"When I came on board, there was just the SuperVent product
[candidate] and about $150,000 of debt."
Before Kuo accepted the CEO position in March and began working
full-time in April, MicroBio had no employees, no working capital and no
operations. Members of Kuo's family didn't share his enthusiasm for giving
up a secure, glamorous and well-paying job with a corporate giant to head up
what was little more than a neat concept.
"That was another time when all my friends thought I was crazy," Kuo
says. "Even Gigi had some doubts about whether it was a wise thing to do.
At Pfizer Gigi would travel with me. We would use frequent flier miles and
when I went to meetings, she went shopping. We did that in Italy and we
had a fabulous time. So she wasn't so sure about joining a small company
with zero money in it.
"I just jumped at it because I knew Steve and knew Mr Rosenwald
and how successful they had been. I thought we could be very successful in
forming a company and raising capital for it.
"A company is only as good as the CEO. If you're the number two,
three or four within the company, you run the risk of failure if the CEO is not
good. I'm the type of person who always wanted to have my destiny in my
own hands as much as possible. Steve Kanzer offered me the chance to be
the lead person responsible for forming the company, raising the money and
guiding the company.
"When I came on board, there was just the SuperVent product
[candidate] and about $150,000 of debt."
One of the first things Kuo and Kanzer did was to change the firm's
name to Discovery Laboratories Inc. (DLI). The second step was creating a
business plan good enough to use as a private placement memo to raise the
capital needed to bring the company to the IPO stage. That chore fell on CEO
Kuo who, at the age of 31, had already become an old hand at writing
multi-million-dollar business plans.
"I really try and think about sentence structure and what makes
sense," Kuo says. "A lot of it is through trial and error. I used to be a poor
writer before the word processor came out. In college word-processing
wasn't really in because there was just Wang and Wang systems were just for
professors doing textbooks so I was a horrible writer because you had to
basically have your thoughts very well organized before you put your pen to
paper. My type of mind jumps from subject to subject. I'll think of
something interesting to write and write it, but then I'll think this would be
better over there."
"I didn't do very well in freshman English," Kuo admits. "Part of the
reason is because usually when I'm doing something I'm focused on doing
just that one thing, like getting into med school. Now I carry a dictionary
around with me everywhere I go. If there's a word I don't know, I look it
up." Kuo keeps two copies of the American Heritage Dictionary, one in his
desk at the office and the other beside his easy chair at home.
As soon as he finished writing DLI's business plan, Kuo took to the
skies to sell it to biotech investors.
"I went on a trip to Europe, Paris, Geneva, Zurich and Basel. We made
presentations to 44 investor groups in 4 days and we were generally very
successful in raising money from Swiss investors as well as other investors
within Europe. So I was completely behind the raising of the $22 million."
In light of that feat it seems surprising that Kuo has ended up with
only 5.07% of the equity.
"I started out with 8% [when the company had] a pre-money valuation
of $7.5 million. When we raised the $22 million, there was a lot of dilution."
The investors ended up with two-thirds of the equity, which cut Kuo down to
about 2%. "Then I was bumped back up to around 5% with some options that
were granted by the board of directors."
Lindsey Rosenwald, owns and controls well over 40% of DLI's shares
through Paramount Capital and entities called RAQ, LLC and Aries.
"If you think about raising $22 million with only one full-time
employee--me--it's a difficult task. Paramount Capital was really
instrumental in [helping to] do that." For its administrative, legal and
financial assistance Paramount received cash commissions of $2 million plus a
non-accountable expense allowance of $880,000. A similar amount appears
to have been reinvested back into DLI by Aries, Rosenwald's
Paramount-managed hedge fund.
For his role as chairman, Steve Kanzer and family got about 7% of DLI
equity. DLI COO Evan Myrianthopo-lous got 2.79%.
"Steve had been responsible for building a large part of the portfolio
companies of Paramount Capital," Kuo says. "We relied on him as the
corporate fiance person as well as the attorney and accountant. I had lots of
discussions with him about the company's structure."
Kanzer and Kuo brainstormed the basic concept of dispensing with the
research phase of their startup and going straight to the drug development
stage to shortened by three years the timeline to a viable IPO.
"We tried to get the company public as soon as possible to provide
liquidity for current investors as well as to raise capital at a higher
valuation," says Kuo. "Venture capitalists charge tremendous amounts for the
money they put in. It's not always in the best interest of the company to
have venture capitalists continuing to put money in at various stages. If
you're a venture capitalist you want that so you can charge whatever you
want and keep whatever percentage of equity you want. We want to be able
to access capital at a cheaper price than what it would cost in the private
market.
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