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

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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

 

 

 

 

    

 

                                  

1. What      factors explain the value created from the reformulation for Fleximat?
2. Who      reaps the financial benefits?
3. Who      bears the financial costs?

ONLY ANSWER ONE OF THE QUESTION 7’S:

IF YOU SUPPORT REFORMULATION:

1. 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?

1. How      would you change your thinking if Medfield’s reformulation approach were      more substantive (e.g. drug works faster, works longer) than cosmetic?
2. Could      Medfield use the extra value created by the reformulation to generate new and      helpful products?
3. When      you consider Medfield’s stakeholders, what are the key issues for each of      the following:
   1. Shareholders       of Medfield
   2. Patients       using the drug
   3. Third-party       payees (Medicare, private insurance companies, etc.) 
   4. Government
   5. Employees       of Medfield
   6. Physicians
4. 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.
5. What      should Susan Johnson do? Explain      your choice of a, b, c, or d. If you have another approach, discuss it      here.
   1. Don’t       pursue the reformulation, but accept takeover offer
   2. Initiate       the reformulation and accept the offer
   3. Refuse       the offer but initiate reformulation
   4. 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. 

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