Purinex Case Study

Purinex Case Study

Given the structure we developed to capture the value of available options for the Purinex case, we have determined the angel investment option for Purinex’s sepsis or diabetes drugs maximizes the value of the firm today. That firm value with the angel options we have calculated to be $41,981,505. The first step we had to take was to value the partnership deals.

There’s a 75% change Purinex will land a partnership deal in the next 4-12 months. Out of that partnership there’s a 60% chance the partnership will be for the Sepsis medication and 40% chance for the Diabetes medication. To determine the value of each mutually exclusive partnership we took the value of the upfront value of Sepsis and Diabetes, $5 Million and $8 Million, respectively. Each deal had a large sum for undiscounted milestones. Since milestones are portions of the total sum paid out throughout the drug development process, we decided to span out the milestone sum across the timeline provided in exhibit 1 from the book on page 430. We determined that FDA review and approval would be completed in approximately 10 years for the Sepsis drug, and 13 years for the Diabetes drug (started from the median of preclinical trial time length for diabetes) as each drug was in a different phase of development. We set the milestone cash flow evenly across both time periods to discount the cash flow of each payment to get a proper Milestone NPV. The deals also incorporated royalties. To value the royalties, we were told that the Sepsis annual sales would be $500 Million annually, and the Diabetes would be $4 Billion annually. On average 5-10% of drugs entering clinical trials are approved by the FDA, so we attributed a 10% chance (understandably on the high end) that each drug would receive royalties from the annual sales. We then calculated the NPV of each perpetuity and discounted it by 10 years for Sepsis and 13 years for diabetes, as the revenue wouldn’t occur until after...