Avid Pharmaceuticals

The case involves a bio-tech start-up company, Avid Radiopharmaceuticals, which has developed novel molecular imaging agents that illuminated the pathology of a number of diseases (Alzheimer’s, Parkinson’s and diabetes’s disease). The company was founded in 2005 by Dr. Skovronsky, who previously was Scientific Director at U.Penn, and now licenses the intellectual property from U-Penn.

This technology has huge potential market: the market for Alzheimer’s scans was estimated to reach over $1.5B per year by 2017. AVID Alzheimer’s lead compound, AV-45 has completed Phase II of FDA approval path, and is investing in Parkinsons’s lead compound trial research (AV-133) to get the approval for Phase II. AVID is ahead of competition but its main competitor, P2C, a multinational conglomerate financially strong, had licensed in a compound that also imaged Alzheimer’s.

AVID has been able to raise equity 3 times:

1- $1.5M round A from Reality Ventures

2- $8.9M round B from Eli Lilly and Pfizer

3- $26M round B from SFE and AB

but now it was quickly running out of cash, burning $1 million per month, and AMID CEO, Dr. Skovronsky basically had to decide whether to raise venture debt in order to keep working on his strategic activities or streamline his processes and strategies to save cost to develop new products.

Taking on venture debt seems to be the best choice for AMID because the economic downturn would probably lead to an expensive and unsatisfactory IPO. Venture debt would allow the company to keep pursue its strategies and successfully (i.e. without financial distress) reach the important milestone of Phase III for AV-45. Putting debt in its capital structure would be also an advantage for current shareholders because it would give more incentive to managers to reach their targets creating cash-flows in order to pay interests on debt. Another advantage is that after reaching Phase III the company value will increase and an IPO would be more profitable.

Going into...