Below is an exclusive interview for s Spinoff.com with our Managing Director David Orren about Alcarelle's alternative synthetic alcohol - the technology, the market potential, and the investment opportunities...
Over the last 20 years, there have been great advances in research in the area of brain science. This progress has paved the way for exciting new ventures into alternative adult beverages. Alcarelle believes that tapping into this and future research has the potential to dramatically improve our lives and overall health. Alcarelle is engaged in research and development of safer and healthier alternatives to alcohol which preserve the pleasurable aspects of alcohol while avoiding many of the negative side effects.
Alcohol can cause addiction, aggression, and damage to health in a number of ways, which Alcarelle is determined to avoid. The development work is not finished and much testing is still to be one. But the Alcarelle team believes the end result is worth the investment in time, effort and money that this project requires. The long-term benefits to people and society will be enormous. There is obviously great potential for Alcarelle to become a successful business. Alcarelle recognises the need to influence social policy on the availability of choice for those who prefer to drink a safer and more responsible alternative to alcohol. The team intends to build a viable long-term business that can enable drinks companies to bring to market a range of related products - now in the pipeline - including ones that Alcarelle believes can help wean some people away from abuse of alcohol.
SOC: Dear Mr. Orren, thank you for being available to spend time with us and sharing your insights about this exciting technology. Our investors would like to know more about how you came into this business, your interests, and your professional/scientific background.
Mr. Orren: Our work is based on extensive research and investigation by scientists, including Professor Nutt and an extended team, into how substances, and specifically alcohol, affect the brain. In more recent years the work has progressed into investigating how alternative compounds can achieve the positive effects, without the negative effects.
SOC: Given the breadth of the team’s experience, can you tell us about other projects that came before?
Mr. Orren: Professor David Nutt, Chief Scientific Officer, is well-known as a thought leader in British neuropsychopharmacology, specialising in the research of drugs that affect the brain, and conditions such as addiction, anxiety, and sleep. He is currently the Edmond J Safra chair in Neuropsychopharmacology at Imperial College, London and his book Drugs Without the Hot Air (UIT press) won the Transmission Prize for Communicating Science in 2014. He has collaborated with and spoken widely in support of a wide range of initiatives including on the effects of psychedelics on cerebral blood flow, on research into the effects on creativity of LSD on the brain. Nutt and colleagues have carried out brain imaging studies of people who have taken psilocybin, showing that the chemical plays a role in the default mode network, an area of the brain implicated in depression, OCD, and Alzheimer's.
SOC: Would you say something about how you approach your research work? Currently, at what stage is your research, and how far away are you from commercialization? Was your project funded by public money, government funding, etc?
Mr. Orren: Alcarelle is funded by the team. The work has come together over a number of years through an investigation into the compounds that are known to act in positive ways on the brain, but which had been abandoned for reasons that would make them ideal for an alcohol replacement. For example, a compound that has a very short half-life might not be very useful as a therapeutic product, but that same characteristic might be very attractive for the purposes of a short-acting drink. More recently we have taken much of that learning, expanded the team, and are now working with our own range of compounds.
SOC: For every successful scientific spinoff, one of the most important keys to success is having the right team. For many investors, the management team can be the key criteria for deciding whether to invest or not. Would you please tell us a little about the team which has supported this project so far? How are you looking to expand the team in the short term?
Mr. Orren: David Nutt and I work very closely together. David Nutt leads the scientific team which includes independent scientists as well as professors, researchers and PhDs at a number of universities, mostly in the UK, but some overseas. Our scientific and research grounding and knowledge base spans NeuroScienceience, Pharmacology, Chemistry, Biochemistry, Medicinal Chemistry, CNS & Physiology, and more recently Food Science and Food Engineering. David Nutt is currently the Edmond J Safra Professor of Neuropsychopharmacology and Director of the Neuropsychopharmacology Unit in the Division of Brain Sciences at Imperial College. I am responsible for the business side of Alcarelle. This includes funding and navigating a pathway that allows us to build alliances with key people, and to make the best use of limited resources along the way. My background is in helping leaders and businesses to commercialise innovation and new technology.
Professor David Nutt of Imperial College London. Source: imperial.ac.uk
SOC: What problem did you intend to solve by creating your technology? What results did you plan to achieve?
Mr. Orren: Professor Nutt is the visionary and I was initially quite sceptical of the need for Alcarelle. But even a small amount of research into the impact of alcohol, the cost to people and society, and the clear availability of pleasant and sensible alternatives, led me to feel quite strongly that consumers deserve the right to choose. What has become very clear and quite exciting over the last couple of years is that many young people feel the same way and they are actively searching for an alternative to the traditional ethanol-based drink when out socialising with their friends. Our goal is to develop a non-ethanol adult drink that mimics the good aspects of alcohol but does not cause hangover, or liver cirrhosis.
SOC: What are the USPs of your technology and fundamental differences from other technologies that tried to solve this problem before you?
Mr. Orren: There are many attempts to create alcohol-free adult drinks, but these lack the effect of alcohol. The purpose of our work is to enable bottled drink manufacturers to create drinks that provide the pleasure of alcohol but without the pain.
SOC: To get a better understanding of your company, could you explain to investors what is the investment structure of the company? Do you still own the controlling stake in your spinoff?
Mr. Orren: Yes, three founders hold control and ICL is a shareholder. We expect to bring in seed investors shortly, and we will use these proceeds to prepare for an A Round in the early New Year.
SOC: What is the actual addressable market currently for your invention and who are the current competitors? Could you please share with us the results of the market studies, if there are any? What are the barriers to entry?
Mr. Orren: The addressable end-user market is the more health-conscious segment of drinkers who would prefer an adult drink alternative that is safer than alcohol. There is no clear precedent in the drinks market, so numbers are not clear. But we can use close parallels in related markets to estimate the possibilities. The rapid growth of the 'free-from' consumer generation, has created an enormous opportunity - and pressure - for manufacturers to produce better, healthier products. The growth of vaping illustrates the latent demand for a product such as Alcarelle. In 2015, 12% of nicotine users chose to Vape instead of smoking cigarettes. And the trend toward safer products shows no sign of slowing. In London, 32% of people in the 16-24 years old category rated themselves as No/Lo drinkers. We believe the addressable market for Alcarelle lies somewhere between these two figures. We believe a conservative estimate of market share for Alcarelle could be 4% of the alcohol market, within 5 years. This equates to potential sales of Alcarelle-based drinks in the range of £40 Billion pa, and we could not do this without the support and active engagement of the alcohol beverage industry.
SOC: It seems you are describing a potentially sizable market opportunity for this spinoff. What in your opinion will sustain your company’s continued growth? What might your product range look like as you grow, and how do you plan to develop your markets?
Mr. Orren: We expect to be first to market with a tested alternative to alcohol. The technology is to be made available to the Food & Beverage industry which is today investing heavily in alternative products to address the increasing desire of consumers for low or no-ethanol drinks. We want to collaborate with innovative Food & Beverage manufacturers who will want to use Alcarelle technology to develop a new range of bottled products suited to different consumer needs and market segments.
SOC: Potential investors will be curious if you already have your first clients and signed contracts? What was the feedback from these clients, partners, and customers?
Mr. Orren: We are working with distilleries to help them reduce the negative impact of their products, but at this point, the new Alcarelle product development has some way to go through regulatory testing and safety trials before it can be announced or made available to the market.
SOC: Reaching positive cash flow is important for young companies. Certainly, the market scaling cannot be achieved without proper distributor networks and clients. Please tell us about your criteria for selecting partners and which markets are open for spinoff activity.
Mr. Orren: Market reach will be achieved by licensing technology to major F+B drink manufacturers who will develop their own consumer products targeting the healthy drinker segment in each geographic market. Alcarelle is interested in collaborating during the development phase with major drink manufacturers who can bring bottled drink expertise and are also willing to invest cash. The expertise we want access to is in the areas of formulation, food engineering, stability, regulatory pathways, legal, consumer marketing to accelerate our development.
SOC: I want to understand your particular vision and the unique features of your company. Why do you think major market players might be interested in investing in your technology?
Mr. Orren: There is a huge problem that needs to be solved, and that problem is ethanol. The alcohol drinks companies understand that the problem needs to be solved, but they are not equipped today to solve the problem. Alcarelle brings a unique combination of the science and technology that is essential for producing non-ethanol alcohol equivalent drinks safely, and which is outside of the capability of even very large drink manufacturers.
SOC: What is it about Alcarelle that makes your scientific process, your R&D strategy, production, distribution, and marketing processes unique? Where does your core strength lie?
Mr. Orren: Our unique strength and value as a business begin with a vision that our goals are both necessary and possible. We have an impressive combination of scientific capability with thought leaders who span multiple important domains. A combination of neuroscience i.e. the science of the brain, pharmacology, i.e. the science of substances and how these affect the brain, of biology and chemistry, medicinal and molecular level chemistry i.e. the design of substances for a particular effect (in this instance, pharmacological), the science of behaviour, the disciplines of clinical research, the design and formulation of food, and of food liking, and so on. But I think that most important of all is the belief that what we are doing must be done, and this is what has enabled us to evolve as the work has progressed.
SOC: As a rule, the majority of successful spinoffs grow into exits. How do you evaluate the dynamics in your industry, and how will you determine when is the right time to exit? What is the market cap that your company can reach at its peak development and why? How long might this process take?
Mr. Orren: All market stats show the trend away from ethanol tracks the uptake of vaping and growth in demand for sugar-free. With appropriate funding, we will be able to launch in our first market in 4 years. By partnering with the drinks industry, we believe a 4% market share within four years of being in the market. At that point, we believe the market cap for Alcarelle can be £4 Billion. 4% market share of a £1Trillion alcohol market will generate sales by drinks manufacturers of c. £40 Billion. A 2% royalty to Alcarelle would generate £800M revenue, and a conservative price to revenue multiple of say 5X, would provide a valuation of £4 Billion.
SOC: For spinoff companies, protecting intellectual property is critical to success and investors pay particular attention to this. What key intellectual property does your company have (patents, patents pending, copyrights, trade secrets, trademarks, domain names)?
Mr. Orren: Our IP is protected by patents and patents pending.
SOC: For both of us, as well as for thousands of successful spinoffs, it's not a secret that a new technological breakthrough may become obsolete very fast, especially with the expiry of patent life. What is your plan to maintain technological leadership in the medium and long-term?
Mr. Orren: We expect other products will come along, but years of research is needed and then years of regulatory approval. We already have future products in the pipeline.
SOC: Investors will want to get a clear picture of how many rounds of investments will be needed, and where you are in the process? Are you seeking investments at this moment? How much are you looking to raise, and by when? What milestones are you targeting to achieve with proceeds of each investment round?
Mr. Orren: We are open right now to seed investors. We will be seeking £3M at the end of 2018, £6M after twelve months, and then a final round of £6M-£8M 18 months later. Each round corresponds a key set of trials to establish increasing and specific levels of safety for the regulatory authorities.
SOC: Could you please describe your ideal investor? What aspects are important to you? For instance, is it experience, country, the amount of private capital or maybe some personal qualities? Will existing investors participate in this round?
Mr. Orren: We want a combination of investors. Our ideal investor believes that what we are doing is important. We want to attract investors who have relevant experience in aspects of our journey to market. We want collaborators in the food and beverage industry who bring areas of expertise which would be expensive and time consuming for Alcarelle on our own. Drinks, food, flavourings and ingredient manufacturers maintain expertise that we do not. A good food industry collaboration would offer access to expertise in drink formulation and product marketing, ingredients and flavourings, licensing, and food regulatory pathways in one or other critical market.
SOC: Our last question how would you like to receive inquiries from potential investors? Should this be by e-mail or a personal phone call?
Mr. Orren: An email to me at email@example.com will always reach me.
David Nutt, is currently the Edmond J Safra Professor of Neuropsychopharmacology and Director of the Neuropsychopharmacology Unit in the Division of Brain Sciences source - imperial.ac.uk