Medmmune Case Study Essay
MedImmune Case
Background
MedImmune is a biotechnology company based in Gaithersbug, Maryland. Currently the company has five products on the market: Synagis, CytoGam, RespiGam, Ethyol, and NeuTrexin. These medications target small markets of patients with auto-immune disorders, treating either respiratory illnesses or cancer. In addition, the company has several medications currently under development, including one in the preclinical phase, three in phase I of clinical trials, three in phase II trials, four in phase III, and one in phase IV efficacy trials. Due to the nature of the medical industry and regulations on testing and approval for drugs, it could be several years before any of these medications currently under development could obtain approval and be marketed. …show more content…
MedImmune is currently in a healthy financial position where sales almost reached $500M in 2000, an increase of 40% from the previous year 1999.
However, since drugs typically see declining sales the longer they are on the market, pharmaceutical and biotechnology companies always depend on the continuous development and approval of new medications. While tax credits and research grants are available to companies that serve rare diseases, as an incentive to undertake the costly development process for drugs that will not be as widely marketable as those that cater to mass diseases, MedImmune has considered acquiring another biotechnology firm to expand its market share. The most likely candidate for the acquisition is Aviron, a biopharmaceutical company based in California that specializes in the development and research of viral vaccines. Aviron is the manufacturer of FluMist, and nasal vaccine for influenza. Since FluMist is less invasive than other influenza vaccines, and because the flu is mass disease, the vaccine has great potential high sales and revenue. The acquisition presents a good opportunity for MedImmune to generate a significant growth in the short and long
term.
Key Issues and Risks The major issue confronting MedImmune and its considerations of acquiring Aviron is the offer price for the company. Given the Aviron’s current financial position, the acquisition would not immediately offer MedImmune greater cash reserves. Coming up with an offer price that is both appropriate and acceptable to the management of Aviron has presented a challenge. If the management offers an expensive price, it will make the deal very dilutive to MedImmune’s EPS. Acquiring Aviron would also mean taking several risks for MedImmune. Foremost is the risk that FluMist will not meet the high expectations for sales expected of it. The drug is currently the biggest selling point for acquiring Aviron. FluMist would provide the needed revenue to offset the effects of the merger on MedImmune’s stock prices and finance research, development and testing of medications Aviron currently has in the works. For MedImmune to have to shoulder that burden without the cash generated by FluMist would be a major financial burden for the company. Another risk to MedImmune would be that acquiring a company whose financial position is less than sound could provoke a negative reaction on Wall Street, which could send the price of MedImmune shares down.
Recommendations
So should MedImmune acquire Aviron? Despite the challenges and risks described above, the answer is yes. The acquisition would bring great benefits to the company. First, it would add the component of vaccine technology to its research and development of new drugs and to the manufacture of new drugs. This would widely expand its current capacity for manufacturing, at a lower cost than building additional manufacturing facilities itself, and would expand its product base. Second, the addition of the drugs currently being manufactured by Aviron, as well as those being developed, would diversify MedImmune’s product base and give it a greater number of marketable drugs (and specifically rights to drugs that are marketable to mass sectors of the population), thereby expanding its market share in biopharmaceuticals. Third, acquiring Aviron would fill the product gap currently being experienced by MedImmune. Given the cycles for pharmaceutical development, and the fact that currently it will be years before MedImmune can ad a new drug to the market, the company would have FluMist to market in the interim.
Background
MedImmune is a biotechnology company based in Gaithersbug, Maryland. Currently the company has five products on the market: Synagis, CytoGam, RespiGam, Ethyol, and NeuTrexin. These medications target small markets of patients with auto-immune disorders, treating either respiratory illnesses or cancer. In addition, the company has several medications currently under development, including one in the preclinical phase, three in phase I of clinical trials, three in phase II trials, four in phase III, and one in phase IV efficacy trials. Due to the nature of the medical industry and regulations on testing and approval for drugs, it could be several years before any of these medications currently under development could obtain approval and be marketed. …show more content…
MedImmune is currently in a healthy financial position where sales almost reached $500M in 2000, an increase of 40% from the previous year 1999.
However, since drugs typically see declining sales the longer they are on the market, pharmaceutical and biotechnology companies always depend on the continuous development and approval of new medications. While tax credits and research grants are available to companies that serve rare diseases, as an incentive to undertake the costly development process for drugs that will not be as widely marketable as those that cater to mass diseases, MedImmune has considered acquiring another biotechnology firm to expand its market share. The most likely candidate for the acquisition is Aviron, a biopharmaceutical company based in California that specializes in the development and research of viral vaccines. Aviron is the manufacturer of FluMist, and nasal vaccine for influenza. Since FluMist is less invasive than other influenza vaccines, and because the flu is mass disease, the vaccine has great potential high sales and revenue. The acquisition presents a good opportunity for MedImmune to generate a significant growth in the short and long
term.
Key Issues and Risks The major issue confronting MedImmune and its considerations of acquiring Aviron is the offer price for the company. Given the Aviron’s current financial position, the acquisition would not immediately offer MedImmune greater cash reserves. Coming up with an offer price that is both appropriate and acceptable to the management of Aviron has presented a challenge. If the management offers an expensive price, it will make the deal very dilutive to MedImmune’s EPS. Acquiring Aviron would also mean taking several risks for MedImmune. Foremost is the risk that FluMist will not meet the high expectations for sales expected of it. The drug is currently the biggest selling point for acquiring Aviron. FluMist would provide the needed revenue to offset the effects of the merger on MedImmune’s stock prices and finance research, development and testing of medications Aviron currently has in the works. For MedImmune to have to shoulder that burden without the cash generated by FluMist would be a major financial burden for the company. Another risk to MedImmune would be that acquiring a company whose financial position is less than sound could provoke a negative reaction on Wall Street, which could send the price of MedImmune shares down.
Recommendations
So should MedImmune acquire Aviron? Despite the challenges and risks described above, the answer is yes. The acquisition would bring great benefits to the company. First, it would add the component of vaccine technology to its research and development of new drugs and to the manufacture of new drugs. This would widely expand its current capacity for manufacturing, at a lower cost than building additional manufacturing facilities itself, and would expand its product base. Second, the addition of the drugs currently being manufactured by Aviron, as well as those being developed, would diversify MedImmune’s product base and give it a greater number of marketable drugs (and specifically rights to drugs that are marketable to mass sectors of the population), thereby expanding its market share in biopharmaceuticals. Third, acquiring Aviron would fill the product gap currently being experienced by MedImmune. Given the cycles for pharmaceutical development, and the fact that currently it will be years before MedImmune can ad a new drug to the market, the company would have FluMist to market in the interim.