Medimmune Case free essay sample

MedImmune is dedicated to helping patients live better lives through advances in science and medicine. Hundreds of thousands of patients have benefited from their products, which are designed to treat or prevent infectious diseases, cancer and inflammatory diseases (Wikipedia, 2012). Their extensive research and development efforts are focused on these same areas. MedImmune acquired FluMist when it purchased Aviron in 2002. FluMist is Aviron’s lead product for development and commercialization, it’s a live virus vaccine delivered to the patient as a nasal mist for the prevention of influenza (Wikipedia, 2012). Key Issues The board of MedImmune believed that Aviron was a good strategic fit but didn’t know what to offer. We need to see all the advantages and disadvantages to come to the conclusion. With other vaccines and cancer treatment products, MedImmune wants to get larger market shares and become the leader in vaccines discovery, development, manufacture, and marketing. From the background we can see Aviron is also a biopharmaceutical company. We will write a custom essay sample on Medimmune Case or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Its lead product, FluMist, is also a live vaccine. There is a huge overlap in their researches, which can provide MedImmune a good scale of economy and cost efficiency. For Example, Synagis, as MedImmune’s main product, is the first monoclonal antibody successfully developed to combat infectious disease, and is indicated for the prevention of serious lower respiratory tract disease caused by respiratory syncytial virus (RSV) in pediatric patients at high risk of RSV disease. Aviron’s PIV-3 is a common childhood respiratory virus (Wikipedia, 2012). By purchasing Aviron, MedImmune will achieve all complete products and undergoing clinical trials including the tax credits up to 50% attached. Risk First of all, what need to be concerned is that even though FluMist helped Aviron generate $11. 7 million in revenue for the first nine months of 2001, it reported a net loss of $89. 2 million for the same period (Sullivan, J. D. , 2004). This leaves a dangerous situation for MedImmune to value Aviron with negative earnings. The problems can be grouped into two categories: problems with estimating cash flows and problems with estimating discount rates. How long will it take to get a positive earning? What number should the discount rate be? Secondly, although the company took a long time before the introduction of the vaccine FluMist, the nasal spray flu virus has been unable to obtain FDA approval for the vaccination of young children and the elderly. FluMist also exists the problem of poor sales and difficult storage. MedImmune paid $ 1. 5 billion in 2001 after the acquisition of California Aviron in launching of FluMist. At that time, MedImmune predicted that FluMist would become a blockbuster drugs. But in fact, FluMist is quite poor performance on the market. Poor estimation on potential customers and market growth should be the main reasons for the failure. Recommendation The MedImmune Company expected that the transaction will be completed in the first quarter of 2002. The transaction will write off the companys 2002 earnings levels and reach breakeven point in 2003; then the level of its cash surplus will significantly grow (MedImmune, 2001). But from both MedImmune and Avirons’ statement of operations we can see that huge gap of negative earning will not be covered in 2003. From the news afterwards we know that according to the agreement reached by the two companies, MedImmune used 1. 75 shares of outstanding stock in exchange of one Aviron’s share, total payment of $170 billion (MedImmune, 2001). If I was MedImmune’s board member I would not approve this merger. MedImmune should not ignore the huge loss and expect too much on FluMist. When facing the negative cash flow, MedImmune could value Aviron based on asset value or earning power. In asset value part, they could look into its balance sheet and focus on cur rent asset number or total asset number, and then they need to deduct liabilities to reach the net asset.