Mogen Company Financial Analysis

3827 Words Nov 27th, 2010 16 Pages

On January 10, 2006 the managing director of Merrill Lynch’s Equity- Linked Capital markets Group, Dar Maanavi, was reviewing the final drafts of a proposal for a convertible debt offering by MoGen, Inc. As a leading biotechnology company in the United States, MoGen had become an important client for Merrill Lynch over the years. In fact, if this deal were to be approved by MoGen at $5billion, it would represent Merrill Lynch’s third financing for MoGen in four years with proceeds raised totaling $10 billion. Moreover, this “convert” would be the largest such single offering in history. The proceeds were earmarked to fund a variety of capital expenditures, research and development expenses, working capital needs, as well as
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Over the years, the industry had made progress in shortening the approval time and improving the predictability of the approval process. At the same time, industry R&D expenditures had increased 12.6% over 2003 in the continuing race to find the next big breakthrough product.

Like all biotech companies, MoGen faced uncertainty regarding new product creating as well as challenges involved with sustaining a pipeline of future products. Now a competitive threat of follow-on biologics or “biosimilars” began emerging. As drugs neared the end of their patent protection, competitors would produce similar drugs as substitutes. Competitors could not produce the drug exactly, because they did not have access to the original manufacturer’s molecular clone or purification process. Thus, biosimilars required their own approval to ensure they performed as safely as the original drugs. For MoGen, this threat was particularly significant in Europe, where several patents were approaching expiration.

Funding Needs

MoGen needed to ensure a consistent supply of cash to fund R&D and to maintain financial flexibility in the face of uncertain challenges an opportunities. MoGen had cited several key areas that would require approximately $10 billion in funding for 2006:

1. Expanding manufacturing and information, and fill and finish capacity: Recently, the company had not been able to scale up