Case Study
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CONFIDENTIAL Submitting Company Name Execitive Summary of the Business Plan
For Further Information Contact Altered Name Office (XXX) XXX-XXX Fax (XXX) XXX-XXXX Email: XXX@XXX.XXX
THIS IS NOT AN OFFER TO SELL, NOR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES. AN OFFER, IF ANY, WILL BE MADE ONLY PURSUANT TO A CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM TO BE PRODUCED HEREAFTER AND MADE AVAILABLE TO QUALIFIED INVESTORS, ALL IN ACCORDANCE WITH APPLICABLE STATE AND FEDERAL SECURITIES AND BLUE SKY LAWS. EXECUTIVE SUMMARY
The Company. Submitting Company is a Utah based emerging growth company that develops products for the tissue culture, medical diagnostics and tissue engineering markets. At a later stage the company may also introduce products to be used in cellular medicine in partnership with pharmaceutical and/or major biomed/biotech companies . The Company has been organized to commercialize new technologies that make it possible to grow human and animal cells artificially better than has previously been possible. Background of the Technology and History of the Company Cells from solid tissues that are grown in tissue culture with current technology have certain problems. When a cell is placed in culture on a glass or plastic surface the cell does not recognize its environment. Very quickly the cells usually flatten out and lose their normal shape. Often, within a short time they change and become transformed like cancer cells. However, if cells to be artificially cultured are placed on surfaces that are coated with proteins called extracelluar matrix or ECMs (these ECM's are like a foundation of a building that dictates the form and shape of a cell structure) that were part of their natural environment, they tend to act normal. Until now no method has been found to control and quantify ECMs coated on a surface. So experiments have been hard to explain. Investigators and practitioners are frustrated waiting for solutions. Submitting Company has obtained an exclusive license for worldwide rights to a patented surface coating material that solves the problems just described. This product has come from the laboratory of Dr. Altered and Dr. Altered at the University of Altered Center for Altered at Interfaces a Distinguished Altered Center of Excellence. The unique attribute of Submitting Company's coating material is that it quickly sticks to glass, plastic and other polymeric surfaces and then allows for ECM proteins to be attached firmly and in an ordered way. This creates a secondary surface that can be designed by an individual scientist or practitioner who may be investigating how to grow or who may be producing a certain type of cell or tissue. Submitting Company's first products will be coated labware and activated proteins. Because coated labware and proteins can be separately stored under optimum conditions prior to linkage, previous problems of storage, handling and stability of earlier products on the market are done away with. This new system is an enabling technology that allows a scientist or practitioner to control and quantify the number, density and combination of proteins and/or other molecules they would like to adhere to surfaces to enhance cell attachment and growth. In addition, the Submitting Company's surface is resistant to all non activated molecules so it only bonds with the desired molecules while it remains resistant to others that would contaminate the surface. Strategy and Objectives Submitting Company will enter a young
but established precoated labware market with superior technology over the
competition. This advantage coupled with management's experience in the
biotech marketplace will set up an opportunity to capture major market share
quickly. Submitting Company will continue to lead the market with the introduction Revenue Growth Sales and revenue growth are projected to start moderately due to our need to educate the market to our new products. However, sales are expected to be near $9 million at the end of the second year and will approximately double each year after that through year four. Our technology will give users so many new desired benefits that we project that the Submitting Company will dominate the market by the third year of doing business. Follow on products including medical diagnostic devices and specialty tissue culture growing kits will add to labware sales as they come on line in years two, three and four. No financial projections are included for joint venture projects. Those projects in tissue engineering and cellular medicine will have a seven to eight year life cycle because of FDA requirements. Future revenues from these joint ventures should dwarf the profits from Submitting Company's start up products as they reach completion. The early revenues of the company will fund operations while these major joint venture projects get started. Products. Company products will include precoated labware, extracellular matrix proteins, growth factors, diagnostic devices, cancer diagnosis and treatment tools and coatings for implants. Submitting Company will ultimately form partnerships to produce cells for use in replacement therapies and cellular medicine. Submitting Company's new and planned products are designed to overcome several major technical problems that have existed in growing primary cells for use inside or outside of the body . Some of the solutions offered by our new products include: Other precoated labware products currently on the market fall seriously short of allowing the user to control and quantifiably reproduce experiments in tissue culture. Submitting Company coated labware will introduce products that can eliminate these problems plus make it possible to create gradients and/or blends of ECM proteins and other molecules never before possible. Current products that have ECMs coated on them must be specially stored in refrigeration or in freezers. Submitting Company products can be stored at room temperature and rehydrated easily, if necessary, before use. Submitting Company's activated proteins will be stored in a freezer until they are used however the space required for microgram vials is inconsequential when compared to the space required for labware storage. Harvesting, transportation to the lab and subsequent growing of live cells have all lacked the ability to keep cells in their primary state which is essential for some procedures to be successful. Submitting Company will introduce several new EGAP coated devices that will help solve these problems.
Other coatings and adhesives on the market are non specific and allow unwanted molecules to adhere. Submitting Company's coating is specific for only those proteins or other molecules that have been chemically activated to covalently bond to the EGAP surface. Technical barriers exist that have prevented predictable growth of primary cell cultures for replacement therapies and cancer cell cultures for treatment therapies. It appears from early results of Submitting Company's research and development that EGAP technology combined with appropriate media and other requirements may overcome those barriers. Pricing and Margins Competitors have set prices high to reap the benefits that come from being first in the market. Those high prices have kept many potential customers out of the precoated labware market. Many potential customers have been producing their own ECMs and then self coating labware with varied results. The present industry mark up is 80 to 90% but a volume that is only 30% of its projected size (precoated labware and ECMs had an estimated total market of $100 million in 1994). By aggressive pricing that still retains good margins Submitting Company plans to gain dominant market share and at the same time attract new customers into the market. Proprietary Position Submitting Company has a world wide exclusive field of use license on an issued U.S. methods patent covering the EGAP technology. That same patent is in the nationalization phase in the international patent process. Additionally our license also includes a composition of matter divisional application that is awaiting office action. Two other patent applications are in preparation that will protect newly discovered innovations related to the technology. Early Products Because this innovation can be brought to market immediately, Submitting Company will not fit the usual biotech company model of doing research and development for years before selling products. The fine tuning of certain protocols will be necessary, but within the first four months of beginning operation Submitting Company will begin selling a variety of precoated labware products and activated ECM proteins and growth factors. The following is a schedule of product introductions over the first five years of operation: Year Introduced Description Year 1 1. Pre-coated labware and culturing devices these include multi-well plates, dishes, and inserts that are currently popular in the market place. Year 1 2. Chemically activated ECMs will initially be limited to the most highly studied and characterized ECMs such as: Collagen I, Collagen IV, Laminin, Hyaluronic Acid, Human Fibronectin, and HSPG(heparin sulfate proteoglycan). Growth factors will be purchased from others, activated and resold. Year 2 3. Disposable diagnostic devices. The early areas of focus will be amniocentesis testing, viral diagnostics, cancer diagnostics and treatment tools. Year 4 4. Test kits and tissue culture kits will have pre-coated labware or devices along with chemically activated proteins (mainly ECM's) and growth factors. Advanced Products. The high margins available on the first products being sold by Submitting Company will supply much of the revenue necessary for growth internally. However, as products for tissue engineering and cellular medicine are developed, the Company will need to attract industry partners who have the financial and regulatory resources that are adequate to address these larger markets. Whenever possible, joint venture relationships will be developed. However, research collaborations and research and development partnerships will also be considered attractive. The size of the upside growth potential for these products is difficult to predict. One such relationship is already advancing that is focused on the growing of cartilage for replacement therapy. It is anticipated that the credibility and track record of the Company will develop in the first years of doing business. This reputation together with the cell and tissue culture database that the company will build will be a natural pathway to the advanced product partnerships described. The Market. An existing $2.5 billion world wide labware market will give Submitting Company the opportunity to introduce its precoated products to support early Company growth. Focusing on this market first makes sense because these products will have attractive margins and they will not be subject to FDA regulation. However, the larger markets that will be facilitated by Submitting Company's technology include diagnostic devices, engineered tissues (example: growing skin) and cellular medicine (example: growing bone marrow cells). It is estimated that the overall market for engineered tissues is in the $400 billion dollar range (Sample Journal, 199?). Pre-coating implants to reduce problems with rejection or surface chemistry interactions also has a large market potential (example: stents). The biggest opportunity for the company may come from applying its technology to cellular medicine. Primary cells that have been removed from the body for purposes of culture or diagnosis now change from their original or primary state because they respond to the change in their environment, as explained earlier. Once changed, the usefulness of specific cell types for replacement therapies or diagnosis of disease is compromised. If primary cell or cancer cell cultures can be routinely produced and expanded outside the body then they can be used for therapies and diagnostics, e.g. skin and hair replacements; stem cells for bone marrow transplant; white blood cells to combat infections, liver cells for replacement therapies and cancer cells for treatment, testing and diagnostics.
Market Strategy by Segment. 1. Labware Market - The domestic precoated labware and ECM market is estimated to be $35 million in size with another potential $70 million coming from scientists who are currently making their own ECMs for coating labware. Present pricing by the competition of precoated labware products takes an 80 to 90% markup. Submitting Company will lower its initial prices by 20% below market to obtain market penetration and to attract nonusers to become customers. The Company believes it can capture a substantial market share rapidly because researchers and practitioners will be able to design their own cell growing surfaces and for the first time they will be able to quantify their results. Their costs will also go down substantially because they will be able to use smaller amounts of expensive ECM protein and not have to repeat experiments that have unexplainable results. Old methods and practices will likely be discontinued because of the benefits Submitting Company technology will provide. The Company will continue to build sales by introducing new activated ECM's and growth factors that will give users more options for their experiments. Innovation is a requirement to remain the market leader in this segment.
2. Diagnostics Market Amniocentesis Testing a critical factor in this test is the time required for growing cells that are needed for completing the test. By providing the right kind of surfaces for cells to adhere to and grow on, cell growth and thus turn around time should be significantly improved. A kit is contemplated that will use Submitting Company technology for this purpose. This market is dominated by 4 or 5 major clinical labs (e.g. Sample Labs $2.2 billion in annual revenues).Though market size is not known at this time, it is growing rapidly and is thought to be over $50 million. Viral Diagnostics several products are contemplated consisting of precoated devices that will interface with samples taken from patients to enhance the ability to diagnose disease with more efficiency. There is a great need for products that can harvest and maintain the viability of cultures through the testing process. This application has a very large market opportunity depending on which viruses become the focus. No data is available at this time on market size; however, since major clinical labs would likely supply the services for testing, marketing will be simplified as with the amniocentesis market. Cancer Diagnosis and Treatment Tools because Submitting Company's technology will improve the culturing of cancer cells, a series of new products will be produced that will facilitate better diagnosis and research methodologies. Again products will likely be sold to the large clinical laboratories and the volume of sales will be dependent on the benefits the new products offer. The anticipated benefits include being able to determine cancer and tumor growth rates, mobility, rates of metastasis and ability to test treatment alternatives outside the patient. Given the success of these devices, the market will be very large.
3. Tissue Engineering A major focus of current efforts to develop artificial replacement tissues and organs is to create matrices and scaffolding that will maintain the normal proliferation and differentiated state of cells removed from the body. Because Submitting Company's technology allows the creation of complex and reproducible artificial matrices, the potential exists for Submitting Company to become a major supplier for the engineered tissue industry. The potential size of this market is estimated to become $400 billion annually. Because the development of artificial extracellular matrices and cell scaffolding is at an early stage, establishing a market presence in this field now would create an excellent position for Submitting Company in the future. Tissue engineering and cellular medicine will require a substantial body of new knowledge and considerable resources to bring products to market. Submitting Company will be in an ideal position to learn about new applications in these markets very early because its customers will be the developers. It is expected that the EGAP/ECM coating technology will enable these rapidly developing markets to develop even faster. The company will constantly be reevaluating its position to determine its strategy in moving into these markets. Because of the estimated cost and length of time required to obtain new drug approval status with the FDA, it is anticipated that products will have to be developed with pharmaceutical or major biomed/biotech partnerships. Unique Capabilities Dr. Altered, Chairman of Submitting Company's Technical Advisory Board described the Sample Company's technology as "revolutionary". He said he had never seen such uniform attachment and growth of cells in his career. He quipped that he had never seen "happier cells". In addition to the product working very well Submitting Company has the following unique advantages: 1. Our products meet the needs of customers who have been waiting for solutions. 2. Our products are enabling, meaning that we can supply others the tools to do what they want to do. 3. Our products are convenient and work well in a manufacturing system. 4. Our management team is experienced in the markets that the company will be entering. Competition Since Submitting Company's technology is an enabling technology it is difficult to say who may compete with us or be our customer. It is clear that Competitor Company Research will compete with us in the precoated labware market. They pioneered sales in this area about five years ago. Their direct coating of ECM's onto labware provides a product that must be stored in refrigeration or freezers (it has a short self life otherwise). Their product does not have the capability to allow for quantification and reproducibility that Submitting Company will have. We anticipate capturing market share rapidly from them while at the same time attracting new customers by keeping our prices down. We will also compete with Collaborative and Sigma Tissue Culture Div. in sales of ECM proteins. However our proteins will be chemically activated for bonding with the EGAP surface (non activated molecules will not attach). As we begin production of devices and coating implants, we will either be selling products that are new to the world directly or working with others in partnerships to improve their existing products. Tissue engineering and cellular medicine products will be developed in partnership with pharmaceutical or biomed/biotech companies. Market Penetration Strategy Submitting Company will first target the biotech labware market and will begin sales of coated labware and activated ECM proteins through direct sales methods. We have strong indication that the benefits already described coupled with aggressive pricing will build our market share rapidly. Our Director of Sales has a national database of users and has personal relationships with many customers already in the western half of the U.S. To stimulate early sales precoated samples will be sent to all potential users for their experiments along with an activated ECM sample of their choice. The entrance to this market is further facilitated by the wide use of the Internet by those who buy labware products. Though initial sales will be obtained by direct sales representatives, follow up sales will be organized through careful design of our Internet web site. Positive results of experiments are obvious within days. As tissue culture kits are developed for specialized use they will be marketed in the same way coated labware is marketed. Diagnostic devices will be sold mainly to the large clinical laboratories that dominate the industry. It will be necessary to demonstrate practical value for each new product to have it accepted. There will likely be FDA regulatory requirements placed on these devices [510(k)] since they will be used to diagnose and develop treatments for human disease. The marketing will be simplified because of the large laboratory dominance of the market. Calling on five major customers is much easier and usually more cost effective than hundreds of smaller customers. The strategy will also be to focus on technical product development and find partners in diagnostic devices, surgical implants, tissue engineering and cellular medicine who already have a presence in their respective marketplace. The company will actively seek business partnerships that will give Submitting Company products the best exposure to the marketplace possible while retaining certain manufacturing rights and ownership of technologies. Management. Submitting Company has recruited a team of motivated professionals that have in-depth experience in managing the unique aspects of a biotechnology company like Submitting Company. In addition these individuals have remained involved for over a year in planning this startup. All who have agreed to join the company are employed elsewhere, therefore their names have been coded to maintain confidentiality. Each person has expressed their strong desire to join the company and have no problem relocating where necessary. Altered Name, Submitting Company's CEO, is the former founder of Altered, a plant biotechnology firm that in the past had one of the largest plant tissue culture operations in the U.S. Mr. Altered Name was President and COO of Altered for 10 years while the company averaged an 80% growth rate per year. Mr. Altered Name is also cofounder of the Altered and Submitting Company. Dr. Altered Name. will be Vice President of Operations at Submitting Company. He has directed research and sales and been a product manager at two major firms specializing in labware and cell culture devices. Dr. Altered Name will be Vice President of Research when he joins the company. He is a recognized expert in ECMs, new product development, quality control and FDA regulations ( Dr. Altered has a Ph.D. and an MBA). Mr. Altered Name. has been director of marketing communications for a software and computer peripherals company that has tripled their sales since Mr. Altered Name. joined their staff. Mr. Altered Name. has a distinguished career in public relations and marketing. He has a BS in communications and an MBA. When he joins the company he will serve as Director of Marketing Communications. Dr. Altered Name. has been director operations of a company specializing in cell culture media and vice president of research of a disposable biomedical products company. His Ph.D. is in mechanical engineering. Dr. Altered Name. will join the staff as V.P. of Business Development. In addition, legal and financial planning assistance are available on an as needed basis from members of the Altered, L.C. who are cofounders of Submitting Company. Fairly immediate future needs will include a Chief Financial Officer and a Vice President of Marketing. These areas will be covered in the interim by help from a financial expert who is a member of the Altered and by Mr. Altered Name. who will be Director of Marketing Communications. Submitting Company has also formed a Technical Advisory Board of well known scientists . Members include the inventor, Dr. Altered Name and co author Dr. Altered Name whose expertise is tissue engineering; Drs. Altered Name and Altered Name (husband and wife team), well regarded cell tissue culture experts at the Altered Name Medical School (Dr. Altered Name serves as Chair of the Technical Advisory Board) and Dr. Altered Name, a well known scientist in the area of hematopoietic stem cell culture also working at the Altered Name Medical School (Dr. Altered Name was involved in the early startup of Altered Name, a California biotechnology company). Financial Summary Submitting Company is looking for an investment partner who would be capable of initial funding of $2 million. Funds will be used mainly for start up operations including research funding, salaries of key personnel and inventory. Funding milestones would be $1 million at start up and $l million at the beginning of the sixth month of doing business. Cash flows are projected to handle growth internally as sales increase after the first year of doing business.
Exit Strategy Submitting Company has already been approached as a merger candidate by a diagnostic device company. Company management will be constantly challenged in maximizing valuation between opportunities to be acquired, raise private funds, merge or be absorbed by joint ventures. The most attractive option may be to build the company as rapidly as possible and then go public when large amounts of cash are needed to move into cellular medicine. |
