Medfield Pharmaceuticals

13 Pages Posted: 30 May 2017

See all articles by Marc L. Lipson

Marc L. Lipson

University of Virginia - Darden School of Business

Jenny Mead

University of Virginia - Darden School of Business

Jared D. Harris

University of Virginia - Darden School of Business

Abstract

Susan Johnson, founder and CEO of Medfield Pharmaceuticals, is faced with conflicting recommendations for extending the patent life of the company's flagship product, Fleximat, scheduled to go off patent in two years. With only three other products in Medfield's lineup of medications, one of which has only just received U.S. Food and Drug Administration approval, strategic management of the company's product pipeline is of paramount importance. But a recent $750 million offer to purchase the company has entirely shifted her focus. With this offer, Johnson has the opportunity to exit the business on a high note. Before making her recommendation, Johnson has to determine the value of the company, with a careful review of its existing and potential future products. But this is more than simply a financial decision, since Johnson—and Medfield employees in general—believe that the company is engaged in critically important work.This case is meant for undergraduate, MBA, executive education, and executive MBA audiences. It is taught as part of a core course, "Financial Management and Policies," at the Darden Graduate School of Business Administration.

Excerpt

UVA-F-1636

Rev. Feb. 24, 2017

Medfield Pharmaceuticals

Susan Johnson, founder and CEO of Medfield Pharmaceuticals, had planned to spend the first few weeks of 2011 sorting out conflicting recommendations for extending the patent life of the company's flagship product, Fleximat, which was scheduled to go off patent in two years. With only three other products in Medfield's lineup of medications, one of which had only just received U.S. Food and Drug Administration (FDA) approval, strategic management of the company's product pipeline was of paramount importance. But a recent $ 750 million offer to purchase the company had entirely shifted her focus.

The offer was not a complete surprise. The pharmaceutical industry landscape had changed considerably since Johnson, formerly a research scientist, had founded Medfield 20 years earlier. Development costs were rising, patents were running out, and new breakthroughs seemed ever more difficult to obtain. The industry was now focused on mergers and acquisitions, restructuring, and other strategies for cost-cutting and survival. Smaller firms like Medfield were being gobbled up by the major players all the time. Companies with approved products or products in the later stages of development, such as Medfield, were especially likely targets.

While she no longer owned a controlling interest in the firm and could not force a particular decision, Johnson recognized that as CEO, founder, and largest single investor, she would be expected to offer an opinion and that her opinion would be extremely influential. It was also clear that determining the value of the company, and therefore whether the offer was reasonable, would necessitate a careful review of the company's existing and potential future products, and no one understood these as well as Johnson.

. . .

Keywords: finance, pharmaceutical, ethical issues, patent life, financial objectives, valuation, drug reformulation, ethics, cash flow, financial analysis

Suggested Citation

Lipson, Marc Lars and Mead, Jenny and Harris, Jared D., Medfield Pharmaceuticals. Darden Case No. UVA-F-1636. Available at SSRN: https://ssrn.com/abstract=2974463

Marc Lars Lipson (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4837 (Phone)
434-243-5021 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/lipson.htm

Jenny Mead

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Jared D. Harris

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

HOME PAGE: http://faculty.darden.virginia.edu/harrisj

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