PROBLEM 3: MINI CASE: RxDELIVERY SYSTEMS. INC. RxDelivery Systems is an R\&D venture specializing in the development and testing of new drug delivery technologies. The market for alternative drug delivery systems grew rapidly during the 1990 s. Driving factors behind this growth include efforts to reduce drug side effects through site-specific delivery, the need to maintain the activity of new biopharmaceutical compounds, and the extension of drug patent life. Improved drug delivery methods are expected to reduce the number of surgical interventions and the length of hospital stays, and improve patient compliance in taking prescribed drugs. A large world market for biopharmaceuticals (including peptide, protein, RNA, and DNA drugs) exists today. Sales of polymer-based drug delivery systems continue to grow rapidly. Pulmonary delivery systems represent an important segment of the drug delivery market. RxDelivery Systems believes it can compete effectively in both the polymer-based and the pulmonary drug delivery areas. The venture's delivery technology is expected to utilize hydrophobic ion pairing and supercritical carbon dioxide precipitation to incorporate watersoluble drug molecules into biodegradable controlled-release microspheres. The resulting microspheres will take the form of dry powders and will contain drug molecules small enough to allow for intravenous, intranasal, or pulmonary delivery. It is anticipated that this technology will be incorporated into products for controlled release applications including treatment of cancer, infectious diseases, and gene therapy. RxDelivery Systems, through an agreement with its pharmaceutical parent, a major drug company, will initially operate as an independent corporation but will be merged into the parent at the end of its second year. At that time, RxDelivery Systems' entrepreneurial team will be paid a lump sum of $2,500,000 as the terminal value for the venture