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

As a startup, there are many ways the initial capital and funding for the business can be raised. But taking small steps is always be safer and is an idea based startup venturing into completely unknown battleground it would be better to go for equity funding rather than debt funding. The debt funding is very risky as if because of any reason if the business fails then the debt will become a liability to be paid off from own money, while in case of equity funding the risk and rewards both are shared. If the chief concern is not having any other partner or equity shareholder in the business other than the partners who are working on the idea the debt funding is the option but with a very high degree of financial risk.

The other alternative source of finance they should try for. If they don't want to increase the equity shareholders then they can go for crowdfunding as an alternate source of finance, where they can ask the client companies for who they would be making the product to do the prebuying and fund in advance so that with that money they can start the operation. However, this is possible only when the idea is a big breakthrough and the future value of the idea is very high.

Before starting the business the regulatory compliance must be reworked and should not be there any assumption taken and ignored. Therefore a clear analysis of the all the compliance and intellectual property rights-related conditions should be reverified. The other regulatory and legal compliance related to the business and industry-specific requirements need to be understood and satisfied. The nature of the corporation or business should be thorough deliberated and accordingly, the formation of the entity should be done and the registration process must be completed. All the business related contract should be verified for its legal authenticity and terms.