GlucoVision Business Plan

2009

Business Plan GlucoVision

[GLUCOVISION] Looking to the Future: Automated Glucose Testing

Jefferson Lin - CEO Victor Chiang - CRO/COO

Sean Cleary - CTO Shun Yu - CMO

Zhen Yu (Andy) Zheng - CFO

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EXECUTIVE SUMMARY In the United States alone, over 23.6 million people have diabetes. Roughly 50% of

these individuals are elderly patients 60 years or older. Amongst the population of elderly diabetic patients, approximately 45% also suffer from diabetic retinopathy, leading to severe eye complications. A significant 50% of elderly diabetic patients also have arthritis, leading to dexterity impairment. For diabetic individuals, using glucose meters to test their daily blood sugar levels is essential for maintaining their well-being. Unfortunately, usage of existing glucose meters is always a multi-step procedure that requires elderly patients to work with a lot of small removable parts. This is intimidating for elderly patients and lowers compliance, as testing then requires a significant amount of dexterity and visual acuteness which they lack, and becomes quite time-consuming considering that many test themselves on a daily basis.

We propose an add-on that will complement existing glucose monitors by automating the procedure necessary to perform blood glucose measurements. The glucose meter market is a 154 billion dollar industry that will be ever expanding, considering that one in three children born in 2000 will likely develop diabetes during their lifetime. Currently marketed devices, however, do not accommodate the needs of the visually and dexterity impaired elderly patients. Our add-on will assist all patients regardless of how frequently they test their blood sugar level and will appeal to all age groups. With its stationary support and all-in-one automated system we hope to increase patient compliance and reduce the time it takes to perform a measurement.

Entry into the glucose meter market is challenging since most devices are built with patented technology. Therefore, our company will partner with an existing company and design our add-on to only work with their meter. Partnering with a major brand name company will also give us the benefit of a larger initial customer base. The major drawback to partnering with an existing company is the loss of the majority of the profits derived from the sale of disposables, to be kept by the partner company, since our add-on would otherwise lower the profits of our partner. By keeping all of the profits from the initial sale of our add-on and 10% of those from the sale of disposables we can retain a very lucrative source of revenue. We plan to combine targeted delivery of our device to endocrinologists who treat elderly diabetics with an aggressive advertisement campaign to increase awareness of our device. Early clinical trials will provide us with the feedback necessary to ensure our product addresses the needs of elderly users.

In our short term development plan, we are looking to first, finalize our design and order the necessary parts for first prototype development next spring. Due to a generous contribution on behalf of the Naomi Berrie Diabetes Center, we have a variety of meters, test strips, and lances to work with. In the first few months of 2009, we will begin the initial phases of prototype development which involves engineering the mechanics behind our blood extraction mechanism, the interchanging of test strips and lances, as well as sterilization issues. During this process we will continually perform testing and optimization of our working prototype. In our long term plans, we wish to begin clinical testing offered by the Naomi Berrie Diabetes Center up at Columbia University Medical Center by May of 2009. We will then seek 510(k) pre-market notification for market entry by 2011. Once we penetrate the market, we will continually obtain customer feedback, quality surveys and proceed with the development of the second iteration of our device. By 2013, we will presumably release the second updated version of our add-on.

We plan to price our add-on device at $60, which we believe is a reasonable price for diabetes patients who want the added convenience of our product. We expect the profit margin on the add-on to be large since the device, with its lack of expensive parts, will be inexpensive to manufacture. Most of the revenue will still be coming from the large profit margin of disposable sales, each of which is priced at the market rate. Even though we will not receive 90% of this revenue, assuming sales of around 64,000 devices by the end 4 years, we project to make a cumulative $5.6 million in four years. The 64,000 devices sold accounts for less than one percent of the elderly diabetic patient population (11.8 million).

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COMPANY OVERVIEW The Existing Market

The market for glucose meters and their disposable components is a multi-billion dollar industry that is ever expanding. Not surprisingly, with a consumer base of roughly 23.6 million diabetic patients in the United States alone on top of millions of patients yet to be diagnosed, competition is fierce amongst companies to produce the next big breakthrough in blood glucose testing that will turn the tables in their favor. While some companies are investing into non-invasive testing, others are allocating their resources into alternate site testing. To date, however, none has successfully manufactured a device capable of replacing the essential measurements provided by existing devices via fingertip punctures. Despite new areas of research being explored, it is difficult to say with confidence that successful advancements in technology involving blood sugar testing will be made within the immediate future.

Instead of seeking a breakthrough in the industry via new technology, we aim to augment existing meters by designing complements that will aid the devices to better serve the needs of elderly diabetic patients. The manufacturer who decides to enter a partnership with our company will gain an advantageous edge over other producers, being able to provide tailored conveniences to greater than 50% of the total patient base. Our Company

GlucoVision was founded in the Fall of 2008 by a group of young biomedical engineers, who shared the common vision of automating glucose testing as to provide the utmost convenience to elderly diabetic patients suffering from visual and dexterity impairment. Joining together a team of researchers, engineers, and professionals specializing in diabetic care, the founders wish to streamline blood sugar testing and to bring about a new wave of change that will revolutionize a previously grandfathered-in industry. Our Objectives

Amongst the 23.6 million diabetic Americans, approximately 50 percent of them are individuals 60 years or older. In additional to diabetes, up to 45% of these individuals also suffer from diabetic retinopathy, and about 52% suffer from arthritis. While the existing meters provide the essential readouts that allow patients to monitor their daily blood sugar levels, the small removable parts of the test meter kits and the meticulous steps involved in the testing procedure do very little to help with the visually and dexterously impaired elderly patients. Our goal is therefore to minimize maintenance, and to automate the testing procedure as much as possible as to better suit the needs of the elderly. In the long term, we hope our design will be made readily available locally and can be purchased by all users. Our Product

Our product will provide several main features in order to assist with the visually and dexterously impaired elderly diabetic patient: $ Capability to pre-load a single disk/roll that contains multiple test strips and lances, as to

eliminate individual handling of test strips and lances during each test. $ Mechanism to provide stationary support throughout the entirety of the automated testing

procedure, as to alleviate the burden suffered by arthritic patients. $ Sterilization of both the lances as well as the patients fingertips. $ The means to store information acquired through previous tests, as to make accessible,

vital data for both the patient as well as the professionals providing care.

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MARKET

In 2000, nearly one in three children born will develop diabetes in their lifetime. With this diagnosis brings an increased risk of heart disease, nerve damage, blindness, amputations, and death. Nearly 24 million have diabetes and an additional 57 million have pre-diabetes. This growing population costs the nation over $174 billion dollars in medical fees. Individuals diagnosed with diabetes and others with conditions warranting blood glucose measurement use blood glucose meters on a daily basis, some testing upwards of 20 times a day. With such frequent testing to be maintained throughout their lives, their blood glucose meter regimen is an important part of their routine. Typical testing is a lengthy procedure with portions requiring high dexterity and visual acuity. Currently, a user-friendly device has not yet been developed that provides a rigid, automated testing base that aids with the dexterity and visual impaired while also appealing to the younger population with diabetes. The process of glucose testing could be changed dramatically with our automated, centralized testing device. The cost-effective solution and unique combination of portability and usability will separate our product from existing devices on the market. Customers

Ultimately, patients with diabetes will be our end users, but education of our device and its overall usability is necessary to delve into the market. Customers will include physicians, health educators, existing testing companies, healthcare products wholesalers, pharmacies. A sales force will be necessary to reach customers through healthcare conventions, television, newspaper, and radio advertisements, physician and patient education, and word-of-mouth. We intend to have multistage development trials through leading diabetes centers to improve and update our device in accordance with patient concerns and trends. Eventually a possible partnership with an existing manufacturer will allow us access to their market share and further distribute across different audiences. Competition

Existing devices such as the AccuChek Compact Plus and AccuChek Multiclix are our immediate competition. These devices integrate an automated test strip delivery system that

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reduces the need to replace strips and ease user convenience. The Multiclix incorporates a set of lancets in a separate device to eliminate the need to see or touch lancets. AccuChek manages to reduce user involvement with test strips and needles, but still requires some dexterity in the loading and unloading portion of their device after and before use. Our device will integrate both these drums of strips and lancets in a single device instead of two separate devices. Our device will also relay the information to an existing meter as an add-on. We aim to reduce user requirements to the point where insertion of their finger is all that is necessary for testing. We plan to also make it appealing to the younger generation of patients with diabetes and as a general convenience for all patients involved in testing their blood glucose levels.

Other sources of competition are the various alternative site testing and customized contour devices. The Freestyle Flash and AccuChek Advantage are devices which aim to test with the minimal amount of blood or designed to test with the contour of ones finger. We propose our device to have similar low blood volume requirements for testing and also contoured to test a users finger at different sites for a variety of fingers. Each device would be able to accommodate a variety of fingers and would position itself to test different sites on the same finger to ensure proper testing and finger preservation. Hurdles to Overcome

One of the obstacles is convincing users that our current device is more convenient than existing meters. Ways to combat this issue would be to hold demonstrations at healthcare conventions demonstrating the product to physicians and other company representatives. These ease of use demonstrations would be a source of firsthand experience for users to understand exactly how convenient our device is. Another way is to use television, paper, and radio advertising to educate users, physicians, and healthcare professionals about the relative ease of our device and bring them to trust our product. Also, by distributing demo products through clinical trials at diabetes centers, we can spread by word of mouth and hone our brand name as a brand of reliability and user friendliness. Another hurdle would be to convince younger patients with diabetes to view this device as a user friendly, fun testing system. We plan to make it visually appealing to the user while conveying the simplicity of the testing process. BUSINESS MODEL

Our first goal is to design a prototype capable of providing us with feedback on the accuracy and reliability of our product. This early solution of our problem will be used to ascertain functionality and to demonstrate proof of principle to clinicians and patients interested in our device. By doing this we hope to start making relevant health care professionals aware of, and anticipating, our eventual commercial product. While this version will not be distributed and mass produced, it will allow us to optimize our device through qualitative feedback about ease of use and quantitative feedback detailing how well our device addresses the proposed problem. The most important feature of our device is improving user compliance by making it a more automated and hassle-free experience, so this initial customer feedback will be central to changing our design plans.

Since the biggest obstacle we face is the current saturated state of the diabetes blood glucose level measuring device market, we hope to take advantage of a partnership with an existing company to expand our market and provide a trustable brand name label. Without a partner entry to the glucose device market would require too much time and money with a high chance of failure. We hope to further enhance early awareness of our product by distributing a version of our final device for free to numerous endocrinologists who care for elderly patients with diabetes. Through an aggressive advertisement campaign funded and ran by our partner,

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we hope to persuade users that our product is both reliable and innovative. We hope that the endocrinologists we provide with free devices and sample strip/lance packs will spread information about our product by word of mouth. We plan to give information sessions about both our product and the needs our product fits in the diabetes market to endocrinologists and patients suffering from diabetes. Through both our own company website, and by targeting websites which review diabetes glucose monitors and/or detail issues faced by elderly diabetic patients, we hope to reach a large number of patients.

There are of course drawbacks brought on by choosing to partner with an existing glucose company. In order for the partnership to occur we will likely have to forego the majority of the profits derived from disposable sales, of which we plan to keep only 10%, since a current glucose company would not enter a partnership that would lower their profits. These disposables will only work with our add-on and will be necessary for usage. The profits from the sale of our add-on combined with the percentage derived from disposables will still be more than sufficient to fund future product development and maintain a profitable company.

We must develop a device capable of being mass-produced relatively early in our companys life to acquire a stake in the diabetes blood glucose level measuring device market. We hope to begin generating revenue immediately through the sale of disposable strips and lances attached to our add-on. This revenue will be used for product development/testing and to provide even more clinicians with sample devices. Users and clinicians who participate in our trials will be targeted with future information brochures about our device and the need for it.

We also hope to market computer software and other add-ons that will make our device address even more shortcomings of current monitors. Through the sale of massive amounts of products and service contracts as well as an established customer base we will offset our initial losses from giving away our device free in initial trials.

We will continuously modify our device to adapt to changes in the market and movement towards our niche by competing companies. We hope that by being the first to innovatively target the elderly diabetic population we can establish brand loyalty with our company. We will also make transitioning from older versions of our device to newer models as easy and painless as possible, so users have more incentive to remain with our company. We recognize that the elderly population is both growing and changing in technical knowledge and capability, and will adapt to changes in our market. DESIGN AND DEVELOPMENT PLAN Short Term Goals

GlucoVision is currently in the research and design modeling phase of product development. Our design requires further elaboration upon the mechanisms surrounding the automation of three processes: blood extraction, interchanging test strips/lances, and sterilization. To optimize how our device will draw blood from the users finger prior to testing, several techniques are under consideration. These include massaging, milking for blood after puncture, and milking prior to puncture. Depending upon the efficacy of each technique, our design will incorporate the most reliable method of blood extraction. Automating the replacement of individual test strips and lances will rely on a user-replaceable rotating drum to be housed within the device. Since we plan to incorporate an existing blood glucose monitor to be used with our device, a partnership will be made with a current manufacturer. As such, the mechanics behind how our device will interchange test strips/lances will closely depend upon the blood glucose monitor we choose to work with. Finally, sterilization of the device will be addressed via an automatic spray, dispensing sanitizing solution onto the components that come into direct contact with the user. Also, we plan to leave some responsibility with the user to wash their hands prior to use and for device upkeep.

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Due to a generous contribution on behalf of the Naomi Berrie Diabetes Center, we will reverse engineer a variety of existing blood glucose monitors to identify all necessary components to optimize our add-on design components. The monitors include: ACCU-CHEK Compact Plus, ACCU-CHEK Advantage, FreeStyle Flash, and MediSense Precision XtraTM. Various forms of test strips and lances have also been donated towards product development.

By December 2008, GlucoVision Technologies will identify all optimal components for prototype production of our automated blood glucose testing device. A detailed list of commercially available components will be available for initial phases of product prototyping. By March 2009, the phase one prototype will be complete, and testing will begin. Final prototype development by April 2009 will take into account the results of testing with the phase one prototype. Long Term Goals

After finalizing our design and prototype construction, testing and optimization of the device will come into play. Our first priority is to improve reliability and ease of use. Also, since we want our device to be portable for day to day usage, the size and weight of our components will be optimally apportioned. Laboratory testing for consistency and accuracy will continue to be done in parallel.

With possible collaboration with the Naomi Berrie Diabetes Center of Columbia University Medical Center, clinical trials can be conducted to test the efficacy and functionality of our product. Safety, user comfort, and satisfaction will also be assessed during the trials. Once clinical trials have completed and our device has been assessed and cleared of FDA regulations, our automated blood glucose testing system will be released onto the market. Concurrently, GlucoVision will expand and outsource large-scale manufacturing and advertising to available firms. The disposable/user-replaceable components of our device will continue to be made during the life of the product. Research and development will continue during market penetration. Based upon customer reviews and feedback, an updated model of our automated blood glucose testing device will be in development and scheduled for release one year after initial entry into the market. GlucoVision will be concentrated in the research and development and customer service sectors. FDA Approval

Our product is classified by the United States Food and Drug Administration (FDA) as a Class II physical medicine diagnostic device. Therefore, FDA regulations require 510(k) pre-market notification 90 days prior to market entry, demonstrating that our product is safe and effective as another legally marketed device on the market (predicate device). Also, 510(k) notification is required if there is a change or modification of a legally marketed device and that change could significantly affect its safety or effectiveness. The burden is on the 510(k) holder to decide whether or not a modification could significantly affect safety or effectiveness of the device. Any modifications must be made in accordance with the Quality System regulation, 21 CFR 820, and recorded in the device master record and change control records. FINANCIAL PROJECTIONS

Company startup costs are projected to cost around $200,000 for basic office equipment, legal fees (copyright), administrative fees (registration, patenting, tax payments, FDA approval), and renovation expenses. We expect to invest $50,000 in additional research and development in order to refine our prototype further before clinical trials. Clinical trials and early distribution of our device to endocrinologists to address safety concerns and obtain user feedback are expected to cost another $150,000 on account of administrative and staff

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expenses. We will seek a SBIR grant to cover the initial expenses. We do not expect to go public due to administrative hurdles and costs (ex. Need for transparency and NYSE regulation).

After the product is ready, recurring expenses include general administrative costs (overhead), wage and salary expense, inventory expense (cost of storage), equipment depreciation, marketing expenses (none due to partnership), and interest payment on loans and bonds (none due to acquiring SBIR grant). Cost of manufacturing is $30/unit due to lack of expensive electronic parts in the appliance. We expect to sell the product for $60/unit to the retailer. $60 is still a competitive price considering competing products are priced within that range of $30-$80. Even though our device is an add-on that requires an existing monitor be purchased too, the additional services provided by our product should justify the price to consumers, considering general demand inelasticity within that population. The product will not have a warranty obligation. Disposable lance sets are sold to retailers for $20/unit while its manufacturing costs are $5/unit. Test strip sets are sold to retailers for $15/unit while its manufacturing costs are $5/unit. Both lances and test strips need to be repurchased on a regular basis. However, the partnership company will take 90% of our revenue from disposable sales. We will get 100% of add-on sales. Thirty-two disposables of each type are assumed to be purchased per device. Each device is assumed to have a two year lifespan.

Variable costs are calculated to be $46/unit while total revenues are $116/unit. Fixed costs are calculated to be $258,000 per year, making the breakeven point 3686 units.

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Cash Flow Statement Year 2009 2010 2011 2012 2013 Monitors Sold (units) 0 1000 4000 16000 64000 Disposables Sold (units) 0 16000 80000 320000 1280000 Cash Flow from Operating Activities Revenues Monitor Sales ($60/unit) 0 60,000 240,000 960,000 3,840,000 Lance Sales ($20/unit) 0 320,000 1,600,000 6,400,000 25,600,000 Test Strip Sales ($15/unit) 0 240,000 1,200,000 4,800,000 19,200,000

Costs Monitor Expense ($30/unit) 0 (30,000) (120,000) (480,000) (1,920,000) Lance Expense ($5/unit) 0 (80,000) (400,000) (1,600,000) (6,400,000) Test Strip Expense ($5/unit) 0 (80,000) (400,000) (1,600,000) (6,400,000)

Net Sales Revenue (After Company Cut - 90% of Disposable Sales) 0 70,000 320,000 1,280,000 5,120,000 Administrative Expense 0 (5,000) (500) (500) (500) Wage and Salary Expense

($50,000/employee) 0 (250,000) (250,000) (250,000) (250,000) Equipment Expense (100,000) 0 0 0 0 Depreciation Expense (2% Equipment) 0 (2,000) (2,000) (2,000) (2,000) Inventory Expense 0 (1,000) (1,000) (1,000) (1,000) Start-up Costs (Excluding Equipment,

Including R&D and Clinical Trials) (300,000) 0 0 0 0 Cash Flow from Investing Activities No shareholder Equity

Cash Flow from Financing Activities SBIR grant 300,000 0 0 0 0 Net increase in cash (100,000) (188,000) 66,500 1,026,500 4,866,500 Cash, Beginning of Year 0 (100,000) (288,000) (221,500) 805,000 Cash, End of Year (100,000) (288,000) (221,500) 805,000 5,671,500