Medfield Pharmaceuticals - Case Solution

This case solution includes an Excel file with calculations.

Executive Summary – Medfield Pharmaceuticals

The CEO of Medfield Pharmaceuticals, Susan Johnson, is considering whether the firm should extend the patent life of Fleximat, the firm’s key drug, and how the firm should respond to a $750M takeover offer.

These decisions are not only a matter of financial value but also a matter of ethical issues and the firm’s core mission.

After conducting both qualitative and quantitative analysis, I recommend that Medfield Pharmaceuticals drop the offer and reformulate its key drug with substantial changes that benefit patients.

Forecasting risk – Cash flow key drivers: Sensitivity analysis (Exhibit 1) reveals that the estimated sales of Reximet, Cost of sales, Direct Marketing, and WACC have the most impact on Medfield Pharmaceuticals’ cash flow.

While historical financial statements and case information can justify the inputs of the Cost of sales, Direct Marketing, and WACC, there is no solid evidence to justify the sales of Reximet at $80M in the first year. Therefore, the estimated sales of Reximet can pose a forecasting risk to Medfield’s cash flow.

Takeover offer evaluation – To sell or not to sell

1. Value of current drugs: The NPV of current drugs of Medfield Pharmaceuticals is $713M (Exhibit 2). R&D cost is excluded from the calculation since this is a future investment (without cash inflow from new drugs) and not associated with current drugs.

Terminal value is not included as well since there is no evidence for steady growth after the year 2034 or in the long term.

2. Gain from re…