Plurogen Therapeutics

Abstract

Founded in February 2003, PluroGen Therapeutics is a start-up pharmaceutical firm that is in the process of developing a topical antimicrobial gel (TAG) to prevent and treat burn and skin-ulcer infections. In contrast to most new pharmaceutical compounds that have no clinical history, TAG has been used by thousands of patients at a large university hospital over the past 10 years. Based on the favorable clinical response, the two founding doctors want to start a company and make the drug available to the greater medical community. Although the doctors are recognized authorities in the field of wound care and holders of several patents, neither has extensive business experience. PluroGen is currently seeking $1.5 million in financing from angel investors to initiate the drug-approval process and subsequently plans to seek $6.5 million in funding from a strategic partner to complete Phase III trials and gain final approval from the U.S. Food and Drug Administration. Students are asked to evaluate whether TAG is attractive enough to be of interest to experienced investors and, if so, what percentage of equity investors would demand in return for the $1.5 million. Because of the presumed future funding by a strategic partner, the angel investors must carefully weigh the effects of the next round of financing on the terms they are demanding now. Excerpt UVA-F-1469 Rev. Mar. 13, 2013 PluroGen Therapeutics As Dr. George Rodeheaver worked in his biomedical-research laboratory at the University of Virginia (U.Va.), he reflected on the achievements of the past 20 years. In the late 1970s, Rodeheaver and his colleagues began work on a drug that would counter burn-related infections. After considerable effort, his team developed TAG, a topical antimicrobial gel, to prevent and treat burn and skin-ulcer infections. TAG had been used by thousands of patients at the U.Va. hospital over the past 10 years. Encouraged by the success of TAG in treating burn and skin-ulcer infections, Rodeheaver saw an opportunity to start a company and make the drug available to the greater medical community beyond U.Va. He cofounded PluroGen Therapeutics (PluroGen) with Adam J. Katz, a fellow doctor at U.Va. Although both doctors were recognized authorities in the field and holders of several patents, neither had extensive business experience. Exhibit 1 describes the doctors' backgrounds and the other members of PluroGen's management team. PluroGen was at a nascent stage—currently seeking $ 1.5 million in financing from angel investors and, later, a strategic partner to further develop TAG and gain the approval of the U.S. Food and Drug Administration (FDA). The doctors immediately confronted two key questions: Was TAG attractive enough to be of interest to experienced investors and, if so, what percentage of equity would investors demand in return for the $ 1.5 million in funding the doctors sought? The Company . . .