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Vusion, Inc.
Manufacturing Strategy

Overview

The manufacturing process will primarily consist of in-house chemical receptor R&D and Sensor Bead production. An early stage pre-production prototype analyzer will be developed at Vusion but no assembly lines or systems will be created to support instrumentation manufacturing.

When the pre-production prototype is completed, volume manufacturing, marketing, and distribution of the analyzer will be licensed to an expert from whom Vusion would expect an 8-10% royalty from gross revenues. Vusion will design a receptor bead manufacturing facility to produce the beads for the Sensor Cartridges. The polymer beads that are chemically impregnated to make the Sensor Beads can be readily purchased from a number of polymer resin manufacturers for pennies per 1,000 (e.g. Novabiochem sells 450,000 beads for $170). The etched silicon chip can be purchased from a number of Micro-electromagnetic systems (MEMS) suppliers (e.g. one such vendor, AMMi, quoted a price of $6 per I CM2 silicon chip for a 10,000 unit order and a $3 cost per chip for a 250,000 unit order). The Sensor Cartridge can be designed by an outside design firm and the manufacturing can be sub-contracted to plants overseas to reduce parts costs (see Figure 7).

Initially, Vusion intends to develop Sensor Cartridges for many applications across the fine chemicals process industry, such as residuals testing for detergents and other trace elements. Eventually, Vusion will provide the R&D effort and customization of the Electronic Tongue TM to fit its clients' particular process needs - conceivably creating partnerships that protect each firm's proprietary chemistry.

Although the polymer beads in their current state are reversible and can be reused, Vusion intends to first market the Sensor Cartridge as disposable elements to avoid issues of re-calibration. As the technology develops and Vusion

improves upon its product R&D, the Sensor Cartridges will be designed to be reusable, to provide the client added value and increase the barrier to entry from competition. This development may also provide an opportunity to increase Sensor Cartridge prices.

Manufacturing Process


Figure 7

The key stages of the manufacturing process are as follows (see Figure 8 overleaf):

Figure 8

Vusion will develop a list of preferred vendors for each outsourced component to assure security of supply. In addition Vusion will carry sufficient safety stock of critical components. Vusion believes that the polymer beads, silicon wafers, and plastic cartridge housing will be relatively inexpensive on a large scale and will not add significantly to inventory levels.

Vusion's suppliers will not represent a competitive threat to Vusion, as each vendor will only be involved in providing a specific aspect of the product, and will be chosen so that they do not have the capability or market exposure to develop a competitive product.

Vusion's offices, laboratories, manufacturing, and storage will need to be located in at least a 15,000 square ft. facility. If such a facility doesn't readily exist in Austin, Vusion is prepared to work with design engineers, architects, and a builder to build-to-suit as a last resort. Vusion is pursuing the option of co-opting with another local start-up that will need lab space and HVAC systems, in order to share overhead costs.



Management

Vusion's management team is highly motivated and talented with complementary skills and experience. However, Vusion recognizes that the team needs additional expertise and skills to grow the company rapidly into a market leader. Thus, Vusion intends to actively recruit a seasoned CEO, Chief Scientific Officer, and VP of Product Marketing to help fill-in the gaps of the current management team.

Vusion's President & Chief Executive Officer, Jason D. Levin, has worked for two start-up biotechnology companies. Most recently, Jason worked for Gene Logic, Inc. in business development, focusing on the market analysis and product development strategy for an emerging DNA microchip technology. Jason will be responsible for licensing the technology from the UT system, as well as coordinating the business development and developing a long-term strategy for corporate growth at Vusion.

Vusion's Vice President & Chief Financial Officer, Kent Bradshaw, will play a key role in securing financing for the company. He brings significant financial and accounting experience to Vusion, Inc. having worked as a Senior Consultant with Price Waterhouse. Currently, Kent is working for Imperial Bank, where he has gained relevant experience working with venture capital firms and venture-backed companies. Kent is a CPA licensed in Texas.

In addition, Vusion is partnered with the inventors of the Electronic Tongue TM technology at The University of Texas at Austin. John T. McDevitt, Ph.D. is an Associate Professor of Chemistry and is responsible for combining the organic synthetic chemistry developed by Eric Anslyn, Ph.D., Associate Professor of Chemistry, micro-machining techniques developed by Dean Neikirk, Ph.D., Associate Professor of Electrical Engineering, and the detection methodology developed by Jason Shear, Ph.D., Assistant Professor of Chemistry to create the Electronic Tongue TM. Vusion has been working closely with this multi-disciplinary team of world-class scientists to commercialize the Electronic Tongue TM. The inventors will remain actively involved in the creative development of Vusion and are eager to support Vusion's product development into the future.

Vusion's Advisers consist of seasoned businesspeople that are bringing their complementary skills to bear on the hurdles that Vusion faces. These advisers include Mr. Lee Walker, former President of Dell Computers and Chairman of SkyTel, Dr. Richard Capozza, former CEO of Autonomous Technologies Corporation and Syntex Opthalmics, and Ms. Mary Kay Marsden, President of the Mar.Com Group.

Vusion has also been working with a team of consultants to develop its marketing strategy and build upon its understanding of the potential for the Electronic Tongue TM within different commercial markets. Richard A. Burgess is a Chartered Chemical Engineer and has 10 years of industry experience, primarily in small technology companies selling to large blue chip corporations such as Mobil Oil and Phillips Petroleum. His experience also includes four years in plant design and operations. Richard will aid in developing manufacturing and marketing strategies for Vusion, Inc. Paul M. Kunko, Ph.D., will help identify specific product market opportunities that utilize his scientific strengths developed during his research work in pharmacology, as well as his product development experience with Johnson & Johnson Medical, Inc. Both Richard and Paul are co-founders of Vusion, Inc. Jason, Kent, Richard, and Paul currently hold 100% ownership of the company.

Regulatory Environment

In order to develop and market process control technology to the pharmaceutical industry, Vusion will have to provide experimental evidence that shows its technology is robust, reliable, sensitive, and reproducible enough to be used in closely monitored manufacturing environments. However, there are no regulatory compliance issues that Vusion would have to address prior to marketing its technology in pharmaceutical process control applications. The customer would be required to validate the use of the instrument and provide the Food and Drug Administration (FDA) with relevant documentation to this effect. Vusion will develop protocols with the customer to support the FDA approval process. The FDA's main concern is reproducibility and efficacy. Vusion already has data demonstrating the consistency and accuracy (e.g. reproducibility) of its technology.

With regard to marketing Vusion's technology for use within hospitals in the U.S., Vusion would have to gain regulatory approval through the FDA. The Code of Federal Regulations (CFR) provides guidelines for both the classification of medical devices, as well as the regulatory guidelines necessary to gain approval for the marketing of such devices. Since there is very little way of determining to what extent Vusion's instruments will require FDA approval until the instrument is actually designed and built, we will assume that the instrument will require the maximum testing and regulatory approval for a Class 11 medical device.

Vusion will make every effort to remain in contact with the FDA during the period of early development and testing to identify what guidelines Vusion needs to follow to obtain regulatory approval. This is a straightforward process and Vusion does not consider the regulatory process to be a critical issue.

Intellectual Property

The University of Texas at Austin has filed 2 provisional patent applications with the United States Patent & Trademark Office (USPTO). The first office action for the first provisional application was recently submitted to the USPTO by the University's lawyers. The University, its lawyers, and Vusion believe that a patent for this technology could be issued as early as June of 2000. We are working with the Office of Technology Licensing and Intellectual Property for the U.T. System to obtain a favorable license to this technology for our specified fields of use. We have the full support of The University of Texas at Austin researchers who invented this technology.

Financial Overview

Seed Stage: Present - Jan. 2000

Vusion is currently in the concept stage and has several milestones to reach before it begins full operations. We plan on achieving the following goals by the end of 1999:

In order to achieve these milestones, the company is seeking $1,500,000 investment from an investor or group of investors in exchange for an equity share of the company. The seed investors will have preferential rights in subsequent equity rounds.

Start-Up Stage: Feb. 2000 - Feb. 2001

Once the above milestones are met, Vusion will require $8,000,000 in start-up capital. The company plans on obtaining these funds from venture investors and / or a joint venture with a corporate partner. It is also pursuing SBIR (Small Business Innovation and Research grants) funding and NIST ATP (National Institute of Standards & Technology Advanced Technology Program grant) awards to supplement the equity capital raised in the prior round.

The funds will be used to purchase the capital equipment needed to start operations and to hire relevant personnel to develop the beta versions of the product. (See Financial Statements for a list of staffing and capital expenditures, respectively).

The milestones for the completing the start-up stage are:

Development Stage & Product Launch: Feb. 2002 and onward

At this point we will have completed successful beta testing of our product. We will ramp up our manufacturing operations of the Sensor Cartridge. Our OEM partners will start a full-scale marketing campaign. This stage will require another round of financing for additional personnel, laboratory and manufacturing equipment, and for working capital purposes. A final $12,000,000 round of financing is needed before Vusion generates positive cash flows in 2004.

Figure 4

Exit Strategy

As noted in Figure 4 shown at left, Vusion will have healthy levels of revenue and net income in FY 2004 and FY 2005. At this point, investors should be able to achieve liquidity through an Initial Public Offering or through acquisition by a company in the process control industry.



Critical Risks

Licensing and cross-licensing

Vusion must license the Electronic Tongue TM technology from The University of Texas at Austin. Vusion has the backing of the inventors of the technology and has a high probability of gaining a license for the technology within specified fields of use. Vusion will organize itself and implement strategies to protect itself and proactively avoid operating within the scope of issued patents thus, preventing infringement lawsuits from the current competition.

A patent for the Electronic Tongue TM must be issued for Vusion to operate.

Vusion will retain the services of an intellectual property (IP) law firm to perform an infringement study on patent USPTO # 5,512,490 (technology developed at Tufts University and licensed exclusively to Illumina, Inc.) and USPTO # 5,571,401 (technology developed at Caltech and licensed exclusively to Cyrano Sciences, Inc.). Both patents are issued for electronic nose technology. However, Vusion feels that honest diligence is necessary to confirm its freedom to operate.

If, after a patent is issued for the Electronic Tongue TM and Vusion obtains a license from The University of Texas at Austin, its attorneys feel that there are issues around possible infringement (either against Vusion's property or by Vusion), Vusion will develop cross-licensing relationships with Illumina, and Cyrano. This action serves the interest of all parties by enabling each the freedom to operate and eliminating the likelihood of costly legal entanglements in the future. To further differentiate its IP portfolio and improve its ability to protect its technology, Vusion will continue to expand its IP portfolio by patenting its novel chemical receptors and Sensor Cartridge design.


Vusion, Inc.
Table of ContentsAppendices
0. Executive Summary
1. The Problem
2. The Solution
3. Vusion Provides the Solution
4. Market Analysis
5. Marketing Strategy
6. Manufacturing Strategy
Financial Model: Assumptions
Income Statement
Balance Sheet
Statement of Cashflow
Resumes
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