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Summary of the Report

An Overview of the Concept

This concept is based on an Auburn University technique for creating Non-Crystalline Cellulose (NCC; patent pending) manufacture, which was created at Auburn University. NCCI is a hypothetical name for a company that a potential licensee of this science may use. This one-stop inspiration, which includes knowledge of target markets and a five-year projected cash flow, covers all aspects of a beginning company based entirely on NCC and is meant to assist potential investors in making educated judgments.

The mission of this company is to commercialize and market Non-Crystalline Cellulose (NCC) using a unique technology developed at Auburn University. Cellulose is widely acknowledged as a safe and acceptable polymer type for usage in foods and pharmaceuticals. In contrast to the present cellulosic material widely employed in the food and pharmaceutical sectors in the form of microcrystalline cellulose, Auburn University’s non-crystalline cellulose has perfect bodily residents (MCC). NCC offers a wide range of applications in specialized sectors. However, this business plan is predicated on modifying MCC, which has amassed a sizable market since the FDA accorded it a Generally Regarded as Safe (GRAS)1 status in 1971. The following are some of the reasons why NCC might successfully acquire MCC markets: (1) it employs a simple technology (patent pending), (2) it has much more water absorption capacity, and (3) it has larger dispersion potential. NCC may spread quicker in pharmaceutical applications, allowing the medicine to take action faster. NCC’s superior water absorption properties make it a superior emulsifier and fat replacer in food items. Auburn submitted a pre-petition to the FDA in March 2009, requesting a GRAS finding for NCC. In response, the FDA has asked that Auburn submit a formal GRAS petition.

Microcrystalline cellulose ($3.2 billion US market) is now employed as a fat replacer in the food industry and as an acceptable filler or excipient (non-active component) in tablets in the pharmaceutical industry.

NCCI has two alternatives for entering the market: one is to produce NCC in-house, and the other is to get NCC from a contract manufacturer. This business plan includes a financial declaration in Tables four and five, which show that the business is viable if two percent (1.2 million lbs/yr) of MCC’s market (60 million lbs/yr) is focused in the first five years at initial funding of $1 million (Table 4) or $0.6 million (Option 2), with college royalties of 5% of sales, 6% interest on borrowings, and a $6.17 outsourced price of NCC/lb (this is partly (46 percent markup). The following is a summary of the financials in Tables 4 and 5:

The current daily rate for MCC is lower than the current cost of production for NCC. The decreased price for MCC is a result of the current level of production as well as the years of value reduction since 1971 when it received a GRAS designation from the FDA. However, NCC is much superior to MCC in terms of moisture absorption, and NCC may also be superior in terms of swiftly releasing and dispersing tablets (tests underway to establish this). The most favorable market for MCC would be the high-end markets, where the features of NCC would easily outweigh any short-term value disadvantage of NCC today. The market for NCC may wish to grow exponentially, but it is no longer taken into account in the aforementioned predictions.

NCCI’s Mission/Objectives

NCCI’s mission is to: (1) license Auburn University’s invention for producing NCC to manufacture and sell commercial portions to the pharmaceutical and meals industries as a food additive and pharmaceutical excipient in the form of a replacement for fit for human consumption cellulosic substances such as MCC, which has a large market (30,000 tons/yr in the US; 50,000 lots worldwide); (2) achieve a Generally Recognized As Safe (GRAS) determination in the form of a food additive and pharmaceutical ex

Success Factors

MCC has been used as a food additive for decades and has a market of 30,000 tons in the United States. This NCC commercial business format is largely based on evidence that it might be a more effective MCC alternative with the best water retention and drug launch qualities. With GRAS accreditation, NCC may be introduced to the market as a replacement for MCC and for novel uses that are exclusive to NCC. Because NCC’s water absorption capacity is around ten times that of MCC, NCC has the potential to be more cost-competitive than MCC, which sells for $1.50 (or more) per pound depending on purity, quantity, and application. Furthermore, the application of NCC in the non-food and pharmaceutical sectors may open up new markets for NCC that are not currently served by MCC.

Key Problem to Solve and Products/Services

Key characteristics include

NCC may absorb 5 to 10 times its weight in water as compared to MCC. Furthermore, NCC is 100 times more reactive, allowing for increased enzymatic processing and polymerization. NCC would be a better emulsifier and fat replacer in weight-loss meals since it has a higher water absorption capability than MCC.

Overview of the Product Service

Pharmaceutical Industry

The NCC from Auburn University should be a better recipient than the present business-standard, MCC. NCC may also aid with the faster digestion of analgesics, antacids, and other high-dose capsules available on the market. One possible advantage is that NCC is more likely to disperse rapidly due to its non-crystalline structure, allowing the drug to take effect more quickly. NCC has a hundred times the amount of reactivity as alpha-cellulose. In the pharmaceutical industry, there is only one major manufacturer of MCC, FMC Biopolymer, which is facing antitrust issues.

Because of the modern-day weight-loss trends that are prevalent in the United States and across the globe, several food companies are attempting to offer meals with reduced fat content. They substitute fat with non-digestible cellulose-based chemicals that absorb several times their weight in water to satisfy hunger. NCC has the ability to absorb five to ten times its weight in water.

In a range of fat-mimicking products, carbohydrate-based fat replacers such as processed starches and fibers are employed. In a primitive sense, refined fibers like MCC reduce fats. Their efficiency is based on their ability to retain water and provide a pleasant tongue sensation that is similar to that of full-fat meals.

The NCC at Auburn University can hold up to ten times its own weight in water. This feature gives NCC a distinct advantage over contemporary goods with commercial names like Z-Trim, Oatrim, and NU-Trimex.

 Expertise or technology that is relevant

NCC is made from pure cotton, which is a less expensive and biodegradable raw material. NCC is made by a single-step acid hydrolysis process that may be done at room temperature and under typical atmospheric conditions (See Figure 1 below). This method has a minimal cost of strength.

Assumptions

NCC output is 300 tons per year, while semi-processed cotton input is roughly 330 tons per year.

Important Possibility

The primary chance for NCC at first is to change the mounted MCC. FMC BioPolymer is the largest manufacturer of MCC in the United States. Global annual MCC demand peaked at 50,000 tons in 2003, with a pharmaceutical demand of 30,000 tons. The pharmaceutical business in the United States consumes 18,600 tons of MCC per year, whereas the food industry consumes 13,400 tons.

Market Research

Overview of the Market

MCC (microcrystalline cellulose) and other cellulose compounds, which are comparable to NCC, are utilized in a variety of products in the food and pharmaceutical sectors. Calamine cream to fat replacers in dairy goods, fitness foods, and meats are all examples of how cellulose is employed in various sectors.

Industry of pharmaceuticals

MCC is widely employed in medications as an excipient, which is a service for active ingredients that helps the body absorb the drug. MCC has a market share of 75% of the whole pharmaceutical excipient market. Demand for MCC excipients in the United States is estimated to rise at a rate of 4.4 percent per year to $2.32 billion in 2011. With a market share of more than 70%, FMC Biopolymer is the world’s largest manufacturer of MCC.

Industry of Food and Dairy

As customers become more health-conscious, demand for fat substitutes in the dairy and meat sectors is increasing. According to the industry dossier Fat Replacers: A US Market Report, the market for all fats replacers (including non-MCC) would reach 308,110 tons/year by 2015, with a compound annual rise rate of 6.03 percent expected between 2011 and 2015.

Market You’re After

Industry of Pharmaceuticals

The current demand for MCC in pharmaceutical applications in the United States is over 18,600 tons, worth approximately $2 billion per year, and expected to rise at a rate of 4.4 percent per year. In Table 1, some of MCC’s current and future clients are mentioned. Table 1: Pharmaceutical Industry Target Companies

Fat-replacers made from fiber

Today, food processing businesses use fat substitutes that have no effect on the mouthfeel, texture, or water retention of the product. Each year, around 13,400 lots of MCC are utilized for this purpose. According to industry projections, the market for fat replacers is expected to grow at a 6.03 percent annual rate. NCC’s potential consumers are noted in Table 2 below.

Fat-replacers Market Target Companies

Competitive Advantages and Competition

FMC Biopolimer, a major manufacturer of Pharmaceutical MCC, is negotiating anti-trust pricing with the US government, giving NCCI additional market opportunities. NCCI’s entry into the market is made simpler and more timely by FMC biopolymer’s antitrust issues.

In the fats replacer market, NCC has a competitive advantage. It is critical for a fat-replacer to be effective at water retention; Auburn University’s NCC has a demonstrable edge over the leading market leaders in this area (see Table 3). Table three provides facts to demonstrate why entering the fat-replacer business is a good idea. Water retention is an important feature of fat-replacer in food items since it encourages customers to feel more satisfied. California Natural Products, Grain Processing Corp., and Z-Trim are some of the current rivals in the fats replacement market. Because the water retention charge in NCC is higher, the total amount of NCC needed will be lower when compared to Avicel and other goods; this is a supply cost-benefit for NCC.

NCC may want to try something new in terms of leisure. If NCC becomes popular, existing companies should produce a product that is as good as (or better than) NCC, a more cost-effective and higher-performing version of MCC, or a completely new cellulosic material. If that fails, they may want to get the rights to manufacture NCC under license from NCCI, which would buy the rights from Auburn University under this business model.

Distribution Methodology

This isn’t a retail item; it’s more suited to mass promotion and marketing as a commodity. One MCC manufacturer offers them 50-pound and 100-pound baggage. Long-term supply contracts with pharmaceutical firms like Pfizer and Bayer, as well as food processors like Kraft Foods, Inc., Advanced Food Systems, and others, are the preferred distribution method. Furthermore, wholesalers with a distribution network that spans North America, such as Chicago Sweeteners, will be the distributors of choice. Because the employer’s production is only 1% of the current market in the first two years, it may desire to engage in direct agreements with specialty food and medication makers, avoiding the use of wholesalers.

Entry into the market

This business model has adopted a highly cautious, fail-safe approach by focusing on just 2% of the market in the first five years, while being very profitable (see Table 4). NCCI may get NCC from contract chemical manufacturers while concentrating on establishing NCC usage in the food/drug business, which is its strong suit. Outsourcing is a low-risk technique since the provider and NCCI share the risk.

Strategy for Pricing

Table 4 shows the financial announcement for a 46 percent markup (selling fee $9/lb) above the price of outsourced NCC (Tables 4). The obtained value is $6.17 in the table.

Scalability/Analysis/Analysis/Analysis/A

According to the financials table, NCCI’s current anticipated plan aims for an output/sale of 300,000 pounds in the second year, with sales increasing by 300,000 pounds each year until the plan’s fifth year. The provider may also invest in tools that can handle 600,000 pounds every shift per year. The supplier’s operation is projected to produce 1,200,000 pounds in two shifts after five years. At the conclusion of five years, if the facility is scaled at 600,000 lbs/shift/year, there will be an extra 600,000 lbs/yr accessible besides growth and without delivering capital expenditure.

Summary of Management

The recommended administration for the licensee is to form an Alabama Corporation with a CEO, a marketing manager, an engineering manager, an office staff, three production workers, and the inventor as a paid consultant per university rules, based at Auburn University (for easier access to the inventor and his labs at Auburn). The institution does have regulations that allow organizations to purchase a block of time during the academic day for consulting reasons.

Team leader and Professor, Director of the Thomas Walter Center for Technology Management are three members of the commercialization team for this technology. The creator, a Professor of Chemical Engineering at this institution, is also a member of the team. He is a recognized expert in biochemical engineering and enzyme/fermentation processes across the world. In this field of study, he has a slew of pending patents. The team’s third member is the university’s Associate Director of Technology Transfer.

Trade Secrets and Intellectual Property

Patents

Auburn University (inventors: Dr. Yoon Y. Lee and Hatem M. Harraz) has filed a patent software titled Non-Crystalline Cellulose and Production Thereof with a USPTO utility number of 2005/0272926 A1 (date of software June 2, 2005; status—Patent Pending; CIP utility filed involving pharmaceutical applications). The patent is unique since the innovation has the potential to disrupt several sectors.

The Joint FAO/WHO Expert Committee on Food Additives designated MCC as Generally Regarded As Safe (GRAS) in 1971. MCC and NCC are both cellulose-based compounds. In March 2009, a pre-petition to FDA was filed based on MCC’s common usage to seek GRAS willpower for NCC. The FDA has urged Auburn University to submit a formal GRAS petition. The FDA’s authority extends to both medicinal and food additive use of NCC.

Expertise/Secrets of the Trade

The patent program does not reveal all of the invention’s trade secrets. Through the inventor, the licensee and NCCI (if formed) shall have access to all necessary documents. As the method is adopted for commercial usage, new trade secrets and methods are certain to develop inside NCCI.

Advantage and Defensibility in the Market

Through NCCI, science may be fully licensed. The patent will be protected to the full extent of the law by both Auburn University and NCCI. As previously stated, there are currently no separate patents or patent functions on USPTO records for NCC production.

Financial Data and Achievable Goals

History of funding

With the help of Dr. Y.Y. Lee and his graduate students, Auburn College created this substance in its laboratories over a period of time. It’s predicted that his work with graduate college students will cost about $50,000. Furthermore, under the supervision of its director, a group of graduate college students at the Thomas Walter Center for Technology Management spent approximately 450 hours collecting, processing, and presenting relevant data, as well as preparing this business format and a pre-petition to FDA seeking GRAS repute for NCC.

Financial Requirements

The licensee’s finance requirements are addressed in this section. While NCCI may become a manufacturer, the company’s preferred alternative is to buy NCC from a contract producer in Georgia, roughly 100 miles from Auburn, for $6.17 per pound. The corporation discovered the method and informed Auburn University about it. Although money drift analysis uses a constant cost, this price per pound of NCC should decrease with time. For finance requirements, there are two options:

  1. Option 1 (Table 4): $1 million investment over two years, with revenues beginning in Year 3. A cautious strategy with an NPV of $2.62 million over 5 years.
  1. Option 1 (Table 5): spend $0.6 million over two years, with revenues beginning in the second year. A more optimistic strategy with an NPV of $3.62 million. NCC’s supplier is expected to be a well-established chemical company in Georgia that is capable of investing in equipment but does not require a marketing and sales unit because the supplier is expected to enter into a long-term supply contract with NCCI for mutual benefit—the long-term contract allows the supplier to invest in equipment, while the contract allows NCCI to incur marketing and sales expenses to push NCC into the market. The supplier is expected to invest in the process as part of a long-term contract.

NCCI should initially invest $50K to $100K to cover the costs of obtaining a GRAS determination from FDA (including the cost of assessments wished to provide to FDA), as well as enter into an agreement with a future NCC provider to develop a small-scale pilot plant to test the method for commercial-scale production.

Milestones Proposed

The licensee will reach the following milestones.

  1. Negotiate and get a license from AU for the technology;
  2. For NCC, get a GRAS determination from the FDA (3 months);
  3. Make a six-month arrangement with a contract manufacturer to obtain NCC; and
  4. Allow 12 months for delivery from the contract manufacturer.

Financial assumptions for NCCI

The NCC supplied cost was $6.17/lb; the marketing rate was $9, and royalties to Auburn University were 5% of sales. With larger production numbers, low-cost alternatives for raw materials, learning over time, and so on, the procurement cost per pound of NCC should be substantially lower.

Investors’ Exit Strategy

NCCI traders may be looking for a booming strategy if NCC breaks into MCC’s market in a big manner, or if NCC discovers new and cash-rich uses. If NCCI succeeds in indenting the MCC market, MCC manufacturers would be interested in buying it out.

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