FINANCIAL MANAGEMENT

ASSIGNMENT

CASE 4: MEDFIELD
PHARMACEUTICALS

Prepared By –

Anurag Pan (G19058)

Henna Handa (G19067)

Saquib Raza (G19087)

Sreya De (G19093)

SECTION B, PGDM (GM) 2019-20

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INDEX

1. Case Background…………………………………………………………………….Page 3

2. Critical Financial Problems identified in the case………………………………Page 4

3. Analysis and Interpretations for solving the case……………………………….Page 6

4. Summary………………………………………………… …………………………….Page 17

5. Conclusion……………………………………………………………………………..Page 17

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Case Background
Set in the year 2010, this case talks about a pharmaceutical company called Medfield
Pharmaceuticals and a major strategic dilemma faced by its CEO and founder, Susan Johnson.
Fleximat, Medfield’s star product, that earned the highest revenue of its sales, was nearing the end
of its patent life. This would drastically affect Medfield’s future cashflows. In this scenario, Susan
received the offer to sell the company for $750 million.

Medfield Pharmaceuticals produces a total of four products:

 Fleximat: Medfield’s flagship product and leading seller. Used to treat pain and swelling
in patients. Accounts for 64% of the company’s revenues. Has two years remaining on its
patent.
 Lodamal: An opiate agonist. Used to treat patients requiring continuous opioid therapy
over a long time period. Accounts for 12% of the company’s revenues. Has five years
remaining on its patent.
 Orsamorph: Used to treat more intense pain. Popular drug in hospitals and accounted for
24% of the company’s revenues. Has fourteen years remaining on its patent.
 Reximet: Would begin selling in 2012. Treats acute migraines. Will have a full twenty-
year patent life.

Although the company had experienced excellent growth over the years with total sales amounting
to $329 million, given the scenario of the 2009 drug market with high drug developing costs, few
patents to be found, lesser breakthroughs to be seen, Susan was in a fix whether to accept the offer
of $750 million or not.

Let us now analyze the different case alternatives and critical financial decisions, that she might
have thought about.

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Critical Financial Problems Identified in the Case
5 critical problems identified in the case –
1) Whether Susan should go ahead with extension of the patent life of
Medfield’s flagship product, Fleximat or exit the business by selling off the
company for $750 million?

After analyzing the case, we came to know that the patent life for Fleximat, which was the
flagship product of Midfield Pharmaceuticals was going to expire in a period of 2 years.
As the pharmaceutical industry has a very diverse and competitive environment, decisions
need to be taken fast as to whether Susan should go ahead with extension of the patent life
for Medfield’s flagship product or exit the business on a high note.

As per the analysis made, if Susan continues to not change anything and run the company
as is based on the forecast provided by her internal department, we see that the net present
value for her enterprise comes out to be around $439.07 dollars. On the other hand, if Susan
continues to take and extend Fleximat’s life through reformulations, the net present value
comes out to be around $484.77 million. And lastly, if the company decides to continue
with all products reformulated, the net present value comes out to be around $316.61
million. Therefore, it would be good enough to sell off the company for $750 million.

2) Whether the estimation is accurate or not?

The forecast that Susan asked from her department to take the most important decision for
her company was quite good enough. The factors like direct cost of sales, direct marketing
costs, general and administrative expenses, capital expenditures etc. have been very
practically judged and were assigned realistic figures for the same. Also, the initial sales
value for Reximet which was the newly approved product was assigned a decent sales
figure of $80 million to project precise forecasting and financials of the company.

3) Whether the condition of the pharmaceutical industry been assessed properly?

The pharmaceutical industry has the power to generate billions of dollars in revenues.
Afterall, it is directly related to the healthcare industry. In the United States, it was the most
profitable industry from 1995 to 2002 and drug manufacturers had profits at par with their
expectations. Most of these revenues were generated through drugs for various ailments
which protected by patents. A lot of factors came into play at a later stage in the first decade
of the 21st century. These factors were the economic downturn, healthcare reforms and

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 patent expiry for various drugs. It was becoming quite difficult to generate new drugs and
the best way for survival of the pharmaceutical industry was through reformulations.
However, in our opinion, pharmaceutical industry had a lot of scope for a company to stay
comfortably profitable. With new ailments and discoveries made everyday, the company
should be on the lookout to invest money intelligently. It would be flawed to assume that
the pharmaceutical industry is dead. In line with new ways of treatment and diseases on
the rise due to various factors like diet, environment etc, the company was capable enough
to generate new products and earn revenue in the form of patent protection, larger sales etc.

4) Whether the strategy to reformulate only Fleximat work or not?

Fleximat, which was Medfield Pharmaceuticals’ flagship product, would have an end to its
patent in 2013. As per the calculations and analysis made, if Susan goes ahead with the
strategy to reformulate Fleximat, the company is expected to project a Net Present Value
of $424.33 million which seems to be pretty decent keeping in mind the profitability and
the sustainability of the company. However, there are other aspects to be kept in mind.
While reformulating a drug, which basically means reinventing the drug with improved
characteristics and results, it runs the risk of not working at all. A possible reconfiguration
for the drug might end up with the drug not being very effective with all the investment
made for the product going down the drain. This is supported through various examples
that we have for other products. Therefore, at this critical stage, it is not the right measure
to reformulate Fleximat altogether rather than having generics for the product.

5) Whether the strategy to reformulate all its products work or not?

As mentioned in the case, Medfield Pharmaceuticals had 3 other important products as well
which had quite some time before their patent life expires. The 3 products were Lodamadal,
Orsamorph and Reximet. As Lodamadal had around 5 years of patent life left, it would be
the right time to start working on its reformulation so that by the end of its patent life, the
company is able to get FDA approval and a new patent for the product through which the
company can expect to generate exclusive revenues for another 20 years. Orsamorph had
a good amount of time left before its patent expired ie 14 years. So, in our opinion, the
company can afford to put a hold on its formulation for the time being and continue to
generate revenues through it. The third product, Reximet got approved recently and had a
full patent of 20 years. So, the same strategy should be followed that has been advised for
Orsamorph. Therefore, reformulating all its product lines will not work as the company
needs to invest its revenues on the products that need urgent attention ie. Fleximat.

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Analysis and Interpretations for Solving the Case
In the given situation, Susan Johnson has the following options for analyzing the buyout offer of
$ 750 million:

1. Comparison of the offer with the Net Present Value of the company’s cash flows without
making any changes to the existing product line and life of any product.

a. Fleximat
2010 2011 2012 2013 2014 2015
Fleximat
% change 2.00% 2.00% -50.00% -50.00% -50.00%
Sales 210.56 214.77 219.07 109.53 54.77 27.38
Cost of Sales 47.46 49.4 50.39 25.20 12.60 6.30

b. Lodamadal
2010 2011 2012 2013 2014 2015 2016 2017 2018
Lodamadal
% change 2.00% 2.00% 2.00% 2.00% 2.00% -50.00% -50.00% -50.00%
Sales 39.67 40.46 41.27 42.10 42.94 43.80 21.90 10.95 5.47
Cost of Sales 10.55 9.31 9.49 9.68 9.88 10.07 5.04 2.52 1.26

c. Orsamorph
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Orsamorph
% change 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%
Sales 78.97 80.55 82.16 83.80 85.48 87.19 88.93 90.71 92.53 94.38
Cost of Sales 18.46 18.53 18.90 19.27 19.66 20.05 20.45 20.86 21.28 21.71

2020 2021 2022 2023 2024 2025 2026 2027

Orsamorph
% change 2.00% 2.00% 2.00% 2.00% 2.00% -50.00% -50.00% -50.00%
Sales 96.26 98.19 100.15 102.16 104.20 52.10 26.05 13.02
Cost of Sales 22.14 22.58 23.04 23.50 23.97 11.98 5.99 3.00

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 d. Reximet
2012 2013 2014 2015 2016 2017 2018 2019
Reximet
% change 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%
Sales 80 81.60 83.23 84.90 86.59 88.33 90.09 91.89
Cost of Sales 18.46 18.77 19.14 19.53 19.92 20.32 20.72 21.14

2020 2021 2022 2023 2024 2025 2026 2027

Reximet
% change 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%
Sales 93.73 95.61 97.52 99.47 101.46 103.49 105.56 107.67
Cost of Sales 21.56 21.99 22.43 22.88 23.34 23.80 24.28 24.76

2028 2029 2030 2031 2032 2033 2034

Reximet
% change 2.00% 2.00% 2.00% 2.00% -50.00% -50.00% -50.00%
Sales 109.82 112.02 114.26 116.54 58.27 29.14 14.57
Cost of Sales 25.26 25.76 26.28 26.81 13.40 6.70 3.35

Total Sales and Net Present Values:

2010 2011 2012 2013 2014 2015 2016 2017

Total Sales 329.20 335.78 422.50 317.04 266.42 243.27 197.43 189.99
Cost of Sales 76.47 77.23 97.24 72.92 61.28 55.95 45.41 43.70
Research 62.46 63.80 80.27 60.24 50.62 46.22 37.51 36.10
Direct Marketing 91.22 90.66 114.07 85.60 71.93 65.68 53.31 51.30
General & Administrative 13.94 13.43 16.90 12.68 10.66 9.73 7.90 7.60
PBT 85.11 90.66 114.01 85.60 71.93 65.68 53.31 51.30
Taxes 27.15 29.01 36.48 27.39 23.02 21.02 17.06 16.41
NOPAT 57.96 61.65 77.53 58.21 48.91 44.66 36.25 34.88
NPV 53.42 52.37 60.70 42.00 32.53 27.38 20.48 18.16

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 2018 2019 2020 2021 2022 2023 2024 2025
Total Sales 188.09 186.27 190.00 193.80 197.67 201.63 205.66 155.59
Cost of Sales 43.26 42.84 43.70 44.57 45.46 46.37 47.30 35.79
Research 35.74 35.39 36.10 36.82 37.56 38.31 39.08 29.56
Direct Marketing 50.79 50.29 51.30 52.33 53.37 54.44 55.53 42.01
General & Administrative 7.52 7.45 7.60 7.75 7.91 8.07 8.23 6.22
PBT 50.79 50.29 51.30 52.33 53.37 54.44 55.53 42.01
Taxes 16.25 16.09 16.42 16.74 17.08 17.42 17.77 13.44
NOPAT 34.53 34.20 34.88 35.58 36.29 37.02 37.76 28.57
NPV 16.57 15.13 14.22 13.37 12.57 11.81 11.11 7.74

2026 2027 2028 2029 2030 2031 2032 2033

Total Sales 131.61 120.69 109.82 112.02 114.26 116.54 58.27 29.14
Cost of Sales 30.27 27.76 25.26 25.76 26.28 26.81 13.40 6.70
Research 25.01 22.93 20.87 21.28 21.71 22.14 11.07 5.54
Direct Marketing 35.53 32.59 29.65 30.25 30.85 31.47 15.73 7.87
General & Administrative 5.26 4.83 4.39 4.48 4.57 4.66 2.33 1.17
PBT 35.53 32.59 29.65 30.25 30.85 31.47 15.73 7.87
Taxes 11.37 10.43 9.49 9.68 9.87 10.07 5.03 2.52
NOPAT 24.16 22.16 20.16 20.57 20.98 21.40 10.70 5.35
NPV 6.04 5.10 4.28 4.02 3.78 3.56 1.64 0.76

2034
Total Sales 14.57
Cost of Sales 3.35
Research 2.77
Direct Marketing 3.93
General & Administrative 0.58
PBT 3.93
Taxes 1.26
NOPAT 2.67
NPV 0.35

Net Present Value (No modifications) $ 439.07 M

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 2. Comparison of the offer with the Net Present Value of the company’s cash flows if
Fleximat is sold as a generic drug after the patent period is over.

Sale of Fleximat:

2010 2011 2012 2013 2014 2015 2016 2017

Fleximat
% of Revenue change 2.00% 2.00% -50.00% -50.00% -50.00% -80.00%
Sales 210.56 214.77 219.07 109.53 54.77 27.38 43.81 43.81
Cost of Sales 47.46 49.40 50.39 25.19 12.60 6.30 10.08 10.08

2018 2019 2020 2021 2022 2023 2024 2025 2026

Fleximat
% of Revenue change
Sales 43.81 43.81 43.81 43.81 43.81 43.81 43.81 43.81 43.81
Cost of Sales 10.08 10.08 10.08 10.08 10.08 10.08 10.08 10.08 10.08

2027 2028 2029 2030 2031 2032 2033 2034

Fleximat
% of Revenue change
Sales 43.81 43.81 43.81 43.81 43.81 43.81 43.81 43.81
Cost of Sales 10.08 10.08 10.08 10.08 10.08 10.08 10.08 10.08

Total Sales and NPV in this case:

2010 2011 2012 2013 2014 2015 2016
Total Sales 329.2 335.784 422.4997 317.04 266.42 243.27 241.24
Cost of Sales 76.47 77.23 97.23 72.92 61.28 55.95 55.49
Research 62.46 63.80 80.27 60.24 50.62 46.22 45.84
Direct Marketing 91.22 90.66 114.07 85.60 71.93 65.68 65.13
General & Administrative 13.94 13.43 16.90 12.68 10.66 9.73 9.65
PBT 85.11 90.66168 114.0149 85.59946 71.93297 65.68239 65.1349
Taxes 27.15 29.01 36.48 27.39 23.02 21.02 20.84
NOPAT 57.96 61.64994 77.53014 58.20763 48.91442 44.66403 44.29173
NPV 53.42 52.37 60.70 42.00 32.53 27.38 25.02

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 2017 2018 2019 2020 2021 2022 2023
Total Sales 233.80 231.91 230.08 233.81 237.61 241.49 245.44
Cost of Sales 53.77 53.34 52.92 53.78 54.65 55.54 56.45
Research 44.42 44.06 43.72 44.42 45.15 45.88 46.63
Direct Marketing 63.13 62.61 62.12 63.13 64.15 65.20 66.27
General & Administrative 9.35 9.28 9.20 9.35 9.50 9.66 9.82
PBT 63.12633 62.61492 62.12285 63.12872 64.1547 65.2012 66.26863
Taxes 20.20 20.04 19.88 20.20 20.53 20.86 21.21
NOPAT 42.9259 42.57815 42.24354 42.92753 43.6252 44.33682 45.06267
NPV 22.35 20.43 18.68 17.50 16.39 15.35 14.38

2024 2025 2026 2027 2028 2029 2030

Total Sales 249.47 199.40 175.42 164.51 153.64 155.83 158.07
Cost of Sales 57.38 45.86 40.35 37.84 35.34 35.84 36.36
Research 47.40 37.89 33.33 31.26 29.19 29.61 30.03
Direct Marketing 67.36 53.84 47.36 44.42 41.48 42.07 42.68
General & Administrative 9.98 7.98 7.02 6.58 6.15 6.23 6.32
PBT 67.35741 53.8384 47.36379 44.41708 41.48177 42.07481 42.67972
Taxes 21.55 17.23 15.16 14.21 13.27 13.46 13.66
NOPAT 45.80304 36.61011 32.20738 30.20361 28.2076 28.61087 29.02221
NPV 13.47 9.92 8.05 6.96 5.99 5.60 5.23

2031 2032 2033 2034

Total Sales 160.36 102.09 72.95 58.38
Cost of Sales 36.88 23.48 16.78 13.43
Research 30.47 19.40 13.86 11.09
Direct Marketing 43.30 27.56 19.70 15.76
General & Administrative 6.41 4.08 2.92 2.34
PBT 43.29672 27.56316 19.69638 15.76299
Taxes 13.85 8.82 6.30 5.04
NOPAT 29.44177 18.74295 13.39354 10.71883
NPV 4.89 2.87 1.89 1.39

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 Net Present Value (Generic Fleximat) $ 484.77 M

3. Comparison of the offer with the Net Present Value of the company’s cash flows if
Fleximat is reformulated.

Sale of Fleximat:
2010 2011 2012 2013 2014 2015 2016 2017
Fleximat
% change 2.00% 2.00% -50.00% 2.00% 2.00% 2.00% 2.00%
Sales 210.56 214.77 219.07 109.53 111.72 113.96 116.24 118.56
Cost of Sales 47.46 49.4 50.39 25.20 25.70 26.21 26.73 27.27

2018 2019 2020 2021 2022 2023 2024

Fleximat
% change 2.00% 2.00% 2.00% 2.00% -50.00% -50.00% -50.00%
Sales 120.93 123.35 125.82 128.34 64.17 32.08 16.04
Cost of Sales 27.81 28.37 28.94 29.52 14.76 7.38 3.69

Total Sale and NPV:

2010 2011 2012 2013 2014 2015 2016 2017
Total Sales 329.20 335.78 422.50 317.04 323.38 329.84 313.66 308.55
Cost of Sales 76.47 77.23 97.2396 72.92 74.38 75.86 72.14 70.97
Reformulation Costs 35.00 35.00
Marketing Costs 25.00 25.00 25.00 25.00 25.00
Research 62.46 63.80 80.27 60.24 61.44 62.67 59.60 58.62
Direct Marketing 91.22 90.66 114.07 85.60 87.31 89.06 84.69 83.31
General & Administrative 13.94 13.43 16.90 12.68 12.94 13.19 12.55 12.34
PBT 85.11 30.66 54.01 60.60 62.31 64.06 84.69 83.31
Taxes 27.15 9.81 17.28 19.39 19.94 20.50 27.10 26.66
NOPAT 57.96 20.85 36.73 41.21 42.37 43.56 57.59 56.65
NPV 53.42 17.71 28.75 29.73 28.18 26.70 32.53 29.50

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 2018 2019 2020 2021 2022 2023 2024 2025
Total Sales 309.03 309.62 315.82 322.13 261.84 233.71 221.70 155.59
Cost of Sales 71.08 71.21 72.64 74.09 60.22 53.75 50.99 35.79
Reformulation Costs
Marketing Costs
Research 58.72 58.83 60.01 61.21 49.75 44.40 42.12 29.56
Direct Marketing 83.44 83.60 85.27 86.98 70.70 63.10 59.86 42.01
General & Administrative 12.36 12.38 12.63 12.89 10.47 9.35 8.87 6.22
PBT 83.44 83.60 85.27 86.98 70.70 63.10 59.86 42.01
Taxes 26.70 26.75 27.29 27.83 22.62 20.19 19.15 13.44
NOPAT 56.74 56.85 57.98 59.14 48.07 42.91 40.70 28.57
NPV 27.23 25.14 23.64 22.22 16.65 13.69 11.97 7.74

2026 2027 2028 2029 2030 2031 2032

Total Sales 131.61 120.69 109.82 112.02 114.26 116.54 58.27
Cost of Sales 30.27 27.76 25.26 25.76 26.28 26.81 13.40
Reformulation Costs
Marketing Costs
Research 25.01 22.93 20.87 21.28 21.71 22.14 11.07
Direct Marketing 35.53 32.59 29.65 30.25 30.85 31.47 15.73
General & Administrative 5.26 4.83 4.39 4.48 4.57 4.66 2.33
PBT 35.53 32.59 29.65 30.25 30.85 31.47 15.73
Taxes 11.37 10.43 9.49 9.68 9.87 10.07 5.03
NOPAT 24.16 22.16 20.16 20.57 20.98 21.40 10.70
NPV 6.04 5.10 4.28 4.02 3.78 3.56 1.64

2033 2034
Total Sales 29.14 14.57
Cost of Sales 6.70 3.35
Reformulation Costs
Marketing Costs
Research 5.54 2.77
Direct Marketing 7.87 3.93
General & Administrative 1.17 0.58
PBT 7.87 3.93
Taxes 2.52 1.26
NOPAT 5.35 2.67

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 NPV 0.76 0.35

Net Present Value (Fleximat Reformulated) $424.33 M

4. Comparison of the offer with the Net Present Value of the company’s cash flows if all the
drugs are reformulated.

Fleximat:
2010 2011 2012 2013 2014 2015 2016 2017
Fleximat
% change 2.00% 2.00% -50.00% 2.00% 2.00% 2.00% 2.00%
Sales 210.56 214.77 219.07 109.53 111.72 113.96 116.24 118.56
Cost of Sales 47.46 49.40 50.39 25.19 25.70 26.21 26.73 27.27

2018 2019 2020 2021 2022 2023 2024

Fleximat
% change 2.00% 2.00% 2.00% 2.00% -50.00% -50.00% -50.00%
Sales 120.93 123.35 125.82 128.34 64.17 32.08 16.04
Cost of Sales 27.81 28.37 28.94 29.52 14.76 7.38 3.69

Lodamadal:
2010 2011 2012 2013 2014 2015 2016 2017 2018
Lodamadal
% change 2.00% 2.00% 2.00% 2.00% 2.00% -50.00% 2.00% 2.00%
Sales 39.67 40.46 41.27 42.10 42.94 43.80 21.90 22.34 22.78
Cost of Sales 10.55 9.31 9.49 9.68 9.88 10.07 5.04 5.14 5.24

2019 2020 2021 2022 2023 2024 2025 2026 2027

Lodamadal
% change 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% -50.00% -50.00% -50.00%
Sales 23.24 23.70 24.18 24.66 25.16 25.66 12.83 6.41 3.21
Cost of Sales 5.35 5.45 5.56 5.67 5.79 5.90 2.95 1.48 0.74

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Orsamorph:
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Orsamorph
% change 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%
Sales 78.97 80.55 82.16 83.80 85.48 87.19 88.93 90.71 92.53 94.38
Cost of Sales 18.46 18.53 18.90 19.27 19.66 20.05 20.45 20.86 21.28 21.71

2020 2021 2022 2023 2024 2025 2026 2027

Orsamorph
% change 2.00% 2.00% 2.00% 2.00% 2.00% -50.00% 2.00% 2.00%
Sales 96.26 98.19 100.15 102.16 104.20 52.10 53.14 54.20
Cost of Sales 22.14 22.58 23.04 23.50 23.97 11.98 12.22 12.47

2028 2029 2030 2031 2032 2033 2034

Orsamorph
% change 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% -50.00%
Sales 55.29 56.39 57.52 58.67 59.85 61.04 30.52
Cost of Sales 12.72 12.97 13.23 13.49 13.76 14.04 7.02

Reximet:
2012 2013 2014 2015 2016 2017 2018 2019 2020
Reximet
% change 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%
Sales 80 81.60 83.23 84.90 86.59 88.33 90.09 91.89 93.73
Cost of Sales 18.46 18.77 19.14 19.53 19.92 20.32 20.72 21.14 21.56

2021 2022 2023 2024 2025 2026 2027 2028

Reximet
% change 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%
Sales 95.61 97.52 99.47 101.46 103.49 105.56 107.67 109.82
Cost of Sales 21.99 22.43 22.88 23.34 23.80 24.28 24.76 25.26

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 2029 2030 2031 2032 2033 2034
Reximet
% change 2.00% 2.00% 2.00% -50.00% 2.00% 2.00%
Sales 112.02 114.26 116.54 58.27 59.44 60.63
Cost of Sales 25.76 26.28 26.81 13.40 13.67 13.94

Total Sales and NPV:

2010 2011 2012 2013 2014 2015 2016 2017
Total Sales 329.20 335.78 422.50 317.04 323.38 329.84 313.66 319.94
Cost of Sales 76.47 77.23 97.23 72.92 74.38 75.86 72.14 73.59
Reformulation Costs 35.00 35.00 35.00 35.00
Marketing Costs 25.00 25.00 25.00 50.00 50.00 25.00 25.00
Research 62.46 63.80 80.27 60.24 61.44 62.67 59.60 60.79
Direct Marketing 91.22 90.66 114.07 85.60 87.31 89.06 84.69 86.38
General & Administrative 13.94 13.43 16.90 12.68 12.94 13.19 12.55 12.80
PBT 85.11 30.66 54.01 60.60 2.31 4.06 59.69 61.38
Taxes 27.15 9.81 17.28 19.39 0.74 1.30 19.10 19.64
NOPAT 57.96 20.85 36.73 41.21 1.57 2.76 40.59 41.74
NPV 53.42 17.71 28.76 29.73 1.05 1.69 22.93 21.73

2018 2019 2020 2021 2022 2023 2024 2025

Total Sales 326.34 332.86 339.52 346.31 286.50 258.87 247.36 168.42
Cost of Sales 75.06 76.56 78.09 79.65 65.90 59.54 56.89 38.74
Reformulation Costs 35.00 35.00
Marketing Costs 25.00 25.00 25.00 25.00
Research 62.00 63.24 64.51 65.80 54.44 49.18 47.00 32.00
Direct Marketing 88.11 89.87 91.67 93.50 77.36 69.89 66.79 45.47
General & Administrative 13.05 13.31 13.58 13.85 11.46 10.35 9.89 6.74
PBT 63.11 89.87 91.67 93.50 77.36 9.89 6.79 20.47
Taxes 20.20 28.76 29.33 29.92 24.75 3.17 2.17 6.55
NOPAT 42.92 61.11 62.34 63.58 52.60 6.73 4.62 13.92
NPV 20.59 27.03 25.41 23.89 18.21 2.15 1.36 3.77

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 2026 2027 2028 2029 2030 2031 2032
Total Sales 165.11 165.08 165.11 168.41 171.78 175.22 118.12
Cost of Sales 37.98 37.97 37.98 38.74 39.51 40.30 27.17
Reformulation Costs 35.00 35.00
Marketing Costs 25.00 25.00 25.00 25.00 25.00
Research 31.37 31.37 31.37 32.00 32.64 33.29 22.44
Direct Marketing 44.58 44.57 44.58 45.47 46.38 47.31 31.89
General & Administrative 6.60 6.60 6.60 6.74 6.87 7.01 4.72
PBT 19.58 19.57 44.58 45.47 -13.62 -12.69 6.89
Taxes 6.27 6.26 14.27 14.55 -4.36 -4.06 2.21
NOPAT 13.32 13.31 30.31 30.92 -9.26 -8.63 4.69
NPV 3.33 3.06 6.43 6.05 -1.67 -1.43 0.72

2033 2034
Total Sales 120.48 91.15
Cost of Sales 27.71 20.96
Reformulation Costs
Marketing Costs 25.00 25.00
Research 22.89 17.32
Direct Marketing 32.53 24.61
General & Administrative 4.82 3.65
PBT 7.53 -0.39
Taxes 2.41 -0.12
NOPAT 5.12 -0.27
NPV 0.72 -0.03

Net Present Value (All drugs reformulated) $316.61 M

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Summary:
After, calculating total cash flows for all the products of Medifield, for all possible scenarios, we
discounted the cash flows of all the respective years at the rate of 8.5% and calculated the
cumulative cash flow for the time period till which Reximet’s patent life prevails. Through these
parameters we were able to calculate the corresponding NPVs and compare with Medifield’s buy
out value of $750 million.
1. Current Scenario: Without any modifications to the current scenario, the NPV comes out
to be $439.07 million.
2. Manufacturing the generic form of Fleximat in-house: NPV comes out to be $484.77
miillion.
3. Reformulating Fleximat: NPV comes out to be $424.33 million.
4. Reformulating all the drugs: NPV comes out to be $ 316.61 million.
5. Making the generic form of all the drugs in-house: We won’t be able to calculate the total
NPV of Medifield, as the duration till which all the drugs will be in the market would be
difficult to estimate.
Since the highest possible NPV comes out to be $ 484.77 million, which is considerably less than
the buyout value of $750 million, Susan should accept the buyout offer and sell off Medifield
Pharmaceuticals. However, she should also ensure that the company’s values and culture, of
bettering lives through medicine, are not lost.

Conclusion:
We therefore recommend that Susan Johnson should sell-off Medifield
Pharmaceuticals for $750 million.

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