Avid Radio Pharmaceuticals And Lighthouse Capital Partners Case Study Solution
Conclusion:
What happened next? On May 21st, 2019 Avid Radio pharmaceuticals, Inc., announced the completion of a first closing of a $34.5 million Series D financing, which was led by a leading life sciences venture capital firm Alta Partners. Existing investors Alliance Bernstein, Pfizer Venture Investments, Safeguard Scientists, RK Ventures, Lilly Ventures, Bio Advance and LLC also took part in the fourth round financing.
The Proceeds from this round of funding was to be used primarily for the complete development and, if approved, market the Alzheimer’s a myloid imaging compound, F-AV-45. And, to continue the Phase II development of its imaging compound F-AV-133 for the Parkinson’s disease, and to fund its working capital requirements.
So Avid and Lighthouse didn’t go on with a deal and Avid stayed with its original plan. As we discussed already one of the main reasons of no deal could be the fact that Dr. Skovronsky didn’t like Venture Debt. From Lighthouse’s perspective several factors such as timing of debt, investors that Lighthouse was not familiar with, exhausted funds from series C financing, probably hindered the Lighthouse to make the best offer for Avid.
The next events proved that Avid made right decision or at least no deal decision didn’t have negative effect on the company. On November 8th, 2010 Lilly acquired Avid in an $800 million buyout deal. Under the terms of the agreement, Avid continued to operate from its facility in Philadelphia, Pennsylvania. On June 1st, 2018 Dan Skovronsky, was promoted to President and Senior Vice President’s positions,and became a member of Lilly's executive committee as well.
Appendices:
| Case 1 (min. draw down amount) |
Case 2 (full draw down amount) |
||
| Draw Down Amount | 3,500,000 | 7,500,000 | |
| Exp. Cost of capital | 11.5% | ||
| Interest Revenue | 856,227 | 1,834,772 | |
| Share of Arvid available through warrants (usage-based) | 8% | ||
| Value of equity: 8% x Draw Down Amount |
280,000 | 600,000 | |
| Exercise price in $ | 7.51 | ||
| Number of shares available for Lighthouse (Value of Equity / Exercise Price) |
37,284 | 79,893 | |
| Number of Common Share Equivalents (pre debt) | 11,723,450 | ||
| Number of Common Share Equivalents (post exercise) | 11,760,734 | 11,803,343 | |
| Note: The interest revenue represents the sum of interst payments in the Venture Debt sheet of the Venture debt template Excel file assuming a draw down amount of 3.5 and $7.5m, respectively. | |||
| Case 1: minimum amount of $3.5m drawn down (financial figures in $) | |||
| Expected Valuation (pre-money round D) | 175,000,000 | ||
| Optimistic Case | Base Case | Pessimistic Case | |
| Discount of pre-money round D | 0% | 30% | 60% |
| Valuation (1 - Discount) x pre-money round D valuation |
175,000,000 | 122,500,000 | 70,000,000 |
| Total mumber of shares (if Lighthouse exercises warrants) |
11,760,734 | 11,760,734 | 11,760,734 |
| Implicit share price pre money round D | 14.88 | 10.42 | 5.95 |
| Exercise Price in $ | 7.51 | 7.51 | 7.51 |
| Implicit profit per share | 7.37 | 2.91 | 0.00 |
| Number of shares belonging to Lighthouse | 37,284 | 37,284 | 37,284 |
| Total Value of Warrants for Lighthouse | 274,781 | 108,347 | 0.00 |
| Interest Revenue (see above) | 856,227 | 856,227 | 856,227 |
| Total Revenue Case 1 | 1,131,008 | 964,574 | 856,227 |
| Total Return on Investment (Total Revenue / 3,500,000) |
32% | 28% | 24% |
| Case 2: full amount of $7.5m drawn down (financial figures in $) | |||
| Expected Valuation (pre-money round D) | 175,000,000 | ||
| Optimistic Case | Base Case | Pessimistic Case | |
| Discount of pre-money round D | 0% | 30% | 60% |
| Valuation (1 - Discount) x pre-money round D valuation |
175,000,000 | 122,500,000 | 70,000,000 |
| Total mumber of shares (if Lighthouse exercises warrants) |
11,803,343 | 11,803,343 | 11,803,343 |
| Implicit share price pre money round D | 14.83 | 10.38 | 5.93 |
| Exercise Price in $ | 7.51 | 7.51 | 7.51 |
| Implicit profit per share | 7.32 | 2.87 | 0.00 |
| Number of shares belonging to Lighthouse | 79,893 | 79,893 | 79,893 |
| Total Value of Warrants for Lighthouse | 584,525 | 229,168 | 0.00 |
| Interest Revenue (see above) | 1,834,772 | 1,834,772 | 1,834,772 |
| Total Revenue Case 2 | 2,419,297 | 2,063,939 | 1,834,772 |
| Total Return on Investment (Total Revenue / 7,500,000) |
32% | 28% | 24% |
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