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Nepkar
Operations

Location and Premises

The company will be located in the Oxford area to maximize the benefits of its links with the University and the burgeoning bioscience environment. Applied yeast genetics does not require specialized facilities, and we have managed to locate a suitable 3,500 sq ft industrial unit in the Milton Park science campus. Once the company has demonstrated proof of principle by the successful completion of 2-3 Nepkascreen contracts, we will move to larger premises to accommodate our projected expansion. We anticipate that expansion will be possible nearby in the Milton Park estate.

Human Resources

Organizational Structure

Nepkar will be a science-driven company. Its scientific operations will be divided into functional- rather than project-based groups to maximize flexibility. Each functional group will be headed by a postdoctoral scientist with proven ability to achieve tight deadlines under pressure. The groups will be as follows, roughly in order of recruitment priority.-

Molecular genetics:
This group will function as a production line, initially cloning receptors required for the receptor engineering, adapting them for incorporation into expression vectors, and carrying out the mutagenesis required for optimizing receptor coupling. They will also stockpile other receptors of commercial importance to facilitate contract and collaborative deals with pharmaceutical partners.
Yeast genetics:
This is a key group which will produce the yeast strains necessary for the selection and screening procedures to work.
Screening:
A pharmacology group will be required to characterize the yeast-expressed receptors and decide on the best format for high-throughput screening assays.

Additional staff will include a senior secretary, a junior clerical assistant, an administrative assistant and additional technical staff to provide laboratory maintenance. The overall headcount will build up as detailed in the projected expenditure budget in Appendix 1.5. The overall headcount will be capped at 22 until a business case can be made for further expansion. Projected Company organization at the end of year 2 is shown in Appendix 3.

Management

The management will consist of a Chief Executive Officer (Andy Alias), and a Chief Scientific Officer. Two suitable CSO candidates have been identified, Dr Michael Alias (currently acting director of biotechnology at British Biotech, and currently supervising the yeast GPCR project that Nepkar will inherit), and Dr John Alias, currently developing yeast-based high-throughput screens at Glaxo's Geneva research institute. Recruitment of Marketing and Business Development managers will be deferred in order to minimize the managerial salary overhead.

Key Staff

In addition to the CEO and CSO, the postdoctoral scientists heading the main functional area within the Company will be key appointments. Retention of these individuals will be by:

  1. Hiring staff who are committed to working in an entrepreneurial environment.
  2. Providing incentives in the form of share options.
  3. Providing a stimulating and rewarding environment for applied research.
  4. Paying competitive salaries.
  5. Maintaining a stimulating, attractive work environment.
  6. Allowing career progression as Nepkar grows.

Recruitment of these scientists has commenced, and suitable candidates appear to be available.

Business Strategy

There are three elements that are central to our business strategy.

Speed.
It is important to build a group of scientists with sufficient critical mass as rapidly as possible. We believe that this fast start is essential if we are to build on our IP base.
Key Technology.
The technology which we are developing will be pivotal for drug discovery and the next generation of biosensors. By gaining control of the IP, we will drive up the asset value of the Company and hence its overall valuation.
Short-Term Milestones.
We have been careful to select short-term milestones which both prove the technology and provide an opportunity to generate revenue streams.

Our first priority will be to structure commercial arrangements with pharmaceutical companies. The emphasis will be on maximizing up-front payments at the expense of royalties. Our goal in this initial phase will be to minimize expenditure, achieve a near-neutral cash flow through successful completion of two-three projects, and build on our intellectual property base. This phase of operations will take between 18-24 months.

In the second phase we will expand our technology base with the objective of becoming the European screening partner of choice. We will seek to add more value to the projects by carrying out screens in-house, and by accessing compound libraries through deals with third parties such as combinatorial chemistry companies. We will increasingly seek to initiate our own screening projects, either alone or in collaboration with strategic partners from academia or the Biotech sector. This phase of operation will be contingent on a continued strong growth in the contract screening business. Success in this second phase will position the Company for flotation on the stock exchange in four to five years.

Research Contracts

A key component of Nepkar's success will be its ability to secure early screening contracts. Our agreements will be structured so as to maximize early revenues while attracting sufficient corporate clients.

Agreements will be restricted to a nominated receptor target. We will not enter into therapeutic-area type deals as they are too diffuse. The client will nominate a receptor and pay an up-front contract fee. Nepkar will then deliver a yeast-based screen within twelve months. On completion of the project, Nepkar will hand over the screen in return for a success fee. The client will have exclusive access to the screen for an indefinite period in return for a small ongoing annual license fee. The client will also have a non-exclusive and non-transferable right to use Nepkar technology to carry out the screen on its own premises. There will be a 2% royalty payable on net sales of any product based on leads emerging from the Nepkar screen. The client will have the right to buy out this royalty for a sum that escalates based on the development status of the compound and the projected market size. The following details an illustrative deal structure.

Signing fee:£250,000
Success fee:£250,000
Royalty rate:2% of net sales
Buyout option:£500,000 on completion of contract
 £1m up to phase I
 £2m up to phase II
 £4m up to phase III
 £10m up to registration
 £25m up to approval in the first territory

As Nepkar becomes self-supporting financially, we will consider shifting the payment schedule to emphasize the downstream revenues.

The client list will remain restricted for at least the first two years (maximum of three clients), as only limited marketing, distribution, product development and after-sales support are scheduled until that point.

Science Advisory Board

Control of the day-to-day scientific operations will be the responsibility of the CSO. He will, however, from time to time draw on a small group of outside scientific experts who will act as consultants to the Company and form a Science Advisory Board (SAB). Their role will be to comment on scientific strategy, to ensure the high quality of the Company's science, and to provide help on specific scientific problems. It is also expected that they will act as ambassadors for the Company, and help to establish and maintain its scientific reputation.

The composition of the SAB is as follows:

Corporate Governance

The Governing Board of Nepkar will bring a range of scientific and managerial experience. We recognize that it will be important to identify board members with extensive pharmaceutical experience and contacts.

Dr John AliasNon-executive Chairman, ex-British Biotech plc board member and ex-Director of Research
Dr Mark AliasFounder, ex-British Biotech Director of Biotechnology
Andy AliasCEO
VacancyFinance Director
BB nomineeNon-executive
Dr Bill AliasBiosensors, inventor of Medisense glucose monitor
InvestorNon-executive
InvestorNon-executive (provisional)
PharmaceuticalNon-executive (provisional)

Nepkar
Table of ContentsAppendices
1. Executive Summary
2. Background
3. Markets
4. Operations
5. Finance
Cashflow Summary
Revenue Forecasts
General Overhead
Laboratory Costs
Staffing
Capital Expenditure
Milestones
Project Plan
Intellectual Property
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