Avid Radiopharmaceuticals is a research and development firm that develops modern molecular imaging products (Rodes-Krope and Leamon 4). The subsidiary makes use of modern equipment to conduct research and design modern diagnosis tools that can revolutionize the field of medicine through enhancement of early diagnosis of chronic illnesses (Rodes-Krope and Leamon 4). The firm operates under the premises that early diagnosis of abnormal human conditions would go a long way in enhancing prevention and developing treatment for different diseases. Avid also conducts numerous tests on their products in order to ascertain their utility in the market. The whole process requires massive funding. Consequently, Avid engages different capital investors in the effort to secure research fundings.
Having being founded in 2005, Avid has been in the forefront development of disease diagnostic equipment, based on new molecular imaging technology. Its leading product, AV-45 has helped revolutionize the diagnosis of Alzheimer disease. This product, which has been in development since 2005, is capable of producing clear images from the disease scan, making possible its earlier detection and prevention. Efforts to create diagnostic equipment by Avid are in line with its mother company’s goal of developing a cure for leading human illnesses (Rodes-Krope and Leamon 4).
Avid’s staff members are involved in several research endeavors, including a series of tests on patients, to help optimize the innovative products. In addition to developing a diagnostic tool for Alzheimer, the firm has also been actively involved in developing other diagnostic technologies. The subsidiary has developed a compound for imaging Parkinson disease, known as AV-133 as well (Rodes-Krope and Leamon 5). Furthermore, in the recent past years Avid has acquired rights from a University to develop a compound for imaging diabetes, which is a leading killer disease in the world. The development of these and other compounds have been Avid’s core engagement in the last ten years.
As it was mentioned, in an effort to avail money for the development process, Avid has been actively involved in raising funds through various platforms. For instance, between 2005 and 2008, the firm raised money in a series of engagements with the capital investors. The first funding came from Bio Advance which is Pennsylvania’s initial biotech fund. This fund, which amounted to $1.5 million, enabled the firm to carry out initial developments on its core compound. Trying to win funds, Avid’s staff members are involved in a chain of stake holder meetings geared towards convincing investors that opportunity exists in their products (Rodes-Krope and Leamon 5). Other money was raised from Eli Lily and Pfizer group of companies. Apparently, the firm has been in the process of developing a leading commercial product and a pipeline of the other biomedical products.
If to speak about the venture debts, in a normal market situation that is subject to natural forces, they often make sense to companies that are at the risk of bankruptcy. Such companies must have an opportunity to regain their position in the market if there is a financial capital, needed to overcome hardships. Nevertheless, debt ventures pose serious risks to the firm and thus must be weighed on a case by case basis to determine its viability for a particular firm and situation.
Firstly, the debt was to be paid within a stipulated timeline. The repayment amount would actually be higher than the borrowed one (Rodes-Krope and Leamon 8). Unfortunately, in the case of Avid, the company has not started manufacturing any product for commercial use yet. Thus, it would be extremely hard for them to raise the repayment fund if the result from the current tests worked against them. Secondly, there is a risk of repaying the amount before it is actually used. It complicates the matters and seems not to make sense even to Dr. Skovlonsjky. Thirdly, there is a risk of repaying money that would not help the firm after all. This money would have to be raised by investors since the firm would not generate much of them. Also, inability to repay the debt has serious consequences as some investors may lose stake in the firm, and the company may be auctioned all together. Another reason why venture debt fails to make much sense in the current situation is that this type of funding is often used when a firm is at a serious risk of collapse due to financial crisis.
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In the long run, the failure of venture debt to make sense emanates from the fact that the company should bear serious risks, associated with it. However, there are the other options available to them. These options include licensing some of its compounds to the other subsidiaries (Rodes-Krope and Leamon 6). Another alternative would be to operate in hibernation as proposed by Skovlonsjky. Nevertheless, these two options also pose serious risks to the firm. Therefore, it explains why the venture debt actually makes sense.
Venture debt is actually a temporal action of ensuring that the company proves itself rather than closes down (Rodes-Krope and Leamon 8). The money from the venture debt can be used by the firm to complete a number of remaining steps such as the B-level tests. This will ensure that the firms actually prove that their product works. Moreover, it will avail the company with the required finances to develop some of its other products. Failure to take the venture debt would mean that the firm either closes down or operates in hibernation. Closing down would translate to making huge losses, owing to the fact that previous investments have not been fully recovered. This would lead to the transfer of achievements to the other firms through licensing. Although some cash would be gained, firms that would complete the venture successfully would be in a position to reap heavily from Avid’s initial endeavors. Nevertheless, hibernation, which seems like the lesser evil, would also pose some serious ramifications for the firm.
To begin with, the firm’s failure to get adequate funds to prevent non-operation and temporal setback would give competitor firms such as those manufacturing rival products an opportunity to prove themselves (Rodes-Krope and Leamon 9). Although the rival product may face serious market impediments after its latest results were rejected by regulators, a slowdown in Avid would cause it to bounce back to the market. At the time of coming back, Avid would be in no position to compete with its rivals. Market dynamics would work against the firm and prevent it from recapturing its leading role in the market.
The second significant effect of hibernation would be that the firm would suffer serious consequences of disbandment. The organization is currently composed of a dedicated team that is focused on delivering results no matter the prevailing situation. The team has made tremendous innovations that have attracted attention of giant firms. They have developed initial compounds that have helped revolutionize medicine and that promise a bright future in the field of diagnosis and cure development. Disbanding this team would not only demoralize the members but also make it impossible for individuals to revert back to Avid (Rodes-Krope and Leamon 9). The members are potential men and women capable of getting a job from the other leading research firms. Consequently, it would be imprudent for the firm’s leadership to implement a plan that would translate to disbandment.
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Thus, the venture debt despite the risk it poses makes a lot of sense to the firm. It ensures that the company gets adequate time to prepare its products for commercialization. It also avails sufficient funds to complete some of the remaining tests on leading products. Venture debt also ensures that the firm does not transfer its achievements to another company for a small financial gain. Taking the debt would also retain the organization’s structure and ensure that team members remain focused on their endeavors. Apparently, weighing the risks posed by taking the venture debt against those posed by not taking it, it can be concluded that taking the debt presents fewer risks to the organization.
Thanks to the presented advantages of the venture debt, Avid should definitely take it. Fundamentally, the firm should take the venture debt because of the opportunity it will provide to the company. The debt will actually help the firm get adequate time, needed to prove itself (Rodes-Krope and Leamon 8). According to Smith’s assertion, time is of great essence to Avid. If the firm fails to sustain itself a little bit longer, it may as well run out of operation because its future depends on the success of its products. Having funds to carry through the remaining test time will most likely favor the business and create a strong foundation for its future. Therefore, venture debt is an appropriate answer to the question of time.
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In addition to availing ample time, venture debt will provide prerequisite funds required for completion of the remaining phase of tests and product development before a D round funding endeavor becomes plausible. In essence, the firm future depends on its ability to complete vital stages of development, including tests. The lack of funds to complete such stages would mean the doom for the company. Apparently, debt venture answers the questions of funds as well.
Debt venture also provides stamina for the firm to conduct the concurrent product development for AV-45 and AV-133. In the absence of venture debt, the firm may be forced to drop one of its products or look for another firm and transfer its licensing rights to it. Consequently, this would greatly reduce the chance of the firm to develop several products, thus minimizing the spread of risks in case one product fails to meet all the appropriate standards. Essentially, the debt venture would be appropriate for enabling the firm to meet market conditions for the various products. Accordingly, this offers a better stake for the firm in the future.
All in all, there is no doubt that debt venture presents several risks to diverse business organizations. Similarly, the venture poses a number of risks to Avid. They may emerge from the firm’s inability to repay the debt, and the fact that the firm will be forced to pay more money than it actually borrowed just to complete an endeavor. Nevertheless, the debt will give the firm the required time and funds to remain relevant until it is able to prove itself and have the capacity to raise more money. Debt venture is also appropriate for Avid because it will ensure concurrency in the development of several compounds which actually enables the company to spread its risks. In the end, a debt venture is likely to bring more benefits than harm to the firm. It will help Avid remain in the course of its business and have time to prove its products.