Purinex Inc. Case Study

Introduction: Problems of Purinex

The problem facing by Purinex Inc. CFO’s Gilad Hapaz is to establish a partnership with a major pharmaceutical company that would enable the company to develop one of its leading compounds into a drug for the treatment of one of the world’s most widespread diseases.

Purinex Inc is currently facing financial problems.

The company did not generate sales or earnings and had only $700,000 of cash in hand. The expenses of the company are more than its income. Monthly expenses of the company are about $60,000. Cash level that Purinex holds would only enable the company to survive for another 11 months. Moreover, Purinex need to spend a huge amount of money on Research and Development (R&D) in order to develop an antagonists and agonists program for the treatment of diabetes and sepsis. Early-stage biotechnology firms need excessive access to capital for R&D. According to a study of Tufts University, in order to develop a new human-therapeutic compound, it will cost a company total of $897 million.

A successful deal of partnership between Purinex and a major pharmaceutical company is crucial. If the company is able to secure the partnership, it can solve the financial problem that company is currently facing. Purinex will receive milestone payments, royalties, front fees and co-promotion rights and have enough access of capital for R&D funding. However, there are two partnerships available, one wants a deal for treatment of sepsis while another sought for treatment of diabetes. The first deal for treatment of sepsis, enables Purinex to receive $108 million milestones. The other deal is to give Purinex $80 million milestones. It is believed that there is 60 percent probability that the first deal of partnership will occur. In order for Purinex to go for initial public offering (IPO), securing one of the deals was practically a prerequisite.

Besides that, the drug development and approval process is lengthy and risky. On average,...