Kraig Biocraft Laboratories Inc (KBLB)

[King Bolaba]

KRAIG BIOCRAFT LABORATIORIES, INC.
Emerging Growth Research, LLC
E m e r g i n g G r o w t h R e s e a r c h , L L C
Investment Highlights
KRAIG BIOCRAFT LABORATORIES, INC. (KBLB)
? Kraig Biocraft Laboratories, Inc., a fully reporting OTCBB biotech company
that trades under the symbol KBLB, is focused on the development of spider
silk-based materials through advanced genetic engineering techniques.
? It appears the Company is planning to announce some significant developments
at an upcoming press conference. We believe these announcements will be
substantial and will likely drive the price of the shares significantly higher.
? Genetic scientists have already produced the first transgenic silkworms. Other
genetic researchers have isolated the genetic sequences in spiders responsible for
silk production. Kraig Biocraft Laboratories brings together some of the world's
preeminent researchers in each of these areas in a collaborative effort to produce
commercially significant quantities of one of the strongest and most resilient
fibers known to mankind - spider silk.
? A significant market valued in the tens of billions of dollars per year already
exists for highly resilient technical fibers, such as DuPont’s Kevlar. Spider silk
demonstrates similar strength characteristics to many man-made fibers in this
category, but significantly exceeds all known fibers relative to its ability to
absorb energy prior to breakage, making it a potential “super fiber” for a host of
ballistic resistant, medical and industrial applications. The market for ordinary
silk produced by silkworms is valued in the billions of dollars and could be
revolutionized through the creation of a transgenic silkworm that produces an
enhanced silk that is more resilient and more durable than ordinary silk.
? Should this Company achieve its goal of creating transgenic silkworms capable
of expressing significant amounts of spider silk proteins in silk; we believe the
technology will likely immediately be worth at least several hundred million
dollars and potentially billions over the long term. It appears, based on recent
press releases, that Kraig Biocraft has made some significant discoveries in the
laboratory that will be announced at a press conference that is likely to occur in
late September.
? Please see our blog at www.joenoelstocks.com for updates to this report.
Company Report:
Kraig Biocraft Laboratories,
Inc.
KBLB.OB
Rating: Strong Buy
Price Targets:
Short Term: $0.40
Long Term Price target
Depending on Lab
Developments: $2.50+
Joseph Noel
[e-mail]
Emerging Growth Research, LLC
San Francisco, California
925.922-2560
Analyst Certification
I, Joseph Noel, hereby certify (1)
that the views expressed in this
research Company report accurately
reflect my personal views about any
or all of the subject securities or
issues reflected in this Company
report, and (2) no part of my
compensation was, is, or will be
directly or indirectly related to
specific recommendations or views
expressed in this Company report.
KRAIG BIOCRAFT RESEARCH REPORT SEPTEMBER 2010
KRAIG BIOCRAFT LABORATIORIES, INC.
Emerging Growth Research, LLC
Summary of Recent Activities
and Our Price Targets
Regardless of the debate over creation or
evolution, most people agree that silkworms in
some form have been on the earth for at least
tens of thousands of years, if not, millions of
years. Over the past 1,000 years or so, humans
have bred silkworms to the extent the silkworm
has lost its ability to survive in nature. Today, it
is only under the care and feeding of humans
that silkworms survive and propagate. Recently,
what has taken nature many millennia to create,
and humankind more than 1,000 years to perfect,
has been forever altered over the course of less
than three years by Kraig Biocraft Laboratories
and the scientists at the University of Notre
Dame. It is worth noting the transgenic animals
that have been created under the programs
instituted by Kraig Biocraft Laboratories are not
the first transgenic silkworms, as other scientific
teams have also been able to insert some foreign
genes into silkworms. Nonetheless, the
announcements made by Kraig Biocraft
Laboratories do mark the first usable
spider/silkworm hybrids. We believe this is a
major announcement for several reasons we
have outlined in the following Company
Briefing Update.
Early in 2008, we were introduced to Kim
Thompson, CEO of Kraig Biocraft Laboratories,
a fully reporting OTCBB company trading under
the symbol KBLB. We were rather intrigued by
both this CEO and the genetic engineering
challenge being undertaken by the scientific
team. Mr. Thompson, an attorney by training,
has spent the past few years working in the
biotechnology field. As a member of the Triple
Nine Society, a high-IQ group open to anyone
scoring at or above the 99.9%th percentile,
which equals an IQ of approximately 150, he is
one of the smartest people we have ever met, as
well as possibly one of the most creative.
Should this company achieve its overall goal of
creating artificial spider-like silk we believe it
will be Mr. Thompson who will deserve
significant credit for the successes.
Due to the advanced, unique technology
involved, it took quite a while for us to
understand the complex genetic techniques that
were being deployed in order to accomplish the
task of creating unique protein expression
systems. With a lot of hard work and as a result
of multiple conversations with both Kim
Thompson and researchers in the fields of
genetics and biology, we were able to gain an
understanding of what this impressive company
was trying to accomplish. In July of 2008, we
published a Company Briefing report on KBLB
that we believe did a good job explaining this
complex subject matter in a way that nonscientifically
minded investors could easily
understand. Today, we have updated this
Company Briefing, as contained in the following
pages. Additionally, we have provided a new
summary update explaining our current thoughts
relative to Kraig Biocraft Laboratories as an
investment opportunity.
We were recently very intrigued by two press
releases issued by the company. The first was
issued on August 5, 2010, which discussed a
new collaborative R&D agreement with the
University of Notre Dame. Since learning of
Kraig Biocraft Laboratories, we have been
excited about its involvement with Notre Dame
and Dr. Malcom Fraser who is a member of the
University’s faculty and one of the top genetic
scientists in the world. As is explained in our
full Company Briefing, Dr. Fraser was part of
the first team of scientists to develop transgenic
silkworms and is largely responsible for the
state-of-the-art piggyBac methodology for
transporting the genes of one organism into
another organism. Knowing that the
collaborative research agreement with Notre
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Dame would also include Dr. Frazer certainly
piqued our interest. While the August 5th press
release was interesting, the later press release on
August 24th is what really caught our eye.
Specifically, the August 24th press release
announced Kraig Biocraft was planning to hold
a press conference in mid-to-late September for
the purpose of announcing certain laboratory
developments. Considering that we have never
seen a company hold a press release in such a
manner in order to release bad news, our interest
and hopes were high for favorable news to
follow.
The real progress update, however, was released
on September 7th, when the company
announced it had successfully created transgenic
silkworms. While we were surprised the stock
did not appreciate significantly at this time, we
figured most investors simply did not understand
the significance of this release and the events
that had just transpired at the company. Kraig
Biocraft then later clarified these recent
developments in a press release dated September
13th, indicating the company had created
“Successful Mutant Spider-Moths With Gene
Splicing Technology.” This headline in the
subsequent, easier to understand press release
explained the positive events that had occurred
in the laboratory and has since sent the shares of
Kraig Biocraft soaring. In our view, however,
these press releases stop short of explaining
exactly what the company has produced. While
the releases indicate that Kraig Biocraft has
created transgenic silkworms, there is no
revelation of whether or not these mutants
produced actual spider silk or even silk that
contains any spider proteins at all.
Importantly, in order to determine the possible
total market value of Kraig Biocraft
Laboratories and the value of its common
shares, we would need to know what type of silk
these transgenic animals are producing. It is
clear to us that this will be the subject of the
upcoming press conference, expected to be held
toward the end of the month. While later
portions of this Company Briefing Update
explain in detail the background and history of
the company, the genetic techniques being
utilized, target markets addressed and a host of
other issues, the first part of this Briefing Update
speculates on what we believe has actually been
created in the laboratory and places market
valuations on the company given several
possible scenarios as we see it. We think that all
of this will be more fully explained during the
upcoming press conference, but hopefully we
can give investors and interested parties some
insight based on the extensive research we have
performed on this company over the past few
years.
First of all, the press release of September 13th
gives us some clues as to what has been
accomplished to date in the laboratory.
Considering that Dr. Malcolm Fraser and the
Notre Dame staff are the main genetic
researchers, we assume that the developments
have taken place either at a Notre Dame lab or in
a laboratory under Dr. Fraser’s and/or Notre
Dame’s supervision. The press release states
that “… scientists working in collaboration with
the company had successfully genetically
engineered silkworm moths with select spider
genes.” We knew this already from an earlier
press release. Contained in a later part of the
press release is a quote from Kraig Biocraft
Laboratories’ CEO stating, “…the genetically
engineered silkworms are true moths which have
been transformed with only one carefully
targeted spider silk gene sequence. That gene
sequence relates specifically to silk production.”
Based on our knowledge of the genetic
techniques being used, we view this statement as
all but confirming that these “new animals” are
producing some form of spider silk proteins in
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the silk being produced as the worms cocoon.
While it is possible the company is simply proud
that it has been able to perfect the genetic
technique, we certainly do not believe they
would be holding a press conference if they had
only perfected the genetic technique, and were
not also able to produce the actual results of
having at least some spider proteins contained in
the resulting silkworm’s silk. A further clue that
supports our belief that spider proteins are being
produced in the silk is the last line contained in
the press release that indicates that “… the
spider DNA has fully integrated into the
silkworm chromosome.” Based on these
comments in the press releases, we are now
relatively confident that some form of spider silk
has been created in the laboratory.
Furthermore, there is another hint in the press
release that offers us some additional clues into
what the company has accomplished and what
will be discussed at the upcoming press
conference. It is the line that says, “this genetic
engineering success clears a major hurdle in our
path; it puts us well ahead of our product
development schedule and will allow us to
further accelerate product development.” We do
not believe the company would have included
this sentence if they had created actual spider
silk from these transgenic silkworms. Rather,
this statement leads us to believe that the silk
being produced by these new animals contains
some amount of spider silk, thereby indicating
the company has not yet achieved its ultimate
goal of producing a fiber that can realistically be
called true spider silk.
For these reasons, we are concluding that the
company’s upcoming press conference will
announce that it has created a new type of
animal, or possibly several different types of
new animals. The animal(s) is basically an
ordinary silkworm with some spider genes
integrated into its DNA. We expect this new
animal is producing some form of hybrid silk
that is neither ordinary silkworm silk, nor
enough like true spider silk to be called actual
spider silk. Additionally, we believe the
company will discuss and claim victory that it
has “cracked the code” on how to get silkworms
to accept spider DNA. For scientists, we believe
this means the techniques utilized can be further
perfected to ultimately produce a new wonder
fiber that is very similar to spider silk.
The bottom line for us today is that Kraig
Biocraft Laboratories and the genetic scientist at
the University of Notre Dame have
accomplished something extremely significant.
While there is likely more work to be done, it
sounds to us like the confidence level of KBLB
and their research partners is very high relative
to achieving the ultimate goal of creating
artificial spider silk.
While we do not expect the company to
announce at the press conference later this
month that it has yet achieved the creation of
artificial spider silk, we are certainly not
disappointed for two reasons. First, we have
always believed the near-term market
opportunity for Kraig Biocraft Laboratories is to
revolutionize ordinary silk production. Silk
production has changed very little over the
centuries as has the basic raw silk produced by
silkworms. Thus, even limited spider silk
protein expression in the silk of these animals
could result in a huge commercial success if
such a raw material turns out to be significantly
more resilient than ordinary silk. Second, we
see a high commercial value strictly from a
marketing standpoint alone, aside from any
beneficial physical properties or characteristics,
for hybrid spider/silkworm silk.
Within expert circles, there is quite a bit of
discussion as to the true value of the silk
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industry. Nonetheless, most sources place
worldwide annual sales of silk between $3
billion and $10 billion. The U.S. market alone is
one of the largest markets for silk and by our
estimates, it is valued at approximately $2
billion per year. New estimates indicate that the
European Union’s market value is roughly the
same size. Silk output in China has been rising
rapidly and was recently valued by the Chinese
Ministry of Commerce at $31.25 billion dollars
in 2010, up 66.7% from 2005. It has been
further estimated that between the years 2000
and 2007, China’s silkworm cocoon output rose
by more than 72% to a total of 785,000 tons.
Regardless of the estimates used, the world wide
silk market is very large.
Additionally, it is interesting to note that silk
comprises only 2% of the worldwide textile
market for clothing. This may be because while
consumers enjoy many of the properties of silk
garments, the delicate nature of this fabric likely
limits its usage significantly. In our view,
should a more resilient silk material be able to
be developed, the overall size of the silk market
for clothing and garments could likely be greatly
expanded.
If the scientists at Notre Dame and Kraig
Biocraft Laboratories have in fact invented a
superior silkworm that produces a superior silk
fiber, we believe such a product would be highly
sought after. While we would of course need to
analyze the actual properties of this transgenetically
produced silk in order to determine
the likelihood of commercial success, we believe
such a product could easily be worth tens of
millions of dollars per year. Even a 10%
penetration rate into the market for raw silk
would be an industry position worth
considerable value. Specifically, if we place a
$5 billion value on the market for raw silk, then
a 5% market penetration rate would yield $250
million in sales annually. Furthermore, if we
use a multiple of five times annual sales, we can
argue for a market capitalization for Kraig
Biocraft of $1.25 billion.
This analysis notwithstanding, we believe it is
shortsighted to size the potential market for this
new silk product simply in terms of the ordinary
traditional silk industry, as we believe this
approach leaves a big chunk of the valuation out
of the equation. As we explain later in this
Company Briefing Update, the market for
“technical textiles,” which includes both aramid
fibers such as DuPont’s Kevlar and ultrahigh
molecular weight polyethylene fibers, generates
sales of approximately $90 billion per year in
the United States - accounting for only about
half of the total worldwide market. As is
explained above, while we do not believe the
company has yet created a silk product that can
target this broader market category, we do
believe the techniques that KBLB and its
research partners have developed could easily
allow such a silk material to be produced over
the coming next few years. Thus, we feel we
must discount any potential value at this time for
these recent achievements given the potential for
any laboratory failure and for certain time
requirements needed to accomplish any ultimate
goals, including full commercialization.
Nonetheless, we do believe a considerable
amount of value should be added to the total
current market capitalization of Kraig Biocraft
due to the likelihood that a superior technical
textile could result from the research milestone
recently achieved by the company.
Based on our expectations of what we believe
will be announced at the upcoming press
conference, please find below our current take
on target prices for Kraig Biocraft Laboratories’
common shares.
We see four possible scenarios for
announcements at the upcoming press
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conference. Below is our discussion of each of
these scenarios and an approximate market
capitalization for Kraig Biocraft Laboratories
under each scenario as well as our thoughts
about how the share price of KBLB will likely
be impacted.
Scenario One – Under our first Scenario,
Kraig Biocraft Laboratories announces it has
perfected the technique of inserting spider DNA
into silkworms and has thereby created highbred
spider/silkworm transgenic animals, but the silk
spun by these silkworms either contains no
spider silk proteins at all or only miniscule
amounts of these proteins. We would expect
such an announcement to be viewed as a
disappointment. We would, nevertheless, be
relatively positive on KBLB as the events under
Scenario One would demonstrate that certain
progress has been achieved. Our view on
market share valuation would then largely
depend on what the company says about the
likelihood of future successes. As of the
completion date of this Company Briefing
Update, KBLB shares closed at approximately
$0.08, yielding a total market capitalization of
approximately $40 million. We believe under
this Scenario a $40 million market valuation is
fully supportable.
Scenario Two – Under our Second
scenario, Kraig Biocraft announces it has
perfected the technique and that it has actually
created transgenic animals. Additionally, the
silk produced by the highbred silkworms
actually contains some spider silk, but not
enough for any real commercial application.
Under this Scenario, we believe it is likely that
the company and the researchers would indicate
that the technique is being further perfected and
that the possibility of achieving some
commercially viable product is close at hand.
We also think that while investors may likely be
disappointed, such an announcement could
nevertheless still be viewed as an overall
positive for KBLB, thereby allowing the price of
the company’s shares to exceed its recent $0.08
price, assuming the company is able to convince
investors that additional significant
developments are close at hand. Relative to
valuation, depending on what the company says
during the upcoming press conference about the
likelihood and timeframe for further perfecting
the genetic techniques in order to produce true
spider-like silk, we would also likely add some
additional heavily discounted valuation to our
Scenario Two.
Scenario Three – Under our third
Scenario, Kraig Biocraft announces it has
perfected the technique of inserting spider DNA
into silkworms and that it has created transgenic
animals. Additionally, the silk produced by the
hybrid silkworms contains enough spider silk
protein to differentiate its silk from ordinary
silkworm’s silk. We believe this is the most
likely Scenario. Again, we would need
additional information relative to how much
spider silk protein is contained in the new silk as
well as information regarding any and all unique
properties of the resulting silk. We believe
Scenario Three would likely be viewed as
extremely positive by the marketplace, easily
allowing these shares to rise significantly above
their recent $0.08 closing price, in our view. If
Scenario Three transpires, we believe the total
market capitalization of Kraig Biocraft
Laboratories could reach the level of hundreds
of millions of dollars. As explained above, if we
place a $5 billion value on the market for raw
silk, a 5% market penetration rate by the
company would yield annual sales for Kraig
Biocraft Laboratories of $250 million. If we use
a multiple of five times annual sales, we can
again argue for a total market capitalization of
$1.25 billion. Considering there are
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approximately 500 million shares outstanding,
shares could eventually be valued in the area of
$2.50 per share.
Scenario Four – Under our Scenario Four,
Kraig Biocraft Laboratories announces it has
perfected the technique and that it has created
the transgenic animals. Additionally, the silk
produced by the hybrid silkworms is very
closely related to true spider silk, thus the
company and its research partners have created a
new wonder fiber. Under this Scenario, which
we believe is unlikely at this time - but could
nevertheless occur in the future – we think
shares of KBLB would immediately rise, likely
very significantly with a $1.0+ billion plus
market capitalization also highly likely for the
company. We believe such a development
would make Kraig Biocraft Laboratories a
strong candidate for acquisition by a Fortune
500 corporation.
Our Recommendation on the
Most Likely Scenario
We believe Kraig Biocraft’s CEO is a very
savvy businessman who would likely not be
calling a press conference unless there was a
major development in the laboratory.
Additionally, certain phrases in the two press
releases that discuss the upcoming press
conference lead us to believe that the
developments in the laboratory are more than
just minor. Therefore, we do not believe
Scenario One or Scenario Two, as outlined
above, are likely to transpire. We also do not
believe Scenario Four is likely either at this
time, considering the relatively short amount of
time the scientific staff has been working on this
endeavor and that the genetic techniques being
used are still relatively unpracticed and are
likely to produce progressive results over time,
rather than full results all at once. We also do
not believe that word of such a significant
scientific breakthrough as outlined by Scenario
Four could have effectively been kept out of the
marketplace for such an extended period of time.
For these reasons, we believe the most likely
Scenario relative to developments at the
company, and relative to what will be discussed
at the upcoming press conference, is outlined in
our Scenario Three above. Thus, we are
expecting the company to make an
announcement that provides further information
relative to the transgenic silkworms that have
been created by the scientific team at the
University of Notre Dame. Based on the pieces
of the puzzle that we are able to currently view,
we also believe these new transgenic animals are
expressing certain amounts of spider silk
proteins in the silk of their cocoons. Also based
on the wording of the press releases, we believe
that additional work is needed in order to
produce true spider-like silk and/or a silk
product that has a highly significant amount of
spider-like silk such that it could mimic the
strength and resiliency of actual spider silk.
While we do not believe Kraig Biocraft
Laboratories has yet created a fiber that is highly
similar to spider silk, we do believe the
developments in the laboratory are very
significant and that the silk being spun by these
transgenic silkworms is either very close to
having commercially viable properties or is
already a commercially viable product. Under
Scenario Three, we believe shares of KBLB are
worth considerably more than their recent
historical prices.
Furthermore, we can easily see the total market
capitalization of Kraig Biocraft Laboratories
reaching several hundred million dollars, if we
are correct in our Scenario Three assumptions,
which would place a near-term target price on
these shares of at least $0.40, representing a total
market capitalization of $200 million. We can
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also easily see these shares rising several fold,
especially as investors begin to undertake
additional due diligence into the genetic
techniques being utilized by the company and its
team of research partners, and into the overall
size of worldwide silk market, and are able to
assess how Kraig Biocraft’s recent achievements
compare. As we indicated above, we believe an
eventual target market capitalization under our
most likely Scenario could be up to $1.25
billion, representing a share price of $2.50.
In conclusion, we really like this company and
the investment opportunity it presents. We also
see one additional notable reason that warrants
particular interest in this company and its stock.
Specifically, Kraig Biocraft Laboratories is in a
rather unique position within the biotech
industry given that FDA approval of its resulting
technologies and products is not required.
While the core genetic technologies used in the
company’s research are overseen and lightly
regulated by the FDA and other governmental
regulatory agencies, the end resulting product
itself does not need any governmental approval
for commercialization, as it is not considered a
food item or drug.
For this reason, upon the successful production
of the desired transgenic silkworm, Kraig
Biocraft could actually move immediately into
commercial production, start establishing
licensing agreements and/or initiate a direct sale
of either the technology or of the entire
company. This position is unique to
biotechnology industry in which most food and
drug companies must undergo a lengthy, often
costly process to obtain government approval of
their product offering. Thus, unlike many other
biotech companies, Kraig Biocraft can move
directly to address the industry and market
demand as soon as it has achieved its ultimate
goal of spider-like silk production.
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EXECUTIVE SUMMARY - KRAIG
BIOCRAFT LABORATORIES
(KBLB)
Kraig Biocraft Laboratories, Inc. is a
biotechnology company pursuing a unique
protein expression system with the goal of
producing a new generation of technical fibers.
The company is making use of the state of the
art genetic techniques in order to develop a
transgenic silkworm capable of producing silk
that contains spider silk proteins – simply put,
spider silk in commercially viable quantities.
In order to achieve this goal the company has
aligned itself with two universities that are
leaders in this field of research - the University
of Notre Dame and the University of Wyoming.
Noted genetic scientist and the developer of the
piggyBac technique for gene transposition and a
member of the first team of researchers to
develop a transgenic silkworm, Dr. Malcolm
Fraser of Notre Dame, is personally involved in
the development of the technology. Dr. Randy
Lewis, of the University of Wyoming, one of the
world's foremost authorities on spider silk is also
an important member of the team. The
University of Wyoming, which holds significant
intellectual property rights relating to the genetic
sequencing of spiders, which it has licensed to
the company, is a meaningful equity investor in
the company.
Spider silk is one of the strongest and most
resilient fibers known to mankind. It is
significantly stronger than steel on a pound for
pound basis and comparable in tensile strengths
to man-made fibers such as Kevlar. Spider silk,
however, has no comparison relative to its
ability to absorb energy before breakage occurs.
Materials scientists in the textile and military
industries have long desired to use spider silk for
a variety of applications. Unlike silkworms,
which live in harmonious peaceful coexistence,
spiders are territorial and cannibalistic, and
therefore cannot be raised in captivity.
Over the past 20 years, several companies have
attempted to produce spider silk proteins
through genetic engineering techniques. The
most notable of these attempts was an effort by
Canadian-based, Nexia Laboratories. The
company was successful in introducing spider
silk genes into dairy goats and achieved the
desired protein expression in goat milk. The
project, however, did not achieve the original
goal as it proved difficult to spin the silk from
the acquired proteins. Some progress has also
been made in Asia Laboratories, but these
efforts have also failed to produce a viable
product.
The market for spider silk would be classified as
part of the technical textiles market, which is
dominated by industry giants DuPont and
Honeywell. Both of these multinational
corporations have seen considerable success
with products in this area and it is believed
either could be a licensor of the company's
technology or an acquirer of the entire company
should Kraig Biocraft Laboratories efforts yield
significant results. A 2% penetration of the
technical textiles market would likely be worth
in excess of $3 billion per year.
While we initially believed the primary target
for spider silk is thought to be the technical
textiles market, we believe such a product could
also be very popular relative to the apparel
market, especially if a hybrid type of silk that is
part silkworm soak in part spider silk could be
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produced. Such a product could provide
increased wearability and resiliency relative to
ordinary silkworm silk. We believe such a
product could produce hundreds of millions of
dollars of revenue per year and potentially
revolutionize the silk industry as it is known
today.
To date, Kraig Biocraft Laboratories has not yet
announced that it has produced the desired
proteins in a transgenic silkworm, but we
believe such an announcement is now pending.
We believe success in the laboratory yielding the
first transgenic silkworm capable of producing
spider silk would be a major scientific
achievement and would also likely yield
significant coverage in the business and popular
presses, and of course, significant price
appreciation of KBLB shares. While in the past,
investing in these has been highly speculative,
we believe there is now sufficient evidence to
suggest that this company has achieved some
major breakthroughs that are likely to drive the
price of the shares significantly higher.
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THE COMPANY
Kraig Biocraft Laboratories, Inc. was founded by the inventor of the company's technology, current chief
executive officer, Kim Thompson. The company is a fully reporting organization and trades on the overthe-
counter market under the stock symbol KBLB. At the present time, there are approximately 500
million common shares outstanding, with the majority of these being held by the chief executive officer.
At Kraft Biocraft Laboratories the chief executive officer serves as the overall coordinator for the
company relative to business operations and ongoing research and development. Several very prominent
genetic scientists, one at the University of Wyoming and another at the University of Notre Dame, are
taking significant roles in the development of the company's technologies. Additionally, the laboratory
staffs of these professors are also making significant contributions to the company’s efforts.
The University of Wyoming Foundation has contributed significant intellectual property to the enterprise
and is a major shareholder in the company. Several of the major discoveries from these associated
researchers are pivotal to the company’s product development efforts. Through careful and diligent
negotiation the company has obtained exclusive rights to university owned technologies and has acquired
rights for use in product development and commercialization of the company’s targeted products.
The company describes its technology as a unique protein expression system that is potentially highly
scalable and cost-effective in producing a variety of different proteins that can be marketed into the
pharmaceutical, technical textiles and materials markets. While this explanation may mean a great deal to
a scientist, a genetic engineer or an executive from a biotechnology company, it likely means very little to
the average small-cap investor. At the risk of losing some of the accuracy in fully describing the
company’s technologies and what it hopes to accomplish with these technologies, we will offer the below
outlined, but perhaps oversimplified, explanations and examples.
What’s So Exciting About Spider Silk?
The silk produced by spiders is among the strongest fibers produced in nature. It is also extremely elastic
and resilient. Depending upon how measurements are made, spider silk is nearly as strong, or in some
cases even stronger, than Kevlar or steel. Spider silk has several properties that are unmatched even by
the most exotic of man-made fibers. Spider silk has the unbeatable capacity to absorb energy and to
dissipate this energy in a very controlled manner as the spider silk deforms. This unique property makes
this fiber especially attractive for applications where energy absorption is a key design factor: bulletproof
vests, artificial ligaments, parachute cords, suspension cables and many industrial applications.
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As shown in Diagrams Three, Four and Five spider silk is significantly stronger than ordinary silkworm
silk and the vast majority of naturally occurring and man made fibers, but not as strong as Kevlar based at
the same densities.
Figure Three: Strength of Spider Silk versus Silk Worm Silk
Source: University of California
Stress–strain curves of washed and degummed single-filament silkworm silk (motor-reeled at 25 °C at the indicated speeds), Nephila spider
dragline silk (20 mm s-1 at 25 °C) and standard, degummed commercial silk from a cocoon spun by the animal in the natural 'figure of eight'9 at
speeds oscillating between 4 and 15 mm s-1 at 20 °C. The area under the stress–strain curve represents the energy that a fibre can take up before
breaking, and thus indicates its toughness. Scale bar, 10 m. Immobilized silkworms (n = 4) were forcibly silked4, each providing 3–6 single
filaments, which were tested in a stretching rig (force resolution, 30 N; time resolution, <5 ms for 1 mN; strain rate, 50% per min)4; further
details are available from the authors. For silk 'degumming', a traditional aqueous solution standard wash of 1% sodium hydrogen carbonate10 was
used, which led to a 30–40% reduction in fibre diameter. Inset, unwashed native silkworm silk.
One of the significant properties of spider silk, however, is its extreme resistance to breaking under strain.
Relative to this property, as is shown in the diagrams, spider silk significantly outperforms virtually all
known natural and synthetic fibers. It is this property that makes spider silk particularly appealing for use
as a “super fiber”.
Pound for pound, spider silk is clearly much stronger than steel with clear evidence of spider silk being at
least five times stronger than steel of the same diameter.
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Figure Four: Spider Silk versus Other Fibers
Source: Okamoto Corporation, Japan
Spider silk also has some other interesting characteristics. For example, a single strand of spider silk is
significantly finer than a human hair and significantly lighter. Research indicates that spider silk is so
thin that a single strand long enough to circle the entire Earth would weigh less than 2 pounds.
Some spiders actually produce many different types of silk depending upon the particular need at the
time. What scientists refer to as dragline silk, which is used by spiders to repel and to catch themselves
while falling, is clearly the strongest type of spider silk and is at least twice as strong as the other spider
silk types.
Figure Five: Strength of Spider Silk versus Other Fibers.
Source: JOM and TMS Publications, Inc.
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There is little debate relative to the superiority of spider silk over many man-made and natural fibers for
certain applications. The issue, however, is how to produce spider silk in sufficient enough quantities at a
cost that is reasonable.
Silkworms were domesticated over a thousand years ago and are easily raised in colonies of thousands of
worms where they live harmoniously. Spiders on the other hand, are extremely territorial and
cannibalistic and, therefore have never been raised in any commercially viable quantities.
The vast majority of researchers who have investigated the methodologies to artificially produce spider
silk agree there are two main viable approaches. The first is to employ genetic engineering techniques to
enable non-spider life forms to produce the proteins in spider silk. The second viable technique is
believed to be to re-create spider silk-like fibers through chemistry.
Below, we examine the research and development that has taken place relative to these two approaches.
Genetic Engineering to Produce Spider Silk
Nexia Biotechnologies, Inc., which is a Canadian biotechnology company, is probably the company that
has invested the most resources toward developing methodologies to produce spider silk proteins via
genetic engineering.
Nexia’s research efforts concentrated on achieving expression of spider silk proteins in the milk of dairy
goats. To achieve this goal, researchers at Nexia introduced spider silk genes into the mammary glands of
dairy goats, with the effort achieving the desired protein expression. While this accomplishment was
initially viewed as a significant success, the company quickly learned that while they were able to isolate
the proteins, the issue of spinning the resulting proteins into viable fibers was extremely problematic.
After several years of effort, and millions of dollars, Nexia was not able to meet its goal of actual silk
production in commercial viable quantities.
There are several researchers in Japan and China who have also been working on genetic modification of
silkworms to produce spider silk or spider-like silk. One of the laboratories in Japan has been able to
produce spider silk protein expression in transgenic silkworms, but the resulting silk contained very low
percentages of the desired proteins relative to ordinary silkworm proteins. It is widely believed this
laboratory is still working to improve its technologies, but at this time it is unknown the status of their
development. While Kraig Biocraft Laboratories believes it will likely beat this Asian competitor to a
breakthrough in the laboratory science, we remind investors that Kraig Biocraft owns significant
intellectual property relative to the production of such technologies in the United States, meaning that
even if an Asian competitor did somehow find a viable solution for production, the competitor would
likely be unable to sell its product in the United States.
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Efforts to Create Spider Silk and Spider Silk like Products through
Other Methodologies
Relative to research into the production of artificial spider silk using non-genetic engineering
methodologies, researchers at MIT are likely to be considered competitors. The research team at this
leading university is using research discoveries in the growing field of nanotechnology to produce an
artificial spider silk via combinations of artificial polymers. The company's management team and its
researchers believe these efforts are only in the early stages and that the science MIT team is pursuing is
flawed and will ultimately fail. We believe these efforts at MIT, however, further emphasize the
company's view a commercially viable product is highly desired by a variety of industries.
The Technical Background
Within a wide variety of scientific fields there is the need to work with isolated proteins of various
different types. Genetic engineers, biochemists, medical researchers and many other types of scientists
use proteins for many different purposes including drug discovery, clinical and diagnostic testing
applications, genetic engineering, bio-production and many other scientific applications. These desired
proteins are often difficult to obtain and must be produced so that the scientist can use the proteins for the
desired purpose. Because of this difficulty in obtaining the required proteins, an entire sub-industry of
within the pharmaceutical and biotechnology industries has evolved. The products marketed by the
participants in the industry that are specifically designed to produce the required proteins are called
protein expression systems.
In order to provide a bit more understanding of protein expression systems in general and to gain an
understanding of the technologies Kraig Biocraft Laboratories is bringing to the market we will need to
take a brief look at how proteins are created and how genetic engineering is creating new forms of life
capable of generating new and unique proteins.
The vast majority of cells within living organisms contain genes, which are regions on DNA strands that
control hereditary characteristics. These genes act somewhat like a recipe or instruction book, providing
information that an organism needs so it can build or do something - like making an arm, a brain or
producing blue eyes versus brown eyes. In order to communicate the message to the organism, genes
produce proteins, which act as the messenger system to tell the rest of the organism what to do.
The vast majority of proteins that scientists require occur in nature, but often in very limited quantities.
Often, scientists need much more significant quantities of a certain protein. In such cases, the scientists
often turn toward genetic engineering techniques for the needed protein production. Let’s take a look at
how such protein production takes place in the real world.
Let’s say a hypothetical pharmaceutical company has developed a new cancer drug that is comprised of
many different components, one of which is protein produced by particular organism. Let’s call this
organism, “Organism A”. Let’s further speculate that “Organism A” is very difficult to breed and when
breeding is successful it is very difficult to keep the particular organism alive long enough to acquire the
needed proteins it produces. While such an organism may produce the protein that is needed by the
pharmaceutical company for production of its new drug, such product production is extremely cost
prohibitive. In order to solve its problem, the pharmaceutical company may turn to genetic engineering.
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With genetic engineering techniques it is possible to create a new life form that is a cross between two
other life forms. For example, relative to our hypothetical pharmaceutical company described above, it
may be possible to take the genes out of “Organism A” that cause the organism to produce the desired
protein and to insert these genes into another organism so that the new organism will produce the protein
that is desired.
For example, here is how this would work. Scientists would isolate the genes in “Organism A” that are
responsible for producing the desired protein and record the chemical formula for recreating these genes.
This process is called gene sequencing. Once the gene sequence is recorded it can be easily replicated at
any future date. Additionally, because the desired chemical composition of the gene sequence is
recorded, the pharmaceutical company would no longer have any need to keep any “Organism A” on
hand.
The next step in the process for our theoretical company would be to find a host organism that would be
capable of accepting genetic material from “Organism A”. Many laboratories throughout the world use
various types of bacteria as host organisms, with the E. coli bacteria strains being most commonly used.
Other organisms that are commonly selected are various types of yeast, insect or mammal cells. For our
theoretical example, let's assume that the company in question selects a particular bacterium as a host,
which we will call “Organism B”.
Using various genetic engineering techniques the scientists in the laboratory would re-create the genes of
“Organism A” based on the previously recorded gene sequencing process. The re-created genetic
material of “Organism A” would then be inserted into “Organism B” creating a new organism, which we
will call “Organism C”. If the entire process is done correctly the genetic instructions from “Organism
A” will instruct the newly created “Organism C” to produce the proteins that are needed. In the field of
genetic engineering, “Organism C” would be called a protein expression system.
Please see Diagram One below for a graphic representation of this process.
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Diagram One: A Simple Protein Expression System
Source: Emerging Growth Research, LLC
While there have been many types of proteins produced using the above methodology there are still many
other types of proteins that scientists have not yet been able to create. There are several issues that have
hindered such progress. First of all, the process of obtaining the genetic sequences is a difficult one.
Genetic researchers have been able to record the complete genetic code, called the genome, of only a few
of the millions of different species on Earth. Gaining this genetic information is only one part of the
process, however, as this genetic code must ultimately be inserted into the host organism. The science
surrounding the insertion of this genetic code into a host is still in its infancy and only understood relative
to a small number of organisms, however, the science is advancing rapidly relative to this issue. One of
the most significant areas of genetic research centers on these above outlined issues.
Kraig Biocraft Laboratories is one of the companies that is on the forefront of these scientific
advancements. Utilizing a set of state of the art genetic reengineering techniques the company is seeking
to utilize the species Bombyx mori, commonly known as the domesticated silkworm, as a protein
expression system in order to produce a revolutionary protein based product that could potentially be
worth billions of dollars per year.
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Please see Diagram Two for the life cycle of this insect.
Diagram Two: The Life Cycle of Bombyx mori
Source: Silk Worm Research Institute
Before we get to the specifics of the technologies and the markets the company wishes to address, we will
need to provide some background on how the silkworm has been transformed in some previous genetic
experiments. Early in the year 2000, a group of genetic scientists published a paper explaining a
successful experiment to prove the effectiveness of a new genetic technique in order to create the first
silkworm that contained the genetic material from another organism, thus creating the first transgenic
silkworm.
While the gene splicing techniques we discussed above are relatively new to mankind, the field of genetic
engineering is not new at all, as mankind has practiced a form of it through crossbreeding of plants and
mammals for thousands of years. Such “low-tech” forms of genetic engineering have produced
significant gains for humankind.
As the science of genetic engineering progressed, the scientific community quickly moved to advance the
understanding of genetic engineering relative to plants and mammals. As a result, there is currently a
significant set of knowledge accumulated relative the genetic modifications of these species. However,
the field of genetic engineering relative to insects is a much more recent science with the vast majority of
research into the area occurring in only the past 10 years. Genetic modification techniques that had been
developed for plants and mammals were simply not effective relative to insects; therefore new techniques
were needed in order to genetically modify insect populations.
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The project to produce the first transgenic silkworm was headed by Pierre Couble of the Universite
Calude Bernard in France. While there were 13 other researchers and scientists involved in the
experiment, the efforts of one of the scientists would become of particular importance to Kraig Biocraft
Laboratories. The scientist was Dr. Malcolm Frazer, of the University of Notre Dame.
Dr. Frasier had previously discovered a significant innovation for transporting the genes of one organism
into another organism. This technique is called piggyBac, which is a gene sequence Dr. Frasier isolated
from the genes of a virus called baculovirus. This virus widely infects insects and as a result turned out to
be perfect for use as a technique to genetically modify insect species. While the specifics of piggyBac are
significantly too technical for this research report, there are a few attributes of the technology that are
worthwhile to understand relative to the initial silkworm experiment and Kraig Biocraft Laboratories’
goals.
Dr. Frasier currently supervises the development of the company's technologies and is a member of the
company’s advisory board, in addition to being a significant holder of the company's common stock.
The piggyBac technique, when used with other gene splicing technologies, is very efficient in the
transportation of genetic material from an originating organism into a host organism. The technique
allows for very accurate insertion of the genes into a very specific location on the DNA strand of the host
organism. This very accurate insertion technique is important for two reasons. First of all, the technique,
when used in combination with other recently introduced genetic techniques, allows for not only the
insertion of one organism's genetic material into a host, but also allows the new genetic material to
completely eradicate certain genes within the host organism. For example, if we had a particular insect
that has blue wings, utilizing genetic engineering techniques we could extract the genes for blue wings
from the blue winged insect and insert those genes into an insect that has red wings.
With some genetic engineering techniques the genes for blue wings would simply be inserted somewhere
within the DNA of the host insect with the original genes for red wings surviving the process. The big
difference with the piggyBac method, relative to our example, is that when it is combined with other
genetic techniques it is possible to specifically target the placement of the genes for blue wings directly
on the DNA strand where the red wings genes are located, effectively wiping out all of the genes for red
wings.
While this methodology of specifically placing the genes into the host organism is a major feature of the
piggyBac method it is only one of the major benefits. An additional important feature inherent to the
piggyBac technique is that it creates something called a germ line transformation of the new organism,
which means that the introduced traits are inherited by future generations of the organism. Because of
this feature the genetic modification of the organism only needs to be done once and all future generations
will be forever modified to carry the new traits.
The experiments outlined in the scientific paper we referenced above clearly showed that the piggyBac
technique could be used to significantly modify silkworms and that these modifications would carry on
into subsequent generations. While the genetic scientists on the team used a green fluorescent protein as
the selected genetic marker, it is widely believed that silkworms can be modified in many other ways.
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For example, genetic mutations could be performed that would make the silkworm more resistant to viral
and bacterial infections and to possibly increase the amount of silk produced.
Additionally, the experiment showed that silkworms could likely be modified to develop immunity to
certain bacterial and viral infections that currently plague the silk production industry.
The initial paper that reviewed the transgenic silkworm study also outlined the possibility of using these
genetic engineering techniques to transform the silk produced by silkworms. One of the applications that
has been widely discussed among researchers is the possibility to introduce genes into silkworms that
would force the silkworms to produce colored silks.
Additionally, the original paper outlined at the possibility of introducing spider silk genes into silkworms
so that silkworms would produce silk that is either similar or exactly like the silk produced by spiders.
Such a product would be highly desirable by the textile and a host of other industries.
The use of silkworms to produce spider silk seems to make sense to a significant number of scientists and
researchers. The silkworm is ideally suited to produce such fibers because it has been cultivated in
captivity for thousands of years and is a proven commercial and industrial producer of similar proteinbased
fibers. Over 40% of the silkworms bodyweight is devoted to it silk glands, which produce large
volumes of mixed proteins called fibroin, which is then spun into silk. Non-genetically modified
silkworms produce a single thread of silk that is nearly 1,000 meters long. Significant silk production can
be gained in very small buildings because silkworms are housed in containers of thousands of silkworms.
These containers are stacked into multiple layers allowing for millions of silkworms to grow in only a few
thousand square feet of floor space.
Another factor that makes the silkworm a perfect candidate for the technology is the fact that silkworms
can only survive in captivity because after many centuries of domestication the ability to fly has been lost.
There are some concerns in different scientific circles about the use of the piggyBac method in insects
that will be released into the wild because it is not known how these genetic modifications could affect
other insect species. Due to the complete dependence on humans for survival, this issue is not a concern
relative to silkworms.
In addition to applications for transgenic silkworms discussed above, there are also significant additional
possibilities relative to protein production for the pharmaceutical, biotechnology and other scientific
industries. The company has already identified several promising avenues of pursuit relative to this area.
Kraig Biocraft Laboratories’ Utilization of These Technologies
Kraig Biocraft Laboratories is focused on the development of significant high performance technical
fibers and polymers utilizing transgenic silkworms as a unique protein expression system - simply put, the
company is heavily involved in research related to utilizing spider genes for insertion into silkworms to
create a transgenic variety of silkworms capable of spinning a new “super fiber” that is either similar or
an exact copy of natural spider silk, which is one of the strongest and most resilient fibers known. For
many years the textile and material science industries have sought to replicate spider silk, but results have
been elusive.
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The company has acquired the exclusive rights, in their field of use, to the genetic sequences patented by
the University of Wyoming and the genetic engineering technology developed by the University of Notre
Dame and is working in conjunction with leading genetic engineers at these universities toward the above
goals. As part of the company’s intellectual property portfolio, Kraig Biocraft Laboratories has the
exclusive rights to use the patented spider silk gene sequences in silkworms within the United States.
While the production of a “super fiber” is the company's primary focus, at this time it is also considering
the production of other unique proteins utilizing transgenic silk worms as a protein expression platform.
It is thought there is a large viable market for these unique proteins within the pharmaceutical,
biotechnology and other research driven industries.
The company's intellectual property portfolio also includes a separate U.S. provisional patent application
regarding certain methodologies, genetic sequences, organic polymers and composites of fibers. We are
expecting this intellectual property portfolio to continue to grow over the coming years.
Potential Competition
While there is considerable desire by researchers to create artificial spider silk to be design into a variety
of commercial applications, there is clearly another avenue to pursue relative to meeting the market need.
Rather than concentrating on the production of spider silk, we believe it is likely that several industry
giants including, industry leader Du Pont, are actively developing new types of artificial fibers that will
have similar strength and resilience properties of spider silk.
DuPont Corp. has announced a new product, which it calls M5. The fiber is currently being developed
under a joint effort between DuPont and a majority owned subsidiary, called Magellan Systems
International. It is widely thought that M5 has the potential to capture the high end of the market for
technical fibers due to its very high strength and its robust thermal and flame resistant properties.
Sizing the Market Opportunity
The market in which the company will participate is generally referred to as the “technical textiles”
market. The market encompasses a broad range of products that are used for a huge number of different
types of applications. The common characteristic of companies that participate in the technical textiles
market is that the fibers, often which are engineered in the form of fabrics or yarns, are designed to meet
specific performance characteristics specified by the final market or end customer. The products sold into
the market are either finished products in themselves or are used as components to produce other
products.
The specific sub-sector of the technical textiles market where the company is expected to participate is
known as the high-performance fibers market and can be broken down into two main areas:
The first of these areas is aramid fibers. The best known of these fibers is DuPont's Kevlar, which holds a
significant market share of the high-performance fiber market, likely producing over $5 Billion in sales
for Du Pont each year. Kevlar combines very high strength with a lightweight profile. For more than
four decades, Kevlar has dominated the market with wide adoption in a variety of consumer and industrial
applications.
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The second classification of these high-performance fibers is ultra-high molecular weight polyethylene
fibers, such as Spectra, which is produced by Honeywell International, Inc. and Dyneema, which is
produced by DSM NV, a company located in Netherlands. Dyneema is an important component in ropes,
cables and nets used in the fishing, shipping and offshore industries due to its ultra-high strength, its
resistance to moisture and for the ability for the fiber to float in water. Spectra is used in numerous highperformance
applications, including bullet resistant vests, helmets and armored vehicles, as well as in
fishing lines, sailcloth in many other marine-related applications.
All the products in these categories are significantly stronger than steel of equal weights and diameters
and due to this superior strength and toughness have been widely adopted into a variety of industrial,
aerospace and ballistic protection applications.
The worldwide market for these fibers and other high performance technical fibers, as discussed above, is
currently estimated at approximately $90 billion per year, with the United States accounting for more than
half of the market. The market has experienced significant growth over the past 10 years and is expected
to retain a similarly robust growth rate over the coming years.
While these products are well established in the marketplace and are expected to be considerable
competition, there are certain properties that are inherent to spider silk that are still superior to these
synthetically derived products. While Kevlar can be measured to have superior tensile strength versus
spider silk on a pound per pound basis, Kevlar pales in comparison to spider silk relative to the ability to
absorb energy prior to fiber breakage. Relative to this characteristic spider silk is unmatched by any manmade
or naturally occurring fiber.
An additional unique property of spider silk is that it is derived from all natural sources. All of the
competitive products mentioned above are manufactured using toxic chemicals, which pollute the
environment. Additionally, none of these products are biodegradable. Spider silk on the other hand, of
course, is an all-natural product that naturally breaks down in the environment and requires no chemical
inputs for production. The only inputs that are needed for transgenic silkworms are Mulberry leaves,
oxygen, and a bit of genetic material from their very distant cousins, the spider. Additionally, products
made using spider silk could be completely biodegradable, a feature that has been purposely engineered
out of competing high-performance fiber products.
Silk production has changed very little in centuries as has the basic raw silk produced by silkworms.
Even limited spider silk protein expression in the silk of these animals could produce a huge commercial
success if such a raw material is much more resilient than ordinary silk. Additionally, we see a high
commercial value from strictly a marketing standpoint for hybrid spider/silkworm silk.
There’s quite a bit of discussion as to the true value of the silk industry, but most sources place worldwide
annual sales of between $3 billion and $10 billion. The U.S. market is one of the largest markets for silk
and by our estimates is valued at approximately $2 billion per year. New estimates indicate that the
European union’s market is roughly the same size. Silk output in China has been rising rapidly and was
recently valued according to the Chinese Ministry of commerce at $31.25 billion dollars in 2010, up
66.7% from 2005. It has been further estimated that between the year 2000 and the year 2007, China’s
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silkworm cocoon output rose by more than 72% to a total of 785,000 tons. Regardless of the estimates
used, the world wide silk market is significant.
Overview of the Kraig Biocraft Laboratories’ Team
The CEO of the company, Mr. Thompson is the only member of the scientific advisory board who is also
a part of the corporation's management. His formal education lies in the fields of economics and law. He
received his B.A. in Applied Economics from James Madison College at Michigan State University. He
received his Juris Doctorate from the University of Michigan Law School in 1994. His interest in genetic
engineering dates back to the 1970s when, as a teenager, he witnessed the early success of cloning
experiments with amphibians.
Mr. Thompson is the named inventor in a pending provisional patent application for a number of organic
polymers. The patent application has been assigned to the benefit of the company. A central part of the
company's work is in reducing those inventions to practice. Mr. Thompson founded Kraig Biocraft
Laboratories in his pursuit of the development of new biotechnologies with industrial applications. As
chairman of the scientific advisory board, he brings a unique perspective, and acts as the primary liaison
between the advisory board and the corporation.
This is not to say, however, that the company is lacking in talent as the other team members, while not
direct employees of the company, still contributed significantly to the company's efforts. These team
members include:
Malcolm. J. Fraser, Jr. Ph.D.
Dr. Fraser received his Ph.D. from Ohio State University, and performed postdoctoral research at both
Penn State University and Texas A & M University. At Texas A & M he was a part of the team which
developed the genetic expression system which is now a widely used methodology for producing organic
molecules, including pharmaceuticals, on an industrial scale.
He is the co-inventor of the gene splicing technology “piggyBac”, as well as the inventor of various
piggyBac improvement patents. It was his work on piggyBac which first caught the attention of Kraig
Biocraft Laboratories.
He was recently selected as a fellow of the American Association for the Advancement of Science. This
was awarded in recognition for his distinguished contributions to genetics and transgenesis, and for his
discovery of the piggyBac transposable element and derived transgenic vector system.
In 2006, Dr. Fraser was awarded $2.5 million from the Bill and Melinda Gates Foundation to fund
"deliverable technologies" in the field of transgenics, for the prevention of mosquito born disease.
Dr. Fraser is a member of the faculty at the University of Notre Dame, where he heads the Fraser
Laboratory. The focus of his work is molecular genetics. He is the author or co-author of numerous
scientific articles in the field of genetic engineering and gene manipulation.
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Randy Lewis, Ph.D.
Dr. Lewis received his B.S. in chemistry from the California Institute of Technology. He received his
M.S. in chemistry and his Ph.D. in Biochemistry from the University of California, San Diego.
Dr. Lewis is internationally renowned for his work on spider silk. He is also the named inventor of a
number of patents relating to spider silk polymers. He is a member of the faculty at the University of
Wyoming, where he heads the Lewis Laboratory within the Department of Molecular Biology. The study
of spider silk polymers and their underlying genetics is a major focus of Dr. Lewis's research.
Donald L. Jarvis, Ph.D.
Dr. Jarvis received both his B.S. and M.S. in microbiology at Idaho State University. He received his
Ph.D. in Virology at Baylor College of Medicine. After earning his Ph.D. he trained in molecular cloning
at Baylor. In 1987 he undertook postdoctoral studies on glycoprotein biosynthesis at Texas A&M. In
1989, Dr. Jarvis moved into an independent position at Texas A&M.
In 1998, Dr. Jarvis accepted a position in the Department of Molecular Biology at the University of
Wyoming. He received a professorship in 2000. Dr. Jarvis heads a research laboratory within the
University's Department of Molecular Biology which focuses on biochemistry, biosynthesis, and practical
genetic engineering applications. He has approximately eighteen patent applications and intellectual
property licensing agreements to his credit, including biosynthesis technologies and technologies with
potential applications for pharmaceutical production. He is the author or co-author of numerous scientific
articles in the fields of biosynthesis, genetic engineering and biochemistry.
Risk Factors
The single biggest risk factor that we have identified previously relative to investing in Kraig Biocraft
Laboratories is that the company may not be able to produce the transgenic silkworms that produce the
desired proteins. While some genetic modifications of the silkworm species have taken place, there can
be no assurance that the genetic mutations the company’s scientists are seeking to achieve are even
possible. Should the company be unable to produce these genetic modifications, Kraig Biocraft’s stock
would likely lose a significant portion of its value. Of course, with the news pending relative to what this
company has actually accomplished in the laboratory pending, this main risk factor relative to investing in
the shares may soon evaporate.
We have also previously identified another risk factor that investors should closely monitor is the likely
need for additional capital. The company has yet to produce any revenues and has been selling stock in
order to raise cash to continue its research. It is likely that additional capital will need to be raised over
the coming months. We believe the capital requirements for this company, however, are relatively
conservative as the key scientific personnel have been given incentives via stock ownership and receive
no monthly compensation directly from the company and are instead employees of major universities that
have significant research budgets.
An additional risk factor for investors to closely monitor relate to the competitive issues raised earlier in
this report. At least one Asian laboratory is working on similar technologies and it is unclear at this time
where their development stands. This risk is somewhat mitigated, however, by the fact that Kraig
KRAIG BIOCRAFT LABORATORIES, INC.
Emerging Growth Research, LLC
Biocraft Laboratories has a strong intellectual property position relative to production and sale of the
potential product within the United States. Relative to the competitive situation, we believe it is also
important to watch the product development efforts of the dominant players in this industry, as it appears
several major products may also be close to commercial viability.
We believe the situation relative to these risk factors is likely to change significantly as a result of the
information we expect to be released during the upcoming press conference.
Our Opinions and Conclusions
We are clearly excited about this company’s prospects to develop a “super fiber” that can be sold into the
technical textiles industry. While the development of a “super fiber” is the ultimate goal, we are also
excited about the possibilities of revolutionizing the commercial silk industry through the production of a
superior silk product is produced by transgenic silkworms developed by the company.
The company’s research and development efforts seem to be based on solid science that has been
developed by some of the world's leading genetic researchers. The company’s technical team now needs
to move beyond the theory and into actual production of the desired transgenic species. News that the
technical team has now moved beyond theory may now be pending.
We see the major risk to the company not from the current industry leaders in the textile industry, but
rather from delays in moving from theoretical to practical application of the technology. While
scientifically speaking there appears to be no technical barrier for the production of the required
transgenic species, it is unclear at this time how long it will take to produce the desired results.
The physical properties of spider silk are quite remarkable and artificial or transgenic production of these
fibers will surely be viewed by the scientific community as a major breakthrough. Additionally, such a
development would also likely yield significant coverage in the general business and popular press
sectors, perhaps offering Kraig Biocraft Laboratories significant public relations exposure, which could
easily drive the price of its shares to much higher levels.
Relative to the development of new technologies, there are numerous cases that can be referenced where
it has been advantageous to be the second or third team that has attempted to develop a new technology,
rather than the first. We believe this may very well end up being the case relative to Kraig Biocraft
Laboratories. The initial work into production of spider silk proteins completed by other laboratories
provided important information relative to the viability of various techniques. While at least one other
company has been able to produce spider silk proteins that particular company failed to reach their overall
goal due to the difficulties in producing the actual silk fibers from the underlying proteins. This made it
clear to all future researchers that the secret to success lies in the spinnerets of silkworms and spiders and
not in the technologies to produce the actual proteins.
That particular research failure provides important insight into the sophisticated processes that spiders and
silkworms utilize in silk production. With perfect hindsight, of course, the research direction pursued by
Nexia seems rather naïve when compared to the much more elegant transgenic approach of modifying an
existing silk producing organism, a silkworm, to produce something thousands of years of evolution has
already well equipped it to produce. While the genetic scientists at the Kraig Biocraft laboratories will
KRAIG BIOCRAFT LABORATORIES, INC.
Emerging Growth Research, LLC
receive the accolades if the company’s approach ultimately proves successful, it is the researchers who
tried and failed, and the investors who funded their efforts, that perhaps too will likely deserve some
credit.
While much of this research paper is devoted to a discussion relating to the production of spider silk and
this is the primary driver for the company, we believe it is also important to point out that the use of
transgenic silkworms for the production of other proteins seems to be an additional viable, and
particularly lucrative, market for the company to derive revenue.
Additionally, while much of our above discussion has been targeted at the use of spider silk in the
technical textiles markets, we believe the fashion and apparel industries could also be significant markets
for spider silk fabrics. The angle of marketing spider silk garments as originating from a predator species
versus silk worm silk that is produced by a prey species, seems to strike a chord with us and we believe
may ultimately be a viable marketing angle for such fabrics. Additionally, silk comprises only 2% of the
worldwide textile market used for clothing. While consumers enjoy many of the properties of silk
garments, the delicate nature of the fabric likely significantly limits its usage. Should a more resilient silk
be developed, the overall size of the silk market for clothing and garments would likely expand
significantly.
We view it as very exciting that the company has aligned itself with Dr. Malcolm Fraser, who was the
inventor of the piggyBac technique for gene transposition and Dr. Randy Lewis, who is one of the world's
foremost authorities spider silk. Our information shows that Dr. Fraser is taking a very active role in the
development of the science. As a meaningful shareholder in the company he stands to gain substantial
monetary rewards, in addition to significant academic and scientific accolades.
Should the company achieve a major breakthrough in the laboratory we would expect that it would take
an additional year to completely refine the process. During this period we would anticipate the
company’s management team to actively pursue licensing agreements or the outright sale of the company.
Should the company achieve its desired transgenic goals, we believe it would be very unlikely that the
company would pursue vertical integration in order to actually achieve production of fibers on its own as
this would require a very specialized management skills and extensive amounts of fresh capital.
One of the major hurdles that most biotechnology companies must overcome is the FDA approval
process. Because Kraig Biocraft Laboratories does not need FDA approval, we believe it will be much
easier for investors to monetize their investment should a major breakthrough be achieved in the
laboratory.
Shares of Kraig Biocraft Laboratories are clearly speculative, but offer some exciting appreciation
possibilities in the future. It will surely be exciting to watch developments at this company over the
coming weeks, months and years.
KRAIG BIOCRAFT LABORATORIES, INC.
Emerging Growth Research, LLC
Analyst Certification - I, Joseph Noel, hereby certify
(1) that the views expressed in this research Company report accurately reflect my personal views about
any or all of the subject securities or issuers referred to in this Company report and
(2) no part of my compensation was, is, or will be directly or indirectly related to the specific
recommendations or views expressed in this Company report.
Analyst:
Joe Noel is an award-winning stock picker and analyst with more than 30 years of experience in the
investment and technology industries.
Mr. Noel is President of Emerging Growth Research, LLC — a firm like no other in financial services or
financial communications. Emerging Growth coalesces elements of independent stock analysis, merchant
banking, investor relations, public relations and management consulting into a unique service offering
that serves both investors and corporate insurers. Services include: providing individual investors and
hedge fund managers innovative stock recommendations; direct investments in growth companies;
investor and public awareness campaigns; and, management consulting services to ensure management
teams of the emerging growth companies maximize their potential.
Prior to founding Emerging Growth Research, Mr. Noel enjoyed a career on Wall Street as a securities
analyst tracking various sectors of growth companies. Most recently, he was a Senior Analyst at Pacific
Growth Equities, LLC, where he tracked the emerging growth and advanced industrial sectors. Prior to
Pacific Growth Equities, Mr. Noel covered growth companies at Hambrecht & Quist. During his Wall
Street career, which lasted nearly 15 years, he was involved in dozens of initial public offerings, mergers
and acquisitions and other financial transactions.
Mr. Noel’s success in stock picking and as a securities analyst was recognized multiple times. He was a
frequent television guest on CNBC, Fox News, Bloomberg Television, and other networks. While at
Pacific Growth Equities, he was twice recognized by the Wall Street Journal as an “All-Star Analyst” for
his stock picking ability in the advanced industrial equipment and telecommunications sectors. He also
received the prestigious “Bloomberg Annual Stock Picking Award,” which recognized him for generating
more than 100% annual returns on his recommendations.
While at Hambrecht & Quist, Mr. Noel was recognized two years in a row as a Wall Street Journal All-
Star Analyst for stock picking in the telecommunications sector. Additionally, while at Hambrecht &
Quist, he received a separate Wall Street Journal All-Star Analyst for earnings forecast accuracy in the
advanced industrial equipment sector.
Prior to his experiences as a Wall Street securities analyst, Mr. Noel was an industry analyst at
Gartner/Dataquest where he tracked various growth sectors of the economy, including the development of
the Internet, advanced data communications and wide area networking. In addition to responsibilities as a
publishing analyst, Mr. Noel also held a supervisory role directing the activities of other analysts tracking
other growth sectors.
Before beginning his career as both a Wall Street analyst and as an industry analyst, Mr. Noel received
solid experience in industry. At MCI, which was later acquired by WorldCom, he was one of the
telecommunications industry’s pioneers in the introduction of high speed data communications services.
In this role, he held national product launch responsibility for one of the most successful data
communications services ever introduced. The data communications service ultimately generated
hundreds of millions of dollars in annual revenues and is still widely used by industries domestically and
around the world.
KRAIG BIOCRAFT LABORATORIES, INC.
Emerging Growth Research, LLC
At British Telecom, Mr. Noel was involved in the strategic planning for the firm’s migration from an
antiquated technology to state-of-the-art Internet access technology. In this role, he was responsible for
negotiations, which ultimately led to government permission for one of the first consumer Internet access
services. He later wrote the business plan to launch British Telecom’s consumer Internet access service.
He was also employed by various Bell Operating Companies in both marketing and technical roles for
many years.
Mr. Noel received his MBA in finance from Wake Forest University and holds a BS in business and
economics. He is based in San Francisco, Calif., but is a frequent traveler to visit both investors and the
management teams of the companies he covers.
Other Important Disclosures
No compensation, in any form, was provided to the author of this report or to Emerging Growth Research,
LLC for its production.
Information, opinions, or recommendations contained in this research report are submitted solely for informational
purposes. The information used in statements of fact made has been obtained from sources considered reliable, but
we neither guarantee nor represent their completeness or accuracy. Such information and the opinions expressed are
subject to change without notice. This research report is not intended as an offering or a solicitation of any offer to
buy or sell the securities mentioned or discussed. The firm, its principles, or the assigned analyst may or may not
own or trade shares, options, or warrants of this covered Company. Emerging Growth Research, LLC, has not
received, and will not receive compensation for the production of this report and other related services from the
Company. The firm produced a research report in mid-2008 and received compensation for its production.
Additionally, the analyst responsible for the production of this report owns common stock in the subject Company.
This report should be considered a paid promotional piece and the author may or may not liquidate shares. The
views expressed in this Company research report accurately reflect the analyst’s personal views about any or all of
the subject securities or issuers referred to in this Company report, and no part of the analyst’s or the firm’s
compensation was, or will be directly or indirectly related to the specific recommendation or views expressed in this
report. Opinions expressed herein reflect the opinion of Emerging Growth Research, LLC and are subject to change
without notice. We claim no responsibility to update the information contained in this report. Investors should
consider the suitability of any particular investment based on their ability to accept certain levels of risk, and should
not rely solely on this report for information pertaining to the Company covered. The material in this document is
intended for general circulation only and the recommendations contained herein do not take into account the specific
objectives, financial situation, or particular needs of any particular person. An investor should consult his/her
investment representative regarding the suitability of this investment and take into account any specific investment
objectives, financial situation, or particular needs before he or she makes a commitment to purchase the shares of
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consent of the Emerging Growth Research, LLC.
Stock Ratings
The coverage analyst uses a relative rating system in which stocks are rated as: BUY, SELL or HOLD.
BUY - the stock is expected to outperform the unweighted expected total return of the sector over a 12-month investment
horizon.
SELL - the stock is expected to under perform the unweighted expected total return of the sector over a-12 month time horizon
HOLD - the stock is expected to perform in line with the unweighted expected total return of the sector over a 12-month