insurers and employers.

Why? Because we are sitting at a historical crux. First, most diseases were incurable, public health didn't exist, science was in its infancy. Then, the fight against the great scourges began to be won at the beginning of the century. next came the battle against several great kileers like Diabetes, heart disease, respiratory disease and so on. Where are we now? A lot of people who would have died promptly 30-40 years ago, are now chronic patients for a long time. They come to the hospital several times a year, needs costly home care etc. Cure? Yeah sure! Maintenance and management of an ever increasing number of patients are the keywords. In short, he mission-critical process of the business of Health Care is broken, and seriously so.

A lot of Biotechs/Pharmas are trying to find remedies for these chronic diseases. They turned to genomics and with good reason. But it is a long and costly process. Lab-on-a-chip decreases both, across the whole sector and beyond. It helps breaking bottleneks without entering in the more societal (political) issues that plagues Health Care and brings the...( see 1))

3) Government whims (Eeek!): Ah! The scarecrow of any investor right? Well, it is not THAT simple. We can pester against them until turning blue in the face...or getting sick ourselves. Then, the pill you swallow, the surgery you have to go throught...should these things be left ENTIRELY in the hands of the ever so efficient free-market? Hmmm! Think twice before hitting "Reply". But I'm ranting here.

In any case, these "whims" DO NOT apply to the Lab-on-a-chip sector. The only requirements that must be met are 1) similar or greater accuracy and reliabilty, 2)added value such as lower price or greater efficiency for a comparable price.

In summary, this is technology with applications in biotech medecine and so on. As such, I don't think there is a serious loss of focus as far as GG is concerned.

My take, and my take only

Francois
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MikeBuckley:

I'm afraid I don't understand how the value chain is that much different. How does the government influence a biotech companies decision to purchase Caliper's Lab on a Chip technology. I know that it is up to the FDA to decide if a drug is approved or not, but I don't see how this effects Caliper. By the time a drug is ready for approval by the FDA Caliper's products have already served their purpose. I do have to agree that the value chain is slightly weakerr than with other tech companies because they are more dependent on uncontrolable external forces, but I don't believe that this is reason enough to exclude them from a potential Gorilla Game.

Krash
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Note! I have not done any DD on Caliper as a company and am wholly unqualified to offer an opinion on their particular products or technology.

But as to Labs on a chip and the Gorilla Game... There really could be a young gorilla here!

First: Discontinuous Innovation... These devices could (will?) revolutionize laboratory procedures - and not just in the pharmaceutical research and development arena (They are just one pin in the alley.) Every physician in the country orders numerous lab tests daily. These tests are conducted either on site or sent out to a laboratory for analysis. Results can take up to a day, or even several days and often must be performed by highly trained and board certified laboratory technicians. Labs on a chip could completely change this process, allowing physicians to conduct rapid analysis of samples in their offices with results available almost immediately and at far lower cost.

Second: Barriers to entry... These technologies will receive protection under not only the patent laws, but also by the Food and Drug Administration (FDA). The FDA must approve all laboratory protocols in a process that is somewhat similar to their drug approval process.

Third: The bowling alley... The pins are set (and there are lots of them!) Pins come in two colors: Diseases and Customer groups. First, each disease will require a slightly different chip and the company that can overcome the regulatory process and gain approval will own the pin because there is little incentive to developing a product that competes directly. Second, customer groups: potential pins include pharmaceutical companies, HMOs, the military, public health agencies, labs, hospitals, etc.

Fourth: Hypergrowth... Not yet, but as products come to market they will become "must haves."

This area seems to me ripe for the Gorilla Gamer to start some real DD at an early stage in the game.

An anecdote...
I do rapid development of high-tech programs for DoD. One of my last projects was the development of a rapidly deployable mobile laboratory to analyze chemical, biological, and radiological materials. By far the most difficult step in the process was to identify the laboratory protocols to identify biological samples. It was difficult for two reasons:

1) The regulatory environment requires an incredibly stringent and expensive process to get protocols approved.

2) The R&D community is on the cusp of some dramatic new methods. It was difficult to have to implement today's bulky and time consuming technology knowing that it will be nearly obsolete in a year or two due to technologies that are on the horizon.

Unfortunately, due to ethical constraints and the potential for a conflict of interest in making procurement decisions, this is a game that I will have to sit on the sidelines and watch... I look forward to watching the discussion here. I am certain it will continue for a long time!


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I think we are all missing the point here. I agree with BB that biotechnology is not conducive to gorilla gaming. In my mind, it has nothing to do with discontinuous innovations or value chains. It is easy to summarily crown AMGN, for example, a gorilla. The difference is in the Technology Adoption Life Cycle, a concept that is crucial to the Gorilla Game, but not so emphasized as in Moore's earlier books. I am currently finishing up Inside the Tornado, and it has given me a much clearer vision of high tech time to market.

Biotechnology is in a whole different universe. The latest issue of the Red Herring as a special report on biotech. One of the articles discusses the time it takes to bring a drug product to market. It takes years and years and involves federal testing, standards passing, and final FDA approval.

High tech products are not subject to the same regulatory controls. They are brought to market based on what the market wants. This is the idea of the bowling alley and tornado phenomenon. New high technology, discontinuous in nature, must get a foothold in the market by developing a whole product solution for one niche; it must gain the support of some niche economic buyer who has a problem the new technology can solve. This is the first bowling pin. Then the company will adapt its product to provide a whole solution to another segment, or another application within the same segment. This is the second and/or third bowling pins. As Moore states in Inside the Tornado, knock enough pins down, and the tornado forms.

The way in which biotech products come to market simply does not fit the paradigm which Moore et al. lay out in the Gorilla Game. Unforunately, the GG only skims over the TALC concept so clearly described in prior books.

Biotech's TALC is so fundementally different from high tech products, the same GG framework just cannot be applied. BB is right; biotech is a great investment, but I believe a differnt framework is necessary for proper evaluation of biotech companies. These concepts are better discussed elsewhere.

Maverick
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I have to argue a bit with the "...these are better discussed elswhere..." .... I have learned more about the gg in the last discussions of the bio techs than in the last few months of posts on the gg board... this is the stuff of knowledge.

c
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Don't get me wrong here because I do invest in biotech but I'm surprised to see much discussion here on gg board.

I don't believe that biochip makers of any kind are going to be gorillas.

A tornado may form for the products but what makes a particular chip an open proprietary arhitecture with high switching costs? What's to stop any company/group of buyers from switching to the next better chip no matter who makes it? Patents? I don't really think so as better chips are made every few months as the field is in rapid flux now and there seems to be at least several ways to do chip sequencing(microbeads, glass, microfluidics, eletronic charge separation....). What is going to be the incentive for companies to standardize around one technology and stick with it even when a better chip comes along six months later? These may be very good investments but Gorillas don't seem to sprout from such environments.

Celera is one Co. that may develop into a software platform and may then become a standard around which a value chain may then form but I would be hard pressed to even imagine it as a potential gorilla(note all the maybes in this sentence) at this early time.

Just my opinion but if you're real interested there is a wealth of info on the biotech, elric7, genephool, and Celera boards that may be useful to you.

By the way Tinker if you read this, what is to stop others from making a better/just as good human mouse and taking market share away from Abgenix or MEDX in a similar way. Although I haven't done my DD on these Co.'s yet it was something that was bothering me in your characterization of them as gorillas. Aren't there numerous ways you can make these mouse/rat/pig models with human immune systems that can't be protected by patents? If the market is as large as you believe and drug Co's have to sign away a % of profits to use these mice there would seem to be a huge incentive for the drug Co's to find another alternative? If it was easy to patent protect why are there 2 Co's alredy doing the same thing?

Drag


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Oops I thought Tinkers Abgenix/MEDX comments were also on this thread. I'll post the last paragraph in the appropriate place . The rest of you can just ignore the last paragraph if you didn't already ignore the whole thing ;).
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Y2Krash,

I do have to agree that the value chain is slightly weaker than with other tech companies because they are more dependent on uncontrolable external forces, but I don't believe that this is reason enough to exclude them from a potential Gorilla Game.

Exactly.

My personal preference is to go with the strongest value chains possible. They won't be found in an industry whose entire customer base is controlled by the feds to the extent I believe the lab-on-a-chip customers are controlled.

Just my opinion.

--Mike Buckley





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what is to stop others from making a better/just as good human mouse and taking market share away from Abgenix or MEDX in a similar way. Although I haven't done my DD on these Co.'s yet it was something that was bothering me in your characterization of them as gorillas. Aren't there numerous ways you can make these mouse/rat/pig models with human immune systems that can't be protected by patents?

What is to stop others from making a better CDMA chipset than Qualcomm? After all, this is "only" silicon and stuff organized in a certain way...no?

Of course not! I'm sure NOK wish it would be THAT simple! ;-) By the same token, improving ABGX process while getting around their patents at the same time would be mightily tricky indeed. Hence, the licensing deals the Big Boys in Pharma signed with ABGX: they have the lead, the expertise, the patents, and the cash. And so does QCOM in its province.

My take only...+ the 2 n'gwees

Francois
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BB: "It goes to the core of what gorilla gaming in high technology is all about. A highly specialized method of understanding high technology so that people like us (retail investors) can successfully invest in the space using the criteria so well presented by Moore/Kippola/Johnson in the two versions of The Gorilla Game. Combine this with the original intent of this specific thread and we owe it to ourselves to respect both the intent of the thread and the intent of gorilla gaming"
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Hmmm. Two points made here.One seems to imply that "high technology" is rather tightly defined so as to exclude biotech. Not from where I sit! The second point has to do with the "intent of the thread"; & requests that posters with differing views of the "intent of the thread" find another sandbox to play in. Maybe that's reasonable, maybe not.



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