Cases in Finance

In: Business and Management

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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 high levels of uncertainty that the industry as a whole faces. The biotech industry is truly what one would describe as a high-risk, high-reward venture.

Because Mogen and the rest of the industry faces strict and rigorous standards set by the FDA, projects often fail or have extremely long lead-times, making investments riskier and additional compensation a must compared to most other industries. Many research efforts lead to failed projects due to FDA rejection and other projects face the threat of “biosimilars,” which are essentially copies of the drugs, once the product reaches the end of the patent-protection period.

At the time, MoGen had several drugs that faced the threat of biosimilar competition in Europe, all due to patent expiration.

Mogen’s Financing Strategy
By January of 2006, MoGen had five main products that had been derived from R&D initiatives. Due to the incredible success of this product lineup, MoGen was able to offset other unsuccessful R&D write-offs and report $12.4 billion in sales and $3.7 billion in profits in 2005. Sales increased 29% annually over the past 5 years, and EPS had gone from $1.81…...

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