Deal Memo – MediKane (July 2021)

NameMediKane
AboutFood as a medicine company developing clinically proven plant-based health products
HeadquarterSydney, Australia
Raise DescriptionSeries A
Security TypeFully paid ordinary shares
Current Round Size$850,000
Pre-Money Valuation $20,004,962
Current Price per Share$0.57
Previous Raise DateNA
Previous Raise ValuationNA
Crowdfund PlatformBirchal
Existing InvestorsFounders’ capital
Equity Crowdfunding
Key Competitors
Related WebinarsWebinar with Rod Lewis Hosted by Birchal

The Startup Investigator Scorecard

Characteristics of Good Problems:17/ 3056.7%
Characteristics of Ideal Solution:17/ 3056.7%
Traction to Date:12/ 2060.0%
Business Model Defensibility:11/ 2055.0%
Chracteristics of Founding Team:20/ 3557.1%
Total Overall Score:77/ 13557.0%
Overall Scorecard*
Peter Thiel 7 Questions (Product):21/ 3560.0%
Berkus Method (Risk):15/ 2560.0%
Supplementary Scorecard*

* See below for further details of evaluation

TL;DR

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:

  1. Build on sales of NutriKane D in Australia and increase share of voice
  2. Build market share of NutriKane D in the US
  3. 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.

1 https://www.idf.org/aboutdiabetes/what-is-diabetes/facts-figures.html
2 https://www.amazon.com.au/NutriKane-DTM-Prebiotic-Glycaemic-Microbiome/dp/B081VH6FSB#customerReviews
3 The calculation is based on expected revenue of $500k in FY21, $1m in FY22, $2M in FY23 and $4m in FY24.

Thanks for reading. Feel free to let us know what you think about the company and crowdfunding campaign in the comment box below! 🙂

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The Startup Investigator

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