Paper

ArthoCare Case Discussion Questions

1. Was an IPO in February of 1996 a sensible financing choice for ArthroCare given its stage of

development, or do you think the company should have raised funds from private equity companies

instead? How much do you think private equity firms would have valued the company if they had

raised another round of financing from private equity firms instead of going public? [Note: from the

Table on page 5 you should be able to figure out how many common shares the company has after its 4th

round of private equity financing. Sum the preferred stock column and divide by 2, and it this to the

common shares outstanding after Round D. The latter figure is a cumulative number.

2. Evaluate the method that Volpe, Welty used to value ArthroCare at the time of the IPO. This method

is described by Paul Brown on page 8 of the case, and you might be able to infer more on the details of

the valuation method from Volpe, Welty’s research report (Exhibit 4). Do you agree with their

valuation amount? Why or why not?

3. What prices should ArthroCare charge for the controller and the wands (be specific)? Support your

recommendation. [Please be prepared to write your recommended prices on the chalkboard at the

beginning of class].

4. Should Dr. Thapliyal reduce the amount and scope of research and development in order to

concentrate on the orthopedic product line? Why or why not?

5. How should Dr. Thapliyal articulate and justify these two decisions (pricing and R&D) to the

financial community