* Introduction of Pharmacyclics (PCYC)
Focused on improving treatment of cancer, atherosclerosis and retinal disease, PCYC is a small pharmaceutical company which often licensed compounds to larger ones to bring drugs to market. PCYC had developed four new drugs in pipeline, among which Xcytrin was the most promising one and was expected to gain FDA’s approval in 2002. Facing with substantial R&D costs, PCYC had constantly searching for funds to finance the expenses since start-up. * Historical funding decisions
Before IPO, PCYC managed to finance the company with the help of its own money and outside investors, mainly venture capitalists, in the form of convertible preferred stock. For PCYC, venture capitalists were easy and large sources of fund when it was still in the start-up phase, compared with the tough regulations at IPO and covenants in issuing debt. As return, venture capitalists also required significant control over the company, performing a key nurturing and monitoring role and therefore, they tend to have substantial influence on PCYC’s business decisions. Besides, convertible preferred stocks have made it possible for venture firms to have senior claims on PCYC’s assets in case it was in financial difficulties. From the perspective of venture firms, they would like PCYC to follow this strategy so that they were able to gain substantial interest in the public offering.
In 2000, the placement agent Miller had used in the past indicated there was a demand for a private placement of shares about $60 million from four financial institutions. Although PCYC did not need to sell the $60 million of equity to fund the ongoing trial, the funding would provide additional flexibility and the resources to develop its atherosclerosis drugs without licensing them.
This decision depended on two factors. The first was funding needs. By calculating the