CASE 44: Medfield Pharmaceuticals

CASE 44: Medfield Pharmaceuticals

Case Introduction/Overview

The founder and largest shareholder of a small pharmaceutical company faces two related decisions: how best to extend the patent life of a key drug and how to respond to a recent takeover offer. A central source of tension in the case is determining the appropriate balance between the firm’s financial objectives and the mission and culture of the founder and employees. The conflicts are made explicit and are given depth with sufficient information to value a drug reformulation strategy and to value the company’s pipeline. Background on the pharmaceutical industry and exploration of issues related to patent-life extensions provide a rich context for analysis.

This case serves multiple purposes. The analytic opportunities allow a careful exploration of the drivers of value; in particular, how a going-concern valuation of a company combines both the value of assets already in place (in this case, the drug pipeline) and the net value of future projects (the value created from R&D). The context of the decision adds a strong ethical dimension to the case that allows an exploration of issues related to stakeholders, corporate culture, and corporate missions.

The case is designed to achieve the following learning objectives:

• Determine the value of a project given facts related to cash flows.
• Determine the value of a set of existing assets of a company and explore the relationship between the value of projects and the value of the company as a going concern.
• Articulate the purpose of the company and explore the relationship between company mission and value creation.
• Identify the stakeholders of a company and analyze the implications of the firm’s choices to those stakeholders. Confront the ethical aspects of the firm’s resource allocation decisions.

Case Report Instructions

This is a “Use a set of provided questions to prepare a formal case report” assignment. For this case study, you must write a professional report as per the guidelines in “Learning with Cases and Writing Case Reports.” You should create an action-oriented advisory report that presents concisely your analysis and recommendations. The questions below should help you analyze the case and identify the specific issue(s) raised. These are not questions that you should directly answer in your report; instead these questions are designed to help you frame your report with specific focus on the last question: “Should Johnson recommend accepting the acquisition offer at the given price?”

1. What is the financial value that might be created if Medfield decides to pursue the Fleximat reformulation as described in the case?
2. What is the value of Medfield’s existing drugs and drug pipeline? Is the takeover offer price reasonable?
3. What factors should Johnson consider in choosing whether to initiate the reformulation? What factors should Johnson consider in choosing a recommendation regarding the takeover offer?
4. What are the moral/ethical implications of the reformulation decision? Should these be considered when making the final accept/reject decision?
5. Should Johnson recommend accepting the acquisition offer at the given price?

NOTE: You can access a student spreadsheet file that you might find helpful for this case on the textbook website found at the following link:

http://highered.mheducation.com/sites/1259277194/student_view0/index.html

This directory contains Excel spreadsheet files with the primary exhibits for this case. Some of the Excel tables exercisable models which will allow you to test ideas with minimum setup time.