1. What is the value of Medfield as a company? Assume the reformulation is not pursued.

2. What is the value that would be created from a reformulation?

3. What factors explain the value created from the reformulation? Or, what relevant issues are not addressed in the analysis? Who reaps the financial benefits? Who bears the financial costs?

4. What should Susan Johnson do?

The founder and largest shareholder of a small pharmaceutical company faces two related decisions: how best to extend the patent life of a key drug and how to respond to a recent takeover offer. A central source of tension in the case is determining the appropriate balance between the firm’s financial objectives and the mission and culture of the founder and employees. The conflicts are made explicit and are given depth with sufficient information to value a drug reformulation strategy and to value the company’s pipeline. Background on the pharmaceutical industry and exploration of issues related to patent-life extensions provide a rich context for discussion.

The case can serve multiple purposes. The analytic opportunities allow a careful exploration of the drivers of value, in particular how a going-concern valuation of a company combines both the value of assets already in place (in this case, the drug pipeline) and the net value of future projects (the value created from R&D). The context of the decision adds a strong ethical dimension to the case that allows an exploration of issues related to stakeholders, corporate culture, and corporate missions. In particular, the case is designed to achieve the following learning objectives:

Determine the value of a project given facts related to cash flows.

• Determine the value of a set of existing assets of a company and explore the relationship between the value of projects and the value of the company as a going concern.
• Articulate the purpose of the company and explore the relationship between company mission and value creation.
• Identify the stakeholders of a company and analyze the implications of the firm’s choices to those stakeholders. Confront the ethical aspects of the firm’s resource allocation decisions.