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MGI Moves Into Acute Care with Guilford Acquisition

Executive Summary

MGI Pharma Inc.'s recent acquisition of Guilford Pharmaceuticals Inc. should allow the oncology specialist to smoothly branch out into acute care while simultaneously adding support for its most important cancer product. Arguably the biggest deal driver is Guilford's Phase III anesthetic propofol prodrug Aquavan-ironically the same drug which faltered in development earlier in 2005, leading to the latest in a string of disappointments for Guilford, a substantial setback in valuation, and an affordable price tag for MGI.

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No Dilution Necessary: The Promise of Project Financing

Project financing, claim its proponents-in particular Symphony Capital-offers an alternative to highly dilutive equity offerings, preserving the upside from the development of a successful product for the biotech. That's true, though this expensive capital isn't for everyone. Yet as Big Pharma's productivity challenge deepens, project financing is helping to swing the balance of power further towards small companies.

No Dilution Necessary: The Promise of Project Financing

Project financing, claim its proponents-in particular Symphony Capital-offers an alternative to highly dilutive equity offerings, preserving the upside from the development of a successful product for the biotech. That's true, though this expensive capital isn't for everyone. Yet as Big Pharma's productivity challenge deepens, project financing is helping to swing the balance of power further towards small companies.

Symphony & Guilford Try Out Project Financing

Symphony attempted to re-create an off-P&L financing vehicle for biotech projects that would both pass the much tougher SEC scrutiny applied since the late 1990s and allow biotechs to avoid licensing away what could be important revenue generators. To do so, it had to create a fully independent corporate vehicle with the capacity-through an alliance with an equity-incentivized CRO--to manage its own development. But its first biotech partner, Guilford Pharmaceuticals, didn't feel Symphony had proven the financing could be completely off-P&L. Consolidating the expenses, Guilford sees the deal's value largely in the additional management resources, along with the funding, that Symphony provides a second-priority program. Symphony also has yet to prove it can make its investors money from these projects: in part because the value of late-stage programs has increased since the original off-P&L vehicles were created, Symphony could only get from Guilford a single compound, not a portfolio of projects with which to reduce its investment risk.

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