Understanding what it takes to be a leader in the United States biotechnology industry, Molecular Genetics (MoGen) has invested more than 20 years in forging new ground in the area of emerging sciences. To safeguard their stake in their investments, today (January 11, 2009) MoGen’s CEO will meet with Merrill Lynch to discuss the final terms of the proposed convertible debt offering.
To stay competitive in this evolving Biotech industry MoGen’s senior management forecasted $10 billion in capital expenditures requirements to sustain a pipeline of future products. Currently, MoGen is projecting only $5 billion of internally generated sources of funds, suggesting the need to fund the remainder $5 billion to meet their CAPEX requirements essential to maintain a viable position in the market. It is our opinion that MoGen should move forward with the $5 billion in external funding. This funding represents a very important supply of cash in order to fund MoGen's 2006 developments. Based on the details outlined in the case and our assumptions below, MoGen should fully fund the four cited key areas. If MoGen were to reduce the funds earmarked for 2006 CAPEX, they would not be able to maintain financial flexibility to overcome their current challenges. This lack of flexibility would prevent them from maximizing their return on investment on the 11 late stage trials schedule to commence in 2006 that will fund the next generation of drugs. There are many pros and cons surrounding how to approach putting cash back into the hands of the investors. Below are our comparable *assumptions as to why MoGen should issue convertible debt vs. keeping cash idle on the books or event going
*assuming the revenues remain the same
We could see right away why the dividend option is not the most profitable method due to double taxation. This method requires paying an addition $300...
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