1Mby1M Incubation Radar 2010: Norton Scientific

By guest author Bhuvnesh Bhambhani

Norton Scientific Inc. (NSI) has developed a protein aggregation monitor (PAM) which is used in drug discovery research by crystallographers to learn more about proteins and how they crystallize and interact with other proteins or inhibitors. The monitor, called the NS4910, measures the efficiency of therapies targeted at treating a variety of common degenerative diseases such as Alzheimer’s and screens samples prior to expensive structural analysis techniques such as X-ray crystallography and NMR spectroscopy. NSI’s aim is to make a product that cuts operating costs, speeds up analysis time, and is easy for researchers and lab technicians to use.

NSI is headquartered in Thorold, Ontario, and is headed by president and founder Bryan C. Webb. Webb earned a degree in electrical engineering from the University of Waterloo and has more than thirty years of experience in global instrumentation sales and marketing. He is also the chair of the Niagara Industrial Association. Dr. Roger White, the company’s chief technology officer, has many years of experience in this particular market from both the user’s perspective and a development perspective. Webb’s and White’s passion and experience in the domain motivated them to redesign the existing products in the market to make them smaller, easier to operate, less expensive, and more functional.

Work on protein aggregation is concentrated on two major areas: crystallography, which is study of protein structures; and growth rates or kinetics, which is focused on degenerative diseases such as Alzheimer’s. Drug discovery is very expensive; companies can spend up to $1 million a day on such research. Labs must test protein samples frequently for protein structure and protein–protein interactions. Sending the samples to other, more sophisticated labs with high-end machines means a lot of research time is spent waiting for results to come back.

PAM cuts out this waiting stage by being a low-cost, small-sized instrument that smaller labs can purchase out of their operating budgets rather than capex and whose three basic analysis modes can be operated by a lab technician. Labs can test more of their own routine samples and save money by sending fewer samples to another lab. Waiting time for results is cut from days to minutes. At $8,000 (FOB Canada) NSI’s PAM also costs less than many existing products, such as those by Wyatt Technologies, which can range anywhere from $35,000 to $100,000 and are often complex to operate and difficult to understand. The USB plug-and-play feature makes the NS4910 easy to install and allows it to work on all popular operating systems, such as Windows, Mac, and Linux. NSI also aims to make research more efficient: the NS4910’s light scattering technology measures protein size directly without the need for fluorescent tags, which require extensive sample preparation.

There are currently more than 3,500 labs worldwide that work in the field of protein aggregation. NSI aims to sell multiple units, that is, ten or more, to each lab for a total addressable market of of $280 million. This market size is without considering replacements or any market growth. NSI’s strategy is to mass market the product to these labs. Many PAM manufacturers hand-build the expensive and complex devices for protein aggregation, but they are not likely to compete directly with NSI. Entering the lower-cost market would mean a change of strategy for these companies and cannibalization of their current offerings. A competitor in the lower-cost PAM space is Pro2Kem’s AggreKem; its aggregator is about $16,000.

After reviewing the response from customers, NSI decided to pursue a global sales strategy based on a master distribution network. The market is segmented into three major geographic areas: Europe, the United States, and Asia. NSI has already identified distributors in Europe and is in talks with distributors in the other two regions. For the domestic Canadian market, NSI will handle distribution itself and will intensively seek feedback from this market. The University of Abertay in Dundee, Scotland, and McMaster University in Ontario are two early customers.

To date, investment into the initial product has come from the founders and some angel investors. The early development was done under a different company and has $150,000 in sunk costs. The company has an initial $50,000 investor but is looking for an additional $200,000 in seed funding. The ideal investors know the ins and outs of the instrument market and will appreciate the technology convergence and benefits to the end user. NSI is in the process of trying to get government funding for its projects.

The company hopes to turn cash flow positive by the end of its first year. By the end of second year, the founders hope it will be self-funded. Further out, they see scope in microfluidic and analytical software intellectual property, which will further enhance the capabilities of their product and allow them to create OEM partnerships with major instrumentation companies. The founders also have a few other ideas for products in the instrumentation business. The exit strategy for NSIT is acquisition by a larger instrument maker that wants to diversify its portfolio using NSI’s products and technologies.

Norton Scientific presented at Sramana’s 1M/1M roundtable on June 24, 2010. The recording of the session is here [09:00–29:00]. Sramana advised Webb to try to sell a few units which would significantly increase his financing prospects. Doing so would also allow the firm to break even in five to six months instead of an entire year and thereby increase the company’s prospects. The company lacks financial savvy and could use some mentorship on that front. But the product seems interesting, and is a nice niche opportunity to build a good small business.

Recommended Readings
Accelerating Early Stage Drug Discovery with PAM (by Bryan Webb on PharmaIQ)
Deal Radar 2010: OmniGuide

This segment is a part in the series : 1Mby1M Incubation Radar 2010