Cases in Finance

2063 Words Jun 4th, 2014 9 Pages
Case 41, MoGen, Inc. – Finance 675

David Biggs, Amanda McAllaster, Jake Unruh, Andy Rao

Background Information
MoGen is a leading company in the recently surging biotechnology industry that specializes in human therapeutic drugs that help offset the damaging effects of chemotherapy for cancer patients. The business model for all biotech companies is fairly similar: through extensive R&D, create new medical drugs, obtain FDA approval and product patents and launch them into the market.

In order to achieve profitability and increase the likelihood of FDA approval for their various projects, MoGen must ensure a consistent supply of cash to fund R&D efforts and maintain financial flexibility in the face of the
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Since repurchases reduce the shares outstanding, it kept the EPS relatively steady despite the dilutive effects on EPS from the convertibles.

The share repurchase also provided a positive signal to the market that the company viewed its stock as undervalued, a strategy that could encourage investors to increase their positions in the firm.

Fund Usage and Firm Needs in 2006
By 2006, MoGen needed an additional $10 billion of funding for various projects that aimed to improve manufacturing capacity and processes, formulation, fill and finish capacity, investment in R&D and late-stage trials, acquisition and licensing, and stock repurchasing.

To improve manufacturing processes and reduce supply risks, the firm estimated a $1 billion R&D, a vital component of the business needed a 30% increase in funding, totaling to an additional $3 billion. Mogen was also looking to acquire Genix, Inc. and their intellectual capital for approximately $2 billion. Finally, the management team also wanted to maintain the share repurchase program and expected to spend $3.5 billion.

All of these projects add up to a total of roughly $10 billion. Internally generated funds were estimated to be $5 billion from net income and depreciation, requiring MoGen to find the other half of the funding from a different source.

In search of additional funding, MoGen considered raising the $5 billion by issuing

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