THE MEDFIELD PHARMA CASE: FIRM VALUATION AND ETHICAL CONSIDERATIONS OF REFORMULATION
THE MEDFIELD PHARMA CASE: FIRM VALUATION AND ETHICAL CONSIDERATIONS OF REFORMULATION
Understand that the Medfield case has 2 major problems: 1) Firm Valuation – Impact of Patent Loss and Reformulation; 2) Ethical Considerations – How to Ensure Patients and third-party payees are not hurt
Organize your paper around the case questions, use them as an organizing device. This will benefit you in several ways: 1) provide a framework for constructing your paper; 2) ensure I (your reader) understand exactly what question you are answering; and 3) ensure you answer every question.
Use examples from Pfizer, AstraZeneca and other firms in EXHIBIT 3 to substantiate your thought.
What is the current value of Medfield as a company? Use the exhibit 4 spreadsheet to calculate the NPV of Medfield. Compare this result to the offer price and provide your reasoning for the difference.
If we consider the sale of Medfield as the sale of existing assets how does the elimination of R&D, investment in future assets, change the valuation of Medfield? (Using the exhibit 4 spreadsheet distinguish between the NPV value of existing products and R&D)
What is the value that would be created by a reformulation? Complete and explain the table below.
2011 2012 2013 2014 2015 2016 2017 2018 2019
2020 2021 2022
2023 2024
Incremental Research 35 35
Incremental Special Marketing 25 25 25 25 25
Growth 2% -50% 2% 2% 2% 2% 2% 2%
2% 2% -50%
-50% -50%
New Sales 214.77
Marginal Sales (New Sales – Original Sales 0.00
New Cost of Sales 49.40
Marginal Cost of Sales 0.00
New Direct Marketing 57.99
Old Direct Marketing 57.99 59.15 29.57 14.79 7.39 0 0 0 0
0 0 0
0 0
Marginal Direct Marketing 0.00
New G&A 8.59
Old G&A 8.59 8.76 4.38 2.19 1.10 0 0 0 0
0 0 0
0 0
Marginal G&A 0.00
Marginal Cash Flow pre Tax (60.00) 29.52 14.76 7.38
Marginal NOPAT (40.80) 20.07 10.04 5.02
NPV
What factors explain the value created from the reformulation for Fleximat?
Who reaps the financial benefits?
Who bears the financial costs?
ONLY ANSWER ONE OF THE QUESTION 7’S:
IF YOU SUPPORT REFORMULATION:
What facts would change your mind and cause you to recommend against reformulation?
IF YOU ARE AGAINST REFORMULATION
7. Under what conditions might you be in favor of reformulation?
How would you change your thinking if Medfield’s reformulation approach were more substantive (e.g. drug works faster, works longer) than cosmetic?
Could Medfield use the extra value created by the reformulation to generate new and helpful products?
When you consider Medfield’s stakeholders, what are the key issues. Choose three from the following list and discuss the key issues.
Shareholders of Medfield
Patients using the drug
Third-party payees (Medicare, private insurance companies, etc.)
Government
Employees of Medfield
Physicians
What ethical issues need to be considered in making a reformulation decision? Which are more pressing? Reference the ethics concepts discussed earlier in the semester, include at least one of the Right vs. Wrong explanations presented: Consequences, Duty, or Virtues. Use external references sources to support your discussion of the ethical issues.
What should Susan Johnson do? Explain your choice of a, b, c, or d. If you have another approach, discuss it here.
Don’t pursue the reformulation, but accept takeover offer
Initiate the reformulation and accept the offer
Refuse the offer but initiate reformulation
Refuse the offer and not reformulate
Your Turnitin Score needs to be 0-30% tops. Try to get it down there. If it is higher, I will read your paper, and see why the score is high but your grade will reflect the score.
REFERENCES MUST BE IN ALPHABETICAL ORDER. NAKED URLS ARE NOT ACCEPTABLE
THE MEDFIELD PHARMA CASE: FIRM VALUATION AND ETHICAL CONSIDERATIONS OF REFORMULATION
Understand that the Medfield case has 2 major problems: 1) Firm Valuation – Impact of Patent Loss and Reformulation; 2) Ethical Considerations – How to Ensure Patients and third-party payees are not hurt
Organize your paper around the case questions. Use them as an organizing devise. This will benefit you in several ways: 1) provide a framework for constructing your paper; 2) ensure I (your reader) understand exactly what question you are answering; and 3) ensure you answer every question.
Use examples from Pfizer, AstraZeneca and other firms in EXHIBIT 3 to substantiate your thought.
1. What is the current value of Medfield as a company? Use the exhibit 4 spreadsheet to calculate the NPV of Medfield. Compare this result to the offer price and provide your reasoning for the difference.
2. If we consider the sale of Medfield as the sale of existing assets how does the elimination of R&D, investment in future assets, change the valuation of Medfield? (Using the exhibit 4 spreadsheet distinguish between the NPV value of existing products and R&D)
3. What is the value that would be created by a reformulation? Complete and explain the table below.
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 |
2020 |
2021 | 2022 |
2023 |
2024 | ||||
| Incremental Research | 35 | 35 | |||||||||||||||
| Incremental Special Marketing | 25 | 25 | 25 | 25 | 25 | ||||||||||||
| Growth | 2% | -50% | 2% | 2% | 2% | 2% | 2% | 2% |
2% |
2% | -50% |
-50% |
-50% | ||||
| New Sales | 214.77 | ||||||||||||||||
| Marginal Sales (New Sales – Original Sales | 0.00 | ||||||||||||||||
| New Cost of Sales | 49.40 | ||||||||||||||||
| Marginal Cost of Sales | 0.00 | ||||||||||||||||
| New Direct Marketing | 57.99 | ||||||||||||||||
| Old Direct Marketing | 57.99 | 59.15 | 29.57 | 14.79 | 7.39 | 0 | 0 | 0 | 0 |
0 |
0 | 0 |
0 |
0 | |||
| Marginal Direct Marketing | 0.00 | ||||||||||||||||
| New G&A | 8.59 | ||||||||||||||||
| Old G&A | 8.59 | 8.76 | 4.38 | 2.19 | 1.10 | 0 | 0 | 0 | 0 |
0 |
0 | 0 |
0 |
0 | |||
| Marginal G&A | 0.00 | ||||||||||||||||
| Marginal Cash Flow pre Tax | (60.00) | 29.52 | 14.76 | 7.38 | |||||||||||||
| Marginal NOPAT | (40.80) | 20.07 | 10.04 | 5.02 | |||||||||||||
| NPV | |||||||||||||||||
4. What factors explain the value created from the reformulation for Fleximat?
5. Who reaps the financial benefits?
6. Who bears the financial costs?
ONLY ANSWER ONE OF THE QUESTION 7’S:
IF YOU SUPPORT REFORMULATION:
7. What facts would change your mind and cause you to recommend against reformulation?
IF YOU ARE AGAINST REFORMULATION
7. Under what conditions might you be in favor of reformulation?
8. How would you change your thinking if Medfield’s reformulation approach were more substantive (e.g. drug works faster, works longer) than cosmetic?
9. Could Medfield use the extra value created by the reformulation to generate new and helpful products?
10. When you consider Medfield’s stakeholders, what are the key issues for each of the following:
a. Shareholders of Medfield
b. Patients using the drug
c. Third-party payees (Medicare, private insurance companies, etc.)
d. Government
e. Employees of Medfield
f. Physicians
11. What ethical issues need to be considered in making a reformulation decision? Which are more pressing? Reference the ethics concepts discussed earlier in the semester, include at least one of the Right vs. Wrong explanations presented: Consequences, Duty, or Virtues. Use external references sources to support your discussion of the ethical issues.
12. What should Susan Johnson do? Explain your choice of a, b, c, or d. If you have another approach, discuss it here.
a. Don’t pursue the reformulation, but accept takeover offer
b. Initiate the reformulation and accept the offer
c. Refuse the offer but initiate reformulation
d. Refuse the offer and not reformulate
Your Turnitin Score needs to be 0-30% tops. Try to get it down there. If it is higher, I will read your paper, and see why the score is high but your grade will reflect the score.
REFERENCES MUST BE IN ALPHABETICAL ORDER. NAKED URLS ARE NOT ACCEPTABLE
APA conventions for citing and referencing:
https://owl.purdue.edu/owl/research_and_citation/apa_style/apa_formatting_and_style_guide/gene
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