Purinex Inc. Case Study Essay

Executive Summary1. Statement of ProblemThis study is commissioned to go the Purinex, Inc. financial backing plan, which is related to determine the best finance secondary for the society in securing additional cash inevitable to establish a partnership with a large-capitalization pharmaceutical firm. Gilad Harpaz, Purinexs chief financial incumbent believes a partnership deal could bring the company to execute its mission, ontogeny drugs for the treatment of sepsis and diabetes. However, the problem facing Purinex is thatwhile in that respect is a run across for Purinex to secure a partner in the next four to dozen months, Purinex full has available cash to last a brush up 11 months furthermore, there is still a very strong chance that a contrasting partnership would occur about one year later. In short, Purinex is right off facing the challenge of the lack of capital to reach the partnership deals. agree to the case, Gilad Harpaz is considering three plectrons for Purinex to solve the problem. To help identify the feasibility and attractiveness of these financing alternatives, this study is based on the ratiocination tree approach to judge the excerptions.2. DiscussionAs described in the case, firstly, the partnership deal would empower Purinex to receive a combination of up-front fees, milestone payments, and royalties for the treatment of either sepsis or diabetes (see Appendix 1 for the detailed information). Secondly, due to the lack of capital, there atomic number 18 three financing options 1) raising a one-time round financing from a Venture Capital (VC) firm, 2) simply waiting in the expectation that either sepsis deal or the diabetes deal would light through, and 3) undertaking an separate one-time round financing from a number of holy person investors. It is needed to note that when Purinex seeks extraneous funding investments either from VC firm or angel investing, the investors will mature certain rightfulness in Purinex (see Appendix 2 for the expected self-possession dower). Neverthe slight, if Purinex chooses to maintain 100 percent control, it would lose the opportunity to secure a third-party partnership which is anticipated to occur about one year later.The causa is that Purinex has only $700,000 cash on hand which is good only for roughly 11 months. It is eventful to note that this study is based on the spare-time activity assumptionthecombination of monies for each partnership deal will be received once Purinex successfully secures a partner. In addition, the probability of establishing a partnership with a pharmaceutical company for the wait-6-months option is estimated to be 25% since the achieved partnership chance for the next four to twelve months is about 75% (see Appendix 3 for the calculation).Furthermore, the expected value (EV) for each financing option is derived from the calculation of the EV of the partnership deal, and it is based on the standpoint of the pauses equity interest. As a result, the stopping point tree for Purinexs financing plan is shown in Appendix 4. One can note that based on the potential return and risk level, the financing alternative for waiting 6 months is ranked as the highest risk option in terms of offering the highest potential return. The reason is that Purinex does not have to destiny its earning with other parties. Thus, once the partnership agreement is reached, Purinexs founders can guard the entire EV of $325 jillion. However, the study risk associated with this option is Purinex has far less opportunity to secure a partner. While there is a 75% chance for VC and angel financing options to achieve the partnership deal, this option just has a 25% probability. Furthermore, the VC and angel financing options still have the other chancea 95% probabilityto secure a several(predicate) partnership about one year later.With regard to the VC option and the nonpareil option, it seems like the VC option provides a high er return for the sources of cash since this option just takes 3 months to complete the process and could offer Purinex $10 million, which enables Purinex to work another 15 years. In addition, the VC option will improve 10% for the terms of either drug deal. However, this study would consider financing from angel investors is more feasible and attractive for Purinex based on the analysis of decision tree. The decision tree shows the fact that VC firms would require 40 percent of the equity in Purinex, resulting in the situation of having less EV. Perhaps the most important factor is that there is a very strong chancea 98.75% possibility (100% 25% * 5%)that a partnership deal will come through during the following two years, and thereby raising $2 million form angel investors is quite enough for Purinex to secure the partnership deal.In addition to the analysis of decision tree, there is still a soft consideration that has impact on structuring the decision. Indeed, with the exte rnal financing,the existing owners share establishment will be changed that would trigger the control power takings and raise a significant number of restrictions on Purinex, including preferences for board appointments, antidilution rights liquidity, participation, and negative covenants. Therefore, choosing the angel option would offset this negative impact because Purinexs ownership percentage will still be 89.74%, which is much greater than a 60% for the VC option.3. RecommendationFundamentally, the goal of Gilad Harpaz is to seek the best financing alternative for Purinex in securing additional funds in order to accomplish the partnership deals and maximize the value of Purinex today. Based on the presented analysis of decision tree, a major finding of this study is that Gilad Harpaz should learn to adopt and implement the angel financing strategy which has a maximum EV along with lower risk. However, with this strategy, the issue of dilution in the founders equity interest is still needed to be considered. In addition, in order to pursue the future growth, Purinex should try to employ the partnership strategy to generate more sales at a short period of time. Hence, this study believes, based on the decision tree approach, the best financing alternative for Purinex is financing with Angel investors along with the partnership strategy.