Question

Case Study 1
Quick Biotech
It is late in September 2010, and Michelle Chang, a doctoral student at the National
University of Singapore (NUS), is to meet her colleagues Henry Tan and Mike Hammer from the Institute of Molecular Biology again in a few days to discuss the course of action to be pursued for the establishment of Quick Biotech. Henry Tan and Mike Hammer both hold doctorates in biology and work at NUS as senior assistants. A few months before, they patented a process for the production of multi protein complexes, which they had already put to successful use, and about which they had received favourable feedback. Now, the three colleagues want to set-up a company called Quick Biotech in order to apply the new technology to a wider field.
Background
The human body is exposed to numerous external influences and internal genetic defects, which cause the proteins in our cells to malfunction. Proteins constitute the basis of all biological processes. If proteins no longer fulfill their function adequately owing to defects, this often results in life-threatening illnesses, such as cancer. This is why almost all drugs have effect on proteins. Consequently, most research and development work for drugs and therapies need protein, which is why both academic research institutions and the pharmaceutical companies use proteins as a basis to their research activities.
Recently, progress in fundamental research revealed the total of the proteins in a cell, which in the case of human being amounts to more than 40,000 proteins. It became obvious that the proteins in a cell do not work individually; rather, they combine to act as protein complexes that are made up of numerous protein components. In addition, virtually all biological processes in cells are executed by such protein complexes. This has crucial consequences for research; in order to understand how proteins work, protein machines must be explored as a whole, and not only their individual protein components.
Nonetheless, academic institutes and the pharmaceutical industry have almost exclusively focused on individual, isolated proteins. The primary reason for this was that human protein machines are very difficult to produce in a pure form. Although the development of modern, recombinant methods now enables the production of individual protein components, there is still a demand for a technology that is able to provide sufficient volumes of entire protein machine, which form the basis of biological functions. This is also Michelle’s, Henry’s and Mike’s experience in their research at NUS. They realize that no suitable technology for the production of protein machines exists. This is why they developed their own technology: the MultiBac technology.
The technology
The MultiBac technology uses a modified, yet greatly improved version of the so called “baculovirus gene transfer vector” to produce any combination of proteins in great volumes and of high quality. The genes of a great number of proteins, such as human ones, can be placed on this gene transfer vector. This process can be carried out in an ordinary molecular biology laboratory. The MultiBca gene transfer vector multiplies in cell cultures and constitutes no danger to human beings. Therefore, no special health and safety regulations are required to work with this system.
The gene transfer vector of the MultiBac system was developed to provide it with a unique feature namely, that is particularly careful in the production of the desired protein machines. For customers, this is a guarantee of the unsurpassed quality of the protein complex produced with the MultiBac technology. In comparison with conventional processes, the simplified MultiBac technology additionally saves a substantial amount of time for the production of the desired protein product: it only takes weeks rather than months. Also, the technology offers the possibility to build numerous different protein complexes from the same protein components on a modular basis and, thus, of supplying individual solution to customers’ problems.
Laboratories of renowned research institutes already use MultiBac, which NUS has made available as trial specimens. This shows that the technology works, is mature and has a selling potential. The process was patented last year by NUS, and since then it was developed in the context of employment at the university. However, the rights can be assigned to a start up, for instance, in the form of an exclusive license.
The next steps to launch the venture
In autumn 2010, Michelle is in the final stages of her doctoral thesis, which she wants to complete by the year. After that, she needs to work full time for the new company. In contrast, Henry and Mike want to retain their jobs at NUS and spend less time on the company. As such, they would not be involved in the company’s operative daily business but will assume an advisory function. They will receive shares in the start-up but will not be on the company payroll.
One of the key roles of Henry and Mike will be to guarantee long term access to the latest findings in scientific research. This model, whereby some of the founders remain at the university, has already proved successful in a number of other biotechnology start ups. Research in the field of biotechnology is very costly; both in terms of time and money, so only by retaining close links with a research institution will the company ensure that it will always work with the latest technologies and, thus, remain competitive.
One of the greatest challenges currently perceived by the team is to secure funding for the new company. Although the founders are able to invest S$200, 000 of their personal savings into the enterprise and, thus, realize a small scale start up, present plans are based on the assumption that at least S$500 000 of external capital will be needed for the first two years.
These funds will primarily serve to finance Michelle’s position and a small team of lab assistants in charge of producing the protein complex for the clients. The product will be sold via a network of sales agents, and other functions, such as accounting and finance, will be outsourced to a professional accountant.
Answer all questions.
1. Should Michelle consider debt or equity to finance QuickBiotech? Explain your answer.

2. Would you consider any alternative sources or finance? Which one? Why?

3. Analyse other issues to be addressed before QuickBiotech is launched.

Please write all your answers in essay format. Do not answer in point-form unless the questions mention “List” or “State”. It is not necessary to precede each answer with an introduction and end with a summary. Proceed directly with the answer

Answer 1

Ans 1

I would recommend Michelle to consider equity as method of financing as this will not put the pressure of paying off the loan on her which will come if she takes the debt route. Thus she will be able to focus on the research and development of the product without having to worry about paying off the loan on time.

She can partner with some Venture Capitalist (VC's) for equity financing and thus she will get guidance also on how to run the company as these VC's have experience of running multiple startups.

Ans 2. I prefer the equity financing from VC's as mentioned above.

Ans 3. Other issues are:

i) Business model and path to profitability needs to be defined to attract the VC.

ii) Competitive landscape needs to be defined

iii) Team strength needs to be identified before the launch.