Midterm Business Plan 6a654e

FLEXible i n s U L I N, L L C TM

Table of Contents Executive Summary

Objectives Background & Trends Company

Product

Opportunity Threats

Marketing Strategy

Growth Plan Assumptions Income Statement

Vision: to empower diabetics to continue their pursuit of an active lifestyle.

Executive summary As of 2011, there were 25.8 million people diagnosed with diabetes and 1.9 million Americans are added to this number each year.One of the largest components of diabetic therapy is exercise, but the pursuit of an active lifestyle can be difficult due to conventional glucose management. Flexulin is the innovative solution to this problem. Flexulin is the first lightweight patch that, unlike traditional pumps, isters both insulin and glucose to maintain blood-glucose homeostasis. This product is primarily targeted towards diabetics who desire to be more active. Flexulin is a revolutionary way to manage diabetes, taking into the physiological demands of athletic training and competition. Active diabetics must be conscious of their blood glucose levels and aware of how quickly they can change during physical activity, but with Flexulin they no longer have these concerns. This device is both wireless and flexible, keeping active individuals in mind. It adheres to the individual’s body without introducing noticeable bulk. The design allows diabetics to move freely without any worry of discomfort. Flexulin continuously collects and transmits data to an app to provide the s with information about their blood glucose history. The revenue from the insulin pump market is expected to grow 9% each year, providing Flexulin with an opportunity to capture 5% of the market share. The company expects to be profitable in year 2016, only the second full year of sales. The loss of capital incurred in the first three years of operations is expected to be fully recaptured by year 2018. Given the large market size and the ingenuity of the product, Flexulin has been approached by multiple insulin pump manufacturers and distributors. Most notable of these offers is from Medtronic, a giant in the industry. Moving forward, Flexulin intends to negotiate an agreement with Medtronic in regards to the distribution and marketing of the product. Flexulin is seeking an investment in order to create a prototype and launch this product. With the use of cutting-edge technology, Flexulin’s team is redefining diabetes management. Sincerely,

Julian R.M. Richter Julian Richter Chief Executive Officer TM Flexulin

Background TYPE I

DIABETES

Individuals no longer have the ability to produce insulin on their own and require i n s u l i n t h e r a p y. I n s u l i n deficiency can occur at any age and is the main type of diabetes found in children and adolescents.

TYPE II DIABETES

Type 2 diabetes occurs when a person’s glucose levels rise higher than normal and the body can no longer use insulin properly.

25.8 MILLION AMERICANS HAVE DIABETES

1.9 Million diagnosed each year

Insulin Pumps Current insulin pumps are convenient in some respects and a burden in another. The convenience is that the person does not have to constantly test his or her blood glucose levels and can be ensured that his or her insulin levels will remain fairly constant. On the other hand, pumps can be inconvenient because the person must always be hooked up to it. The computer portion of the device can be bulky and a burden when the person does not have pockets. Insulet Corporation has tried to address this problem with a wireless pod that sticks to the skin and is managed with a separate handheld monitor.

300,000

2010

s of insulin therapy 1998 70,000

Exercise

Exercising can be a challenge for individuals with Type I diabetes since food intake and insulin injections must be carefully monitored and balanced. Competitive athletes with diabetes are at much higher risk of hypoglycemia due to excessive amounts of strenuous exercise. Currently, there exists no lightweight wireless device that can regulate levels with both insulin and glucose injection. Insulin pump therapy is especially well suited to physically active diabetics as it allows flexibility and easy adjustment of basal and bolus insulin doses. The risk of hypoglycemia during and in the hours following exercise is substantially increased because exercise enhances the body’s sensitivity to insulin. Simply stopping the basal insulin during the workout can lead to hyperglycemia after the activity if the body enters a state of insulin deficiency. Currently, effective dose adjustment strategies include reducing the bolus for the meal prior to exercise, consuming carbohydrates before and during exercise, and/or lowering the basal rate starting 1-2 hours prior to exercise.

Medtronic

The leader in medical technology, Metronic provides technologies and therapies that cover many diseases and medical conditions. Last year Medtronic reached the lives of over 9 million people in 140 countries who had problems such as cardiovascular disease, diabetes, and neurological and musculoskeletal conditions. Their Diabetes Group brings in a revenue of $1.5 Billion dollars annually. Currently, Medtronic does not carry a device that monitors both glucose and insulin levels.  Medtronic has approached Flexulin with an offer to purchase and distribute their new insulin pump that is still under development.

Current issues

1.Painful when bumped into 2.Bulky and noticeable ; causes a person to be selfconscious 3.Can get caught on chairs and desks 4.Complicated for children to use 5.Can easily be removed, fall off, etc with lots of activity 6.Not fully waterproof 7.Multiple devices to manage diabetes 8.Constant manual regulation of pump 9.Failure to recognize different kinds of sugars in bloodstream

Company Chief Executive Officer

Julian Richter graduated from the Business University of Vienna with a degree in Finance and Entrepreneurship. He worked at Volksbank Raiffaisenbank Rosenheim Bank as a financial consultant and then was involved in the start-up “Hellofresh” on the supply chain and sales side.

Chief Operations Officer

Lizzie Farquhar, after receiving her BBA in Marketing at the College of William & Mary, began her career at APT Test & Learn as a marketing analyst. She then moved to Johnson & Johnson to be an assistant product manager. When Julia approached Lizzie with a proposal to create a revolutionary device that would change the way active diabetics live, she could not turn it down.

Chief Technology Officer

Julia Swalchick graduated from Virginia Tech with a degree in Computer Engineering. She was a former technology consultant for Accucheck. She contributed to the creation of the first CGM device that allowed for continuous blood-glucose monitoring.

Chief Marketing Officer

Meghana Indurti worked at Leo Burnett with various Health insurance s and eventually became Executive. She holds an MBA in brand management from Stanford and has been a Marketing Manager at Tylenol for the past five years.

Chief Finance Officer

Jake Marshall received his BBA and Masters in ing at the College of William & Mary.  Following graduation, he began working at Ernst & Young LLP.  Following years of service in public ing, Jake welcomed the opportunity to work for a company invested in improving the lives of diabetics.       

Board of Advisors Rick Spatz

Spatz began his 30-year career in advertising with Leo Burnett Company, moving to internationally acclaimed D'Arcy, Masius, and Benton & Bowles for a 21-year run in management that included several overseas assignments. He led strategic and advertising development for agency clients that included Procter & Gamble, Mars Inc., Nestle, Roche, Cadbury, Heinz, Union Carbide, and Chi Chi's Mexican Restaurants.

Richard Ash

Currently a professor at the College of William & Mary, Ash had previously founded Dilon Technologies, Inc., a medical device company. He has also contributed to the success of several venture capital firms, most notably Mentech Advisors, Inc. and Mentor Technology Ventures, LLC.

Dean Kamen

Kamen has extensive experience in the creation of new technologies, most notably the Segway. While an undergraduate, he developed the first portable infusion device, which delivers drug treatments that once required round-theclock hospital care. Through his DEKA Research and Development, which he co-founded in 1982, he developed a portable dialysis machine, a vascular stent, and the iBOT -- a motorized wheelchair that climbs stairs.

Dr. Mohan Peter

Mohan was a Cardiothoracic surgeon having trained and worked at the Cleveland Clinic in Cleveland, Ohio and the Mayo Clinic in Rochester, Minnesota. His past titles include Assistant Professor of Surgery at the Dartmouth Medical School in New Hampshire; Chief of Cardiothoracic Surgery at York Hospital, York, Pennsylvania; and Founder and Principal Cardiothoracic surgeon at Mercy Medical Center in Oshkosh, Wisconsin. He has served as a visiting surgeon in both Rockhampton, Australia and on the island of Grand Cayman.

PRODUCT: H The Pump

1

2 4 The App

Remove cap and fill Flexulin pouch with insulin and glucose -Cap covers internal needles -Use of complementary syringes -Inject through fill ports located on base of pouch Three devices offered: 100 units, 200 units, 300 units The pouch is designed for compatibility with U-100 rapid-acting insulin (100 units of insulin per milliliter of fluid). The following U-100 rapid-acting insulin analogues have been tested and found to be safe for use in the Patch: NovoRapid®, Humalog®, or Apidra® Adhere pouch to skin Recommended adhesion sites:

3

Latch Flexulin device to pouch

Click OK to initiate insulin release -Auto insertion of both Teflon cannulas at 45 degree angle (depth of 6.5mm 13 or 17mm) -Auto insertion of glucose sensor -Omnipod- 6.5mm cannula depth, 60 degree insertion angle

It is proven that manual record keeping techniques, such as a food and exercise diary, still represent the gold standard. Patients starting insulin pump therapy should be encouraged, at a minimum, to record blood glucose levels, boluses and basal rate adjustments. A food diary is also useful for assessing carbohydrate consumption and overall nutritional intake. If the food diary can be correlated to glucose levels, it can enable the patient and his or her healthcare team to detect and address behaviors and/or physiological phenomena impairing tight glucose control. Given that the entire customer base will not have a smart phone, a complimentary portable device will be included that emulates the app. This device can also be used by those who hold an app int the event of an emergency.

OW IT WORKS -Recommended injection sites: top of thigh, stomach, outer arm, butt, sides of lower back -Flexible Teflon cannula with thin plastic tubing (lasts 72 hours- 3 days) -Gradually releases the established basal rate injections, program the bolus doses to cover meals

Features: -Flexible, able to mold to your figure -Different sizes for different s- hold various amouts of insulin and glucose -detachable insulin pouch, glucose cartridge and adhesive patch (consistent device) -stores and injects both insulin and glucose -reads blood glucose levels -recognizes and reacts to patterns and trends of blood glucose levels based on ’s history -transmits all data to phone app via the cloud -fully waterproof

FLEXULIN J

A

C

Glucose Storage

I

CGM

B

-$615.00-$499.99 per 10 sets -Roughly 290 readings per day A tiny electrode called a glucose sensor is inserted under the skin to measure glucose levels in tissue fluid. It is connected to a transmitter that sends the information via wireless radio frequency to a monitoring and display device. The device can detect and notify you if your glucose is reach a high or low limit.

D C

Patch -$195.00 per 10 sets (approx. 1 month) In a study of 25 volunteers, a subcutaneous dose of 1 mg Glucagon resulted in a mean peak glucose concentration of 136 mg/ dL 30 minutes after injection (Figure B). No difference in maximum blood glucose concentration between animalsourced and rDNA Glucagon was observed after subcutaneous and intramuscular injection.

G

E

H

F I

THE

Image provided by Glucose Buddy, Inc.

FLEXible insULIN

APP 1 2 3 4 5 6 7

Storage of all data

Accessible by individual’s endocrinologist via patent

Personalized notifications

Dismissible alerts Loud alert when low on insulin & high in blood glucose

Blood Glucose Trend Graph

7, 14, 30-day history Breakdown of specific averages for certain time of day over long period

Calendar/Schedule

Daily activities Smart pump recognizes average times for exercise, meals, and alcohol

Sport specific programming

Glucose regulation reacts to programmed exercise Anaerobic vs aerobic options

Nutrition Log

Manual entry f diet Pie chart of daily calorie consumption broken up by food group

Index of Carbohydrates

Barcode scanning capability Storage of scanning history Ability to drag from history to nutrition log

The insulin pump market volume in 2009 was $453 million and is expected to grow to $843 million in 2016 in the US. Within this market, Flexulin unites the two components of quality and comfort in a unique product. Although there are big competitors, there is a great possibility to enter the market for Flexulin because of the huge size of the diabetic market and the diabetic’s need for improved products. Flexulin’s anticipated deal with Medtronic would mean that the Flexulin pump would penetrate Medtronic’s already existing market and distribution channels. DIRECT COMPETITION Flexulin competes directly with diabetes pump and pod manufacturers  Medtronic, Roche Disetronic, Animas Corporation and Insulet Corporation. The biggest active player in this field is Medtronic, followed by Roche. Flexulin’s other competitors are relatively small and work together with strategic partners in the field of diabetes and medical technology.

OPPORTUNITIES & The pump distributors are at an advantage, having pre existing relations with their customers. However, there is not one pump on the market that far outcompetes any others. Therefore, other direct competitors like the Startup Asante Solutions which received funding by more than 7 venture capitalists or Insulet Corporation entered the market comparably late.

For instance, Insulet Corporation was founded in 2000 and only specializes in pods. Their focal product, “The Omnipod”, includes 2 pods, works wirelessly, is waterproofed for one hour and has a retail price of approximately $1700. Insulin pumps are priced between $4500 and $6000. The pods must be exchanged every three days. This translates into   monthly costs of approximately $300 - $450 by consumers, ordering pods in standard 10 piece sets. The separate continuous glucose monitoring device costs another $700$900. In comparison, Flexulin combines these 2 parts into one product for the reasonable cost of $4500 and the replaceables for $700.

All in all, the leading companies have some of these good characteristics like waterproofness, wifi-ability, alerts, painless insertion and lightness but Flexulin combines several of these characteristics more effectively and has extra features like maintaining blood-glucose levels and a phone app. In addition to that, Flexulin is the only pump provider for athletes who do sports for more than an hour without limitations. Indirect competitors mostly include companies that sell insulin injections (e.g. syringes). Using syringes is generally the least expensive method. For example, 100 syringes (each 1ml of insulin) costs $20 to $30. In addition to that, wearing no pump is more comfortable and there are fewer dangers when participating in sports. Those people do not have the risk of allergies or malfunctioning of the pump, as well. However, these people are less flexible and have worse control of their diabetes.

THREATS.

Moreover, having a pod leads to fewer injections and is important to the reduction of long-term complications and better predictability. Although, there are advantages and disadvantages for each side, for most people the advantages of the Flexulin pump outweigh disadvantages and costs. Threats One threat is represented by a product which cures diabetes. Since diabetes has many different causes, there is not one medicine which can cure diabetes. Recently stem cell research has shown that diabetic cells in the pancreas can be retrained to behave normally when placed with non-diabetic cells. These cells can then be transplanted into the pancreas and essentially stop the manifestation of diabetes in a person. However, the results only last for about 9 months. This method is not price sustainable, as the patient would have to get a transplant about once a year and pay for transplant drugs so that their body does not reject the transplant. Because researchers are far off from developing a cure for diabetes, this threat is minimal.

Company share of the global insulin pump market (% by revenue), 2009

6% 3% 10%

11%

12%

Medtronic Insulet Corporation

58%

Roche (Disetronic) Deltec (Smiths Medical)

Animas (J&J) Others

Flexulin will provide a high-end diabetes pump including the maintenance of the blood-glucose levels for Type 1 diabetics. Flexulin will not compete with the other manufacturers in low-cost products, but rather concentrate on quality. It is a competitive, high-quality product for active people and the characteristics of Flexulin are unique. By positioning it in the high-quality sector, the competition will be huge, but the possible share for Flexulin in market volume will be large. A small market share is enough to be profitable. Furthermore, being positioned with a competitive, high-tech product will be most attractive to possible buyers like Medtronic. Exercise is recommended for most diabetes patients as an important tool of therapy. Experts recommend moderate-intensity physical activity for at least 30 minutes for five or more days of the week. Although light exercise can be effectively managed, when it comes to competitive athletics, diabetes patients often have trouble with effective treatment plans. Flexulin can be positioned for active diabetics who prioritize exercise.

Positioning

$1000

Disposable Patch -

Insulin cartridge Glucose cartridge Glucose sensor Adhesive patch 2 Needles with Cannulas Compents are sold in sets of 10 (last a month)

$4500

Tech Device

- Electronic device - Collects and transmits data - Regulates glucose and insulin levels - Rechargable Lithium batteries - Syncs with the App

$5500 Price

11.3% of all people above the age diabetes. That’s 25.6 million people. younger than age 20 have

people. Since Insulin is a

a viable option is to

Flexulin targets active

of 14 to 65.  Since most kids

this age and begin seriously

sports, the product can be

Prospective pump caregivers must be infusion sets, fill pump pump, and must demonstrate healthcare providers in achieving therapy. In general, patients likely therapy will have had sufficient using other forms of insulin competent in assessing the monitoring blood glucose levels a day, preferably 6-8 times).

















of 20 years are diagnosed with Additionally, 0.26% of all people diabetes. That’s about 215,000 product with inelastic demand, straddle different age groups.

customers from the ages

enter high school around

becoming involved in

most useful to them. s or their able to change cartridges and program the willingness to collaborate with the goals of insulin pump to succeed on insulin pump education and while therapy so that they are already nutritional value of meals and frequently (minimum four times

Target Market

Distribution and marketing will be be taken care of by Medtronic, a company that has already established relationships with doctors and high-quality retailers. Over the first three years, Flexulin will take care of distribution and marketing strategy with Medtronic serving as a consultant. Afterward, the services will be outsourced. It would be viable for Flexulin to be recommended by pediatricians and doctors first and foremost because patients often will not heed medical advice that doesn’t correlate with the doctor they have built a personal relationship with. Leveraging Medtronic’s brand name will be necessary in order to be recommended. Additionally, it is often more convenient for customers to purchase from big-box retailers like Wal-Mart, Kroger, CVS, and Walgreens. Therefore, Flexulin components will also be provided there.

Distribution &

It is important to emphasize the flexibility and durability of the product above all else. Print ads will be published in leading Diabetes magazines, including but not limited to: Diabetes Self-Management, Diabetes Forecast, and Diabetes Health. Partnering with the magazines will enable Flexulin to be seen by both customers and those who research diabetes on a scholarly basis. A 12-month subscription to Diabetes Forecast comes automatically with hip into the American Diabetes Association, which as of now holds over 16,000 . Typical readers of these trade magazines share certain characteristics: They are proactive with treatment, have done substantial research, and like branded subscription. With Medtronic’s brand equity, Flexulin will be able to have an easier initial entry into the market. They are responsive and engaged with the community at whole. They trust authorities about research. They share an easier reach because of how in-tune they must be.

They are influential customers. They are persuasive and good advice regarding health to not only their own family but also other diabetics.They also engage online with and will self-promote Flexulin.

Advertising

TV Spots will also additionally run in the first year and will eventually be faded away. They will first air at the ADA Trade shows. Extensive advertising isn’t necessary since Flexulin will be associated with Medtronic and most Diabetes product sales are increased through word of mouth and patient-led experimentation with products. However, in order to introduce the product particularly to active and competitive diabetic patients, Flexulin will be positioned with athletes and sports. Here is a sample TV storyboard.

Flexulin. Let nothing stop you.

FLEXULIN Let nothing stop you

Exit & Growth Flexulin is in negotiations with Medtronic and is currently awaiting the development of a prototype.  Medtronic is a medical technology firm, which specializes in the manufacturing and distribution of medical supplies.  Amongst other products, Medtronic produces insulin pumps, heart valves, and pacemakers.  Medtronic is a leader in the medical technology market generating over $16 billion in sales in 2012.   The Medtronic brand name should result in increased exposure and demand for the Flexulin insulin pump.   The core goals and values of Medtronic align with those of Flexulin’s management team resulting in a relatively easy relationship to maintain. Medtronic is committed to bettering human welfare, and is emphasizes expansion into foreign markets to better serve universal health care needs.   Under the of the agreement, Medtronic will agree to purchase a fixed amount of Flexulin units (1000 units), and Flexulin will provide additional units each year at the discretion of Medtronic.  Per the of the agreement, Flexulin agrees to supply their insulin pumps and replaceable parts solely to Medtronic at a fixed cost over a ten year period.    Assuming that no deal can be made with Medtronic, Flexulin will approach various other medical technology companies such as Insulet, Animas, and Roche to discuss a potential purchase agreement. Flexulin plans to maintain high levels of research and development expenses with the intention of developing more innovative medical technology solutions.  Additionally, Flexulin plans to decrease the marginal costs of production by taking advantage of economies of scale as the level of production increases.

Strategy Worst Case: If Flexulin cannot come to an agreement with any of the above medical technology companies, there is still a strong likelihood that Flexulin will be able to recoup their investment. Flexulin has received strong interest in purchasing the patent for their insulin pumps.  Management has determined that should the sale of patent and trade secrets occur, the proceeds from that sale should be sufficient enough to cover the  research and product development expenses.     Exit Strategy: Flexulin plans to offer investors a put option which takes effect in the seventh year of business.  This option guarantees that Flexulin will repurchase the investors interest, and provide a minimum return of 25%.  For the investors who choose to hold their interest with Flexulin, they can expect to recoup their investment with dividend payments beginning in 2016, the third full sales year.           of Agreement:

Flexulin requires an initial investment of $4, 000,000 in return for 40% equity in the company in order to create a prototype and cover start-up costs for the first year of operations.

Assumptions

1. Each year, 15% of previous Tech Device owners no longer use the product and/or have to repurchase it. 2. Initial profit margin is 15% based off of the margins of currently established companies, such as Medtronic, Insulet, Animas and Roche, 3. Units of adhesive patches sold based upon the number of tech strips sold 4. Due to relatively low sales volume in the first year, profit margins will not be as large as competitors. 5. The growth in sales is more than 2% and continues to increase up and after 2019. 6. Legal expenses also cover patent and trademark costs. 7. The market for insulin pump therapy will continue to grow at an increasing rate. This is based off of ADA growth projections. 8. The return on sales of insulin pumps is 2% of sales revenue. 9. Selling begins in January of 2015. 10. Liability Insurance cost is included in SG&A Expenses 11. Shipping costs are based on competitive shipping prices. 12. Rent expense for the office is $3000.00 per month. Utilities expenses are assumed to be constant at $10,000 a year. 13. Dividend payments are 40% which is based on their equity ownership in the company. 14. The worst case scenario was based off of sales volume is reduced by 50% holding all fixed costs equal. The best case scenario will be an increase in 25% of the sales volume of the projected sales. This based on the assumption that Flexulin will be operating at the forefront of Medtronic’s sales. 15. Each partner in the executive team has contributed $200,000. 16. R&D is lower than competitors because of the low amount of start-up capital and focus on a single product in. The ratio of R&D to sales revenue is higher than that of Flexulin’s competitors. 17. Price is based off of competitive insulin pump prices as well as glucose monitoring systems. 18. Medtronic has agreed to a purchase floor of 1000 units. Additionally, the total units sold is based off of the percentage of market share Flexulin is positioned to capture. 19. Glucose storage is assumed to be feasible in a wireless insulin pump. This is based off of current research by Medtronic. 20. There can be three automated insertions that coexist in one device. 21. The device will be completely water-proof. 22. The data will be transmittable via cloud storage. 23. Flexulin will be covered by insurance.

References