MediKane develops, produces and distributes dietary supplement products to the global market. Its core products use Australian grown cane as the main ingredient to formulate medicinal supplements that improve gut health. One of their core products which target diabetic patients is also able to reduce blood sugar level (BSL) in the body over time and improve insulin sensitivity, which means less insulin is required. They are based in Sydney and has establish distribution through local pharmacies. However, they are aiming to expand to NZ and China, where a distributor has been appointed and also to the US where a country manager has been appointed to launch into the market.
Is the value proposition of the product strong enough for target markets?
See below a list of products that MediKane currently has in the market.
The main product sold, which is Nutrikane D help reduce and control blood sugar level (BSL) and improve insulin sensitivity in the body. It is targeted at diabetic and pre-diabetic patients. According to the International Diabetes Federation, there are ~463 million people living with diabetes today and expected to increase to 700 million by 2045. ~$760 billion is spent on diabetes globally every year.1 The serviceable market is huge but the product sold does not directly cure diabetes. It eases the effects of diabetes by regulating BSL and reducing insulin required by patients. Its value proposition might be clearer for pre-diabetic patients but less so for diabetic patients as medication to control the illness is required.
Proven products backed by clinical studies
The products were produced and sold only after extensive R&D and clinical studies. The benefits of the products are clinically proven and safe, as the formulation mainly comprised of natural ingredients with key nutrients which are “bioavailable” to the body. There seems to be some good reviews for the products, specifically for Nutrikane D which I found online.2
Products have high gross margin
The average gross margin of MediKane products is currently ~60%. It ranges from ~45% (White Label) to 80% (Direct to Consumer) depending on channel and sales territory. Over time, as sales volume increases, the average gross margin is expected to increase to ~65%. The addition of the Animal Division and the Industrial Division adds significant volume from year 2 and helps drive procurement costs and manufacturing costs down, so margins can be increased even higher.
Good traction to date, but expanding distribution and marketing is key to growth
MediKane spent the first 6 years on R&D and product development (with Gratuk Technologies) before commercialising its first product, the Nutrikane +. With its patented formulation and technology, it is now focusing on commercialising its products and continuously develop new use cases for the formulation. There are a few deliverable for the team in the next 12 months:
Build on sales of NutriKane D in Australia and increase share of voice
Build market share of NutriKane D in the US
Expand the sales through the other channels such as white label, industrial, medical and animal health
See below its product roadmap.
Product Roadmap
Well protected product IP but relatively low moat
The product formulation and technology of MediKane is well protected by a comprehensive IP strategy, supported by a seasoned professional in this area – Dr Malcolm Ball. However, there is a possibility of competitors developing different formulation that could provide similar or more superior products in the future. There is limited switching cost for customers if a better product comes along.
Strong and experienced team of seasoned professionals in their respective field
The leadership team comprised of seasoned professionals with at least 15 years of experience in their respective field. Rod Lewis is a strong operator in the procurement and manufacturing space. Dr Malcolm Ball has many years of experience developing products and protecting them through extensive IP strategy. The rest of the leadership team has a strong background in product commercialisation and business support. The X Factor in the team might be Michael Goldman. He is the CEO for MediKane USA, basically tasked with launching MediKane products in the US. He seems to be a good networker, fundraiser and strategist. One concern is that he might be more focused on his other venture – Portum which develops digital health passport application in the US.
Summary
Overall, MediKane is currently at a stage to scale and hence, a good opportunity to invest in as a majority of the development groundwork has been done. It’s current pre-money valuation of $20m is around 9 times average expected revenue for the next 3 years.3 It has a very experienced and strong leadership team with the capability to commercialise their products. It is also servicing a potentially large market, but depending on how the market view their products, they might be playing in a very competitive supplements market. The ability to differentiate themselves marketing-wise will be key to expanding market share. The expansion to other markets also seem unimpeded by regulatory constraints. Securing distribution to China and US will be key in the current growth plan. The bet is whether the expected uptake from customers in various markets will eventuate.
MediKane is currently targeting the Diabetes market in Australia, and preparing expansion internationally. According to the International Diabetes Federation, there are ~463 million people living with diabetes today and expected to increase to 700 million by 2045. ~$760 billion is spent on diabetes globally every year.1 MediKane product does not cure diabetes but it helps reduce Blood Sugar Level (BSLs) and improve insulin sensitivity which means less insulin is required.
Growth Is the problem growing?
3
Urgency Does it need to be fixed ASAP?
2
MediKane product does not cure diabetes, but help improve Blood Sugar Levels and overall health of the body through focusing on gut health. The differentiation and value proposition might not be obvious to diabetic patients because they still have to continuously treat themselves albeit less aggressively i.e. less insulin injections etc. But the value proposition can be quite clear for pre-diabetes users. Potential users might not find the improvement urgent.
Costly Does it require capital to solve?
2
R&D for the product took ~6 years and estimated $4 million to develop. Setting up of a manufacturing facility in the US is expected to cost ~$1 million. Relatively low capital requirements at this stage.
Mandatory Can the problem be enforced?
2
MiediKane is selling health products that help improve the overall health for individuals. The problem cannot be enforced as they are alternative ways to do the same.
Frequency of Occurrence Is the problem encountered often?
Is the solution innovative and 10x better than existing competition?
3
There is no obvious direct competitors in the market. NutriKane is targeting pre-diabetic and diabetic patients to help improve their BSLs and overall health. Based on its clinical trial results, there are 2.2x greater reduction in BSLs when NutriKane D was used, compared with diet and exercise alone. BMI reduction by 1.1 compared to 0.1 with diet and exercise alone. Individual patients have shown insulin reduction of 36% and oral drug reduction of 33% when NutriKane D is included as part of their physician-monitored program.
NutriKane+ was the first MediKane product developed. Based on clinical test, it was shown to manage bowel health and minimise constipation risk in at-risk patient groups. It was directly compared to market leading products and worked successfully on 88% of patients where competing products failed.
All these are improvements on current alternative but not something revolutionary.
Is the solution scalable? Increase in revenue does not require proportional increase in cost.
3
The solution is relatively scalable. The gross margin of the product is expected to average at 65%. Overheads will only increased by 20% even when sales increase three fold. Cost to expand production also seems to be relatively small.
Is there a product-market fit? Are customers willing to pay for the product?
3
MediKane is on track to achieve revenue of $500,000 for FY21 and expected to double revenue in FY22.
Is there a clear value-proposition for the customers? Does the solution improve the unit economics of solving the problem?
2
Is there a clear target customers for the solution both immediate and in the future?
3
Is the business model clear and profitable?
3
The expected gross margin for the products are ~65%. Sales of the products is very profitable. The challenge is to get the sales volume.
3. Traction to Date
Questions
Score
Comments
Does the company have a functional MVP? Are early customers willing to pay for the MVP? Are there any industry recognition or benchmark that shows the MVP is superior?
3
The company already have a list of selling products in the market. See in the TLDR above the list of products already in the market.
Is the company quick at iterating on their MVP? Does the company have a good feedback channel?
2
It took the company 10 years to develop 5 products based on the same technology. It might be due to the nature of the industry and product, but still relatively slow for a food company.
Is the company securing sales for their products at a good rate? Is the products getting exposure and demand from potential customers? Is the company securing strategic partnerships to gain exposure or expand market share?
3
Does the company have a solid plan / deliverable to progress to the next stage i.e. commercialise the product, expand to other markets etc.? Is the planned use of fund inline with accomplishing the capital raise deliverable? Does the company know what their biggest challenges are for the next stage and has a plan to address them?
4
MediKane has a clear plan in terms of where they are heading in the next 12 months. They are focused on increasing sales of NutiKane D in Australia and increase brand awareness. They are focused on setting up distribution pipeline in the US and increasing market share in this space. US is a huge market opportunity for MediKane’s products and successful distribution and uptake will be a key growth driver for the business. See TLDR above the product roadmap.
4. Business Defensibility
Questions
Score
Comments
Is it easy for competitors to re-create similar / more superior solution? Is the technology developed by the company protected?
3
The technology is protected by various patents filed globally. Competitors can developed alternative formulae that can deliver a more superior performance but all these takes time and capital. It would be easier for competitors to partner with MediKane for white label solution.
Is it easy for existing customers to switch to a competitor?
2
The switching cost for customers is low. There is limited barrier to stop an existing customer to switch to a competitor product.
Is there a favorable network effect as the customer base scale?
3
As the customer base increases, the brand awareness will also increase. This will in turn increase brand equity.
Is there an element of “hook” in the solution?
3
According to some reviews online, customers can actually see tangible impact from using the NutriKane D product i.e. observed decrease in BSL.1 The tangible benefits observed will incentivise customers to come back as their BSLs will increase when they stop using the product, which may affect their health.
Does the founding team has a unique experience with the problem? Is the reward structure of the company focused on motivating outcomes?
3
Most of the leadership team has relatively significant equity stake in the company as most are paid through equity compensation. The company is now in its 10th year and the first 6 years was spent on R&D to develop clinically tested product that improve gut health. The company is now focused on commercialising the “technology”. The team should be motivated to push this through.
Does the team have deep experience in the industry / business segment?
3
Almost all members of the leadership team are seasoned professional in their respective field. Rod Lewis is a seasoned supply chain operator having worked in managing procurement and manufacturing operations in a few big corporations in the past. Dr Malcolm Ball has many years of experience in product development, creation and maintenance of IP and IP strategy in the life sciences industry. The technology behind MediKane is primarily developed by his team, initially with Gratuk Technologies, but the IPs are now transferred to MediKane.
Does the team work well together? Has the team previously worked together?
3
Key members of the leadership team has worked together for at least 5 years. They are all seasoned professionals and seems to know how to work well together to deliver outcomes.
Does the team have the ideal number of founders with varying skillsets? Does the team have a good balance of commercial and tech skillsets depending on the stage the company is at?
3
Does the team has an impressive list of advisers who are leaders in the industry?
3
There was no advisers listed in the offer document. This makes sense considering the fact that the leadership team comprised of members with at least 20 years of experience in the industry and are experts in their own field. Their network should consists of strong experts in the field too.
Does the team have prior startup experience and successful exits?
2
The team does not seem to have experience building something from scratch and exiting the business.
Does the team have a track record of getting things done?
3
Peter Thiel 7 Questions for Product Innovation
Questions
Score
Comments
Engineering: Are they creating breakthrough tech instead of incremental improvements?
2
Refer to the “Characteristics of Ideal Solution” section.
Timing: Is now the right time to start the business?
3
The “Food as a Medicine” is an emerging market, as income increase and focus on health of the general population increase. There is no best time to start the business but this is a good time to start with limited competitors in the space.
Monopoly: Are they starting with a big share of a small market?
3
People: Do they have the right team?
3
Refer to the “Characteristics of Founding Team” section.
DIstribution: Do they have a way to not just create but deliver the product?
4
The company is currently focused on establishing distribution channels for their products in ANZ, China and the US. Distributors have been appointed in ANZ and China. A country manager has also been appointed to develop a GTM strategy for the US.
The products are currently distributed across multiple distinct segments, namely: 1. Health Segment – Direct to Consumer and Distributors 2. White Label Segment 3. Industrial Segment 4. Medical Segment 5. Animal Segment
The diversified portfolio of sales channels/segments de-risk the business from any negative segment impacts, as one segment affected would leave the rest untouched. All sales channels also use products generated from the same technology and production processes.
Durability: Will their market be defensible 10 years into the future?
3
Their product formulae and technology behind it is protected by a comprehensive IP strategy globally. However, their products are currently only focused on a formulation with sugarcane as the key ingredients. Future product research could focused on other ingredients that could potentially provide similar or more superior health benefits. Hence, the potential moat lies in their first mover advantage and depends on their ability to continue to innovate and build on their current base of products.
Secret: Have they identified a unique opportunity that others don’t see?
3
This is a bet on the “Food as medicine” market. Would the products show a compelling enough value proposition to change/improve their dietary behavior?
Berkus Method
Metrics
Score
Score Description
Valuable Business Model – Base value
3
Key business resources are comprehensible and the value proposition is clear.
Available Prototype – Reducing technology risks
3
The product is launched in the market and generates first sales. Customers are interested and first traction is gained.
Abilities of Founding Team – Reducing implementation risks
3
The roles in the team are defined and clear. The CEO has previous management experience in a bigger corporate environment.
Strategic Relationships – Reducing market risks
3
The first “letter of intent” documents are signed.
Existing Customers – Reducing production risks
3
There are some regular customers. The company is regularly spending money to attract new customers and developing sales / customer acquisition fit.
What is your marketing strategy to boost sales through the direct to consumer and distributor channels? I searched through the various distributors selling Nutrikane D, and found it hard to actually find the product unless I directly search for it. It seems to be treated like a typical supplement products. Are you considering a more direct way to market to the diabetic community?
It seems Michael Goldman has been stationed in the US for 5 years now. What is the traction with regards to the expansion to the US? Is it a concern now that Michael is splitting his attention between Portum and MediKane?
It has been mentioned that a distributor has been appointed for China. What is the progress of distribution into China (potentially a huge market)? And does the current Australian political relationship with China impede the expansion into China?
Does the leadership team has any strategic plan to list the business on the ASX? Or position the business to be acquired by larger existing brands? Typically, retail investors are interested in a timeline for them to potentially exit the investments.
With a minimum subscription in this CF raise, how long would the business be able to operate (considering a relatively low cash balance at the moment) and would it be sufficient for the business to execute its growth plans? Does the business have alternative fund raising plans?
