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| "When I came on board, there was just the SuperVent product [candidate] and about $150,000 of debt." |
"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.
"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. PAGE 12
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