Purinex Inc Case Study

Introduction

The case asks for evaluation of different financing options. Gilad Harpaz is Purinex's CFO and he needs to determine which one from the three options provides lowest risk, highest company value, and short term cash for operations. Purinex is a biotechnological company that has 35 patents pending in pharmaceutical field. It is one of the raising stars that may develop new drug for specific use in diabetes and sepsis. Company has 14 employees. Monthly burden is $60000; company has available cash of $700000 which will last up to 12 months.

Solution

Company should proceed with two options at the same time, of course, if this is possible. Those are pursuing the partnership with a "Big Pharma" company and get additional cash from Angel investors.

1. Ultimate solution out of those available is to increase the value of the company to its maximal potential. Not only the company would increase its value to $25 mil, but also gets the financing for funding the operations. Therefore, partnership seems to be the way to go. Partnering with a larger company seems to be the market trend, whereas, VC funding seems be declining. Purinex will need some additional cash to fund R&D and other daily operations. When it comes to deciding which partner to choose, CFO should look not only at the proceeds from the partnership, but also at the portion of business that Purinex will be giving away. In this case, it is more lucrative to partner with sepsis partner. It provides comparable cash as the diabetes partner, but promised cash flows are much smaller. Diabetes drug sales are estimated at $4 billion, whereas sepsis drug sales would be only 0.5 billion. Diabetes drug therefore seems to be a lot stronger "cash cow" and giving up large portion of future proceeds would not be smart solution. Purinex is in need of relatively small cash, when compared to future cash flows. Up-front cash of 5 million dollars should be good at least for 24 months. If...