Genset

Executive Summary

We recommend that Brandys raise $6.5M FF from French venture capitalists Sofinnova in the first round financing. We believe Genset has enormous growth potential and unique competitive advantages. It will benefit from the boom of the biotechnology industry, specifically wide adoption of oligonucleotides and application of PCR technologies. We estimate the pre-money value of Genset is $15M. A VC investment of $6.5 M FF would result in VC holding 30% of its post-money equity, which is typical in 1st round biotech company investment. Genset has three-phase business strategy including producing oligonucleotides, developing genetic diagnostics and developing gene therapeutics based on recombinant DNA technology. We view the three stages as sequels. The first stage is low risk and will provide stable cash flow for the second stage. The second stage is more risky but more potential. If successful, Genset will be a very profitable business. The third stage requires long lead-time, extensive R&D and high risk and but huge payoff. Since the third stage will not bear fruits in 10 years, our valuation of the company is based on the first two stages.

The Opportunity

We believe the oligonucleotides market is low risk to enter and will provide stable cash flow. Due to the wide application of PCR technology, oligonucleotides become a basic building block for genetic research, and there is an increasing demand for short strands of DNA. On the other hand, founder Luc Auriol is the most renowned expert in France to synthesize oligonucleotides. He also has experience in supply 2000 oligonuscleotides to various labs last year. Genset only needs to automate the process of oligonucleotides production and produce it at reasonable cost. Producing oligonuscleotides further enables Genset to study the single nucleotide polymorphism, accelerate the discovery of gene-disease association and enter the diagnostic markets. Genset could also use the first-mover...