Purinex inc case study essay

Business Summary

1 . Statement of Problem

This study can be commissioned to analyze the Purinex, Inc. funding plan, which can be related to decide the best funding alternative for the company in securing further cash needed to establish a alliance with a large-capitalization pharmaceutical company. Gilad Harpaz, Purinex’s key financial police officer believes a partnership package could accept the company to execute their mission, developing drugs pertaining to the treatment of sepsis and diabetes. However , the condition facing Purinex is that”while there is a chance for Purinex to have a partner over the following four to 12 months, Purinex just has available money to previous around eleven months; furthermore, there is continue to a very solid chance a different collaboration would occur about one year later.

In a nutshell, Purinex is now facing the challenge of the not enough capital to reach the relationship deals. In line with the case, Gilad Harpaz is considering three options pertaining to Purinex to solve the problem. To aid identify the feasibility and attractiveness of these financing alternatives, this research is based on the decision tree method to evaluate the choices.

2 . Dialogue

As described in the case, first of all, the partnership deal will entitle Purinex to receive a combination of up-front fees, milestone repayments, and royalties for treating either sepsis or diabetes (see Appendix 1 for the detailed information). Secondly, due to the not enough capital, you will discover three financing options: 1) raising a one-time round financing by a Investment capital (VC) company, 2) just waiting in the expectation that either sepsis deal or perhaps the diabetes deal would come through, and 3) undertaking another one-time circular financing via a number of angel investors. It truly is needed to remember that when Purinex seeks exterior funding assets either from VC firm or angel investing, the investors can acquire selected equity in Purinex (see Appendix a couple of for the expected ownership percentage). However, if Purinex chooses to keep up 100 percent control, it would reduce the opportunity to protect a third-party partnership which is anticipated to happen about 12 months later.

This is because Purinex has only $700, 000 cash on hand which can be good just for around 11 months. It is vital to note this study is dependent on the following assumption”thecombination of payments for each relationship deal will probably be received when Purinex efficiently secures a partner. In addition , the probability of building a alliance with a pharmaceutical company pertaining to the wait-6-months option is estimated to be 25% because the achieved collaboration chance for the next four to 12 months is about 75% (see Appendix 3 for the calculation).

Furthermore, the predicted value (EV) for each financing option comes from the calculation of the EV of the relationship deal, in fact it is based on the standpoint from the founder’s fairness interest. Therefore, the decision shrub for Purinex’s financing strategy is proven in Appendix 4. One can possibly notice that depending on the potential go back and risk level, the financing option for waiting 6 months is definitely ranked since the highest risk option regarding offering the greatest potential return. The reason is that Purinex does not have to share its earning with other parties. Therefore, once the relationship agreement is usually reached, Purinex’s founders can obtain the entire EV of $325 million. Yet , the major risk associated with this choice is Purinex has less opportunity to protect a partner. During your stay on island is a 73% chance for VC and angel financing alternatives to achieve the relationship deal, this approach just contains a 25% likelihood. Furthermore, the VC and angel loans options still have the different chance”a 95% probability”to secure a different partnership about one full year later.

To find the VC option as well as the Angel alternative, it seems like the VC alternative provides a bigger return pertaining to the causes of cash since this option merely takes three months to finish the process and can offer Purinex $10 mil, which permits Purinex to outlive another 15 years. Additionally , the VC option will be better 10% intended for the terms of possibly drug deal. However , this study might consider loans from angel investors is far more feasible and attractive to get Purinex based upon the research of decision tree. The choice tree displays the fact that VC firms would require 40 percent of the collateral in Purinex, resulting in the situation of having fewer EV. Possibly the most important factor is the fact there is a very secure chance”a 98. 75% possibility (100% ” [25% * 5%])”that a partnership package will come through during the subsequent two years, and thereby increasing $2 million form angel investors is quite enough to get Purinex to secure the collaboration deal.

Besides the analysis of decision forest, there is even now a qualitative consideration which has impact on structuring the decision. Without a doubt, with the exterior financing, the existing owners share structure will be transformed that would trigger the control power issue and enforce a significant quantity of restrictions on Purinex, which include preferences to get board meetings, antidilution legal rights liquidity, involvement, and adverse covenants. Consequently , choosing the angel option will offset this kind of negative effects because Purinex’s ownership percentage will still be 89. 74%, which is much greater compared to a 60% to get the VC option.

several. Recommendation

Basically, the goal of Gilad Harpaz should be to seek the best financing alternative for Purinex in securing additional money in order to accomplish the collaboration deals and maximize the significance of Purinex today. Based on the presented examination of decision tree, a major finding of this study is that Gilad Harpaz should try to adopt and put into action the angel financing approach which has a optimum EV along with manage risk. However , with this strategy, the issue of dilution inside the founder’s fairness interest remains needed to be regarded. In addition , to be able to pursue the near future growth, Purinex should try to utilize the relationship strategy to create more sales at a short period of time. Hence, this study is convinced, based on your decision tree strategy, the best funding alternative intended for Purinex is definitely financing with Angel shareholders along with the alliance strategy.

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