13 Pages Posted: 30 May 2017
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.
Rev. Feb. 24, 2017
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: Suggested Citation
Register to save articles to
This is a Darden A Case paper. Darden A Case charges $6.25 .
File name: UVA-F-1636.pdf
If you wish to purchase the right to make copies of this paper for distribution to others, please select the quantity.