Business Opportunity, Context, and People

Business Opportunity, Context, and People

There is an attractive business opportunity to build a biotechnology company focused, initially, on the automation and mass production of oligonucleotides, a method which does not currently exist. In turn, this will satisfy the nascent but rapidly growing demand from lab researchers who are presently using custom ordered, manually created, supplies that are slow and expensive to procure. The company will also develop diagnostic processes and kits to detect major diseases and, if successful, leverage the scientists’ extensive knowledge, accrued through years of research and development, to derive blockbuster therapeutics which will have large addressable markets and generate considerable returns for the company.

This opportunity must be considered within the broader context of 1989. At this point in time, there is an emerging biotech industry within France that’s hindered by a scarcity of investment capital, primarily due to legal considerations (e.g., VC’s could be held accountable for the debts of a failed business if they operate within the portfolio company’s management). These issues are compounded by stifling regulation and a cautious traditional culture that values safety over an entrepreneurial spirit.

Despite this difficult background, the addressable opportunity will be led by three key people who are experienced leaders within the field of biotechnology and business: Pascal Brandys, Marc Vasseur, and Luc d’Auriol. Brandys has exhibited strong business savvy and professional experience in financing and managing startups within France and adds an additional dimension by having considerable governmental ties. Vasseur, a French scientist, is an expert in molecular biology and has a long tenured academic and research career. Lastly, d’Auriol is a subject matter expert in the field of synthetic DNA, customized DNA strains. Initially, d’Auriol will focus on research and develop of the mass production (PCR) process.

Deal

The deal is for a $1.7 million seed investment which will fund the operations of the business. Specifically, the investment is in exchange for 12% of the company:

1. Economic interest in Phase 1
2. Economic interest in Phase 2
3. Option to invest $25 million in Phase 3 in 1993 (See “Valuation of Genset: Real-Option”)

Given the size of the addressable market, the probability of key personnel successfully executing the business plan (see: binomial tree), and the embedded real options for future financial monetization, we find this deal to be highly attractive.

Binomial Tree

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Business Plan

Brandys and Vasseur need to develop a business and financial strategy that would let them learn from results and guide the company as events unfolded and make adjustments accordingly. Similarly, potential investors needed to know how to evaluate progress at the firm, limit potential losses, and create enough potential return to justify their investment.