Executive Summary
Since the issuance of our initial report in July 2008, we have been closely monitoring
the situation in the Notre Dame laboratory. Of particular importance to us have
been both the microinjection techniques and the number of microinjections taking
place. At the beginning of December 2008, the Company announced the addition of
several noted scientists to the research team and modification of the microinjection
techniques. These changes have yielded a more than doubling of the number of gene
transfers performed, greatly increasing odds of success. As a result of these efforts,
we believe the research team is on the verge of a major breakthrough in producing
high-performance polymers using spider silk gene sequences in silkworms. As this
report explains, this research team's efforts, if successful, will be huge news,
not only within the scientific community, but also with the commercial textiles
industry and will likely receive significant popular press exposure. Investors in
KBLB common shares will surely realize gains of several thousand percent as a result,
in our opinion.
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 company currently sells small amounts of the protein
at approximately $1,000 per gram, mainly to university research laboratories. While
the results produced by Nexia, where groundbreaking relative to science, only very
limited commercial success has been achieved. Some progress has also been made in
Asia Laboratories, but these efforts have also failed to produce a viable commercial
products.
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 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 in Japan where silk
purchases per capita are the highest in the world. To date, Kraig Biocraft Laboratories
has not yet produced the desired proteins in a transgenic silkworm, but efforts
over the next six months are expected to significantly accelerate possibly leading
to a breakthrough in the laboratory by the end of 2008. Should such a break through
occur, we would expect it to take an additional year to perfect the technology.
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.
