4 case study
MedImmune(
MedImmune, Incorporated, a biotechnology company with five products on the market and a series of products in the pipeline, has considered expanding its operations and market power through the purchase of a smaller biotech firm that would compliment their existing product base.
In their search for a suitable candidate, the management of MedImmune began to target Aviron, a biopharmaceutical company based in Mountain View, California. While the company’s lead product, 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. The company’s goal is to become a leader in the discovery, development, manufacture, and marketing of vaccines that are safe, effective, and can be marketed to a large population.
While the acquisition looked like a fairly good strategic fit for MedImmune, the financial condition of the new biotechnology firm made a decision on an offer difficult to calculate. If they were to proceed, they would need to come up with a reasonable offer sooner rather than later.
Drug Cycles
For pharmaceutical and biotechnology companies to remain competitive, a continuous flow of new and improved drugs must be developed. Many companies start with a series of early possible drugs that have merit, but as research and clinical trials progress, many hopeful therapies are deemed ineffective and are either discarded or part of the research is used in other areas for possible other drugs.
Drugs are considered to enter “phases” of development as they progress from hypothesis to manufacturing. At the earliest stage of testing, products are in Phase 1 and Phase 2 clinical trials. These clinical trials generally involve the administration of the drug to a small number of patients to examine the safety, dosage, and to a lesser extent, efficacy. Once the product has passed through Phase 1 and Phase 2 clinical trials, the drug enters Phase 3 where efficacy is tested. On average, it takes between ten to twelve years to bring a drug to market and the cost, depending on the products complexity, can reach as high as $500 million.
MedImmune Background
Headquartered in Gaithersburg, Maryland, MedImmune presently has five products on the market and a wide portfolio of potential products in the research phase of development. The company uses its strength in advanced immunology and other areas of biology to target unmet needs in infectious diseases and patients suffering from immune deficiencies. The company also focuses on cancer treatment through its wholly owned subsidiary, MedImmune Oncology, inc. This subsidiary, formerly under the name Bioscience, Inc., was acquired in November 1999.
Synagis
Approved by the Food and Drug Administration in 1998 for marketing, Synagis is prescribed for pediatric patients for the prevention of serious lower respiratory tract disease caused by respiratory syncytial virus. Administrated by an injection, the drug is given once per month during anticipated times of disease prevalence.
CytoGam
To prevent cytomegalovirus in kidney, lung, liver, pancreas, and heart transplants, the company developed the intravenous drug CytoGam. Cytomegalovirus is a species specific herpes virus and usually is harmless. For those with immune deficiency system however, it may cause a fatal pneumonia.
With approximately 20,000 transplants in the United States each year, CytoGam has been shown through clinical studies to reduce cytomegalovirus by 56% in liver and 50% in kidney transplant patients.
In 1993, the company began selling and marketing the drug through its hospital sales force. By 2000, sales of CytoGam reached $36.5 million in the United States. Sales of the drug may increase as the supply of organs increases.
RespiGam
Approved by the Food and Drug Administration in 1996, RespiGam is an intravenous drug used to treat respiratory syncytial virus for small children. The company believes that the drug is largely being replaced by Synagis.
Ethyol
To prevent renal toxicity associated with patients being repeatedly administrated with cisplatin for the treatment of ovarian cancer or non-small cell cancer, Ethyol acts as a cytoprotective agent. Ethyol was initially approved by the Food and Drug Administration in 1995 for the treatment of patients with ovarian cancer.
NeuTrexin
Approved in the United States and Canada in 1993, NeuTrexin is most commonly used as an anti-cancer agent as a treatment for Pneumocystis carinii pneumonia, a condition also experienced by patients that suffer from AIDS. However, due to the rapid improvement in the treatment of AIDS through new and improved drugs, the company has seen a slow decline in the use of NeuTrexin for AIDS patients.
In 1994, the European Union approved the use of NeuTrexin for patients suffering from Pneumocystis carinii pneumonia with compromised immune systems.
Products Under Development
The company has a long line of products under development. A list of these products is listed in Exhibit 1.
Manufacturing
MedImmune’s manufacturing facility is located in Frederick, Maryland and contains a large cell culture production area for the manufacture of products such as Synagis and MEDI-507, if it clears clinical trials and FDA approval. The company also maintains a small manufacturing facility in Nijmegan, the Netherlands.
Marketing
To market and sell the company’s line of products, MedImmune employs 240 people dedicated to the United States with approximately 50 representatives covering 500 hospitals specializing in transplantation, pediatric, or neonatal care. These sales reps concentrate on the promotion of CytoGam, RespiGam, and Synagis. About 90 sales and marketing representatives cover the top 10,000 hospitals in the United States promoting Synagis and RespiGam. Other representatives that specialize in oncology and immunology market products such as Ethyol to physicians practicing in cancer treatment centers, large hospitals, and private practices.
MedImmune also utilizes Abbott labs’ Ross Products division to co-promote its products in the United States. Ross Products employs roughly 500 sales representatives and promotes Synagis to 27,000 office-based pediatricians and 6,000 birth hospitals.
Sales made outside the United States are done through distributors. Abbot serves as the company’s exclusive distribution company for Synagis. For Europe, Scherico sells and markets Ethyol. Other products such as CytoGam, Hexalen, NeuTrexin, and RespitGam were marketed and sold by various smaller distribution companies.
Employee Base
At year-end 2000, the company maintained a good relationship with its 790 full time employees.
Government Regulation
The research, development, and marketing of pharmaceuticals are subject to regulations set forth by the United States and other countries. In the United States, all drugs must be approved by the Food and Drug Administration and fall under several statutes and regulations including the Food, Drug and Cosmetics Act and the Public Health Service Act. The Food and Drug Administration also has the right to revoke product licenses.
To encourage research into areas of rare disease, the United States government enacted the Orphan Drug Act. Because the financial costs are typically so high to develop new drugs, many of these companies were searching for cures to mass disease rather than disease populations with less than 200,000 persons. Under this act, any company that receives Food and Drug Administration approval can potentially provide the company with market exclusivity for seven years. In addition, the company will receive tax credits up to 50% for qualified clinical research in these areas and the opportunity for clinical research grants.
Aviron Background
Aviron is a biopharmaceutical company that concentrates its efforts on the prevention of disease through innovative and cutting edge vaccine technology. The company’s lead product for development and commercialization is FluMist, a live virus vaccine delivered to the patient as a nasal mist for the prevention of influenza. Research focuses on vaccine development programs that are based on producing weakened live vaccines and on its genetic engineering technologies. Weakened live virus vaccines have had a strong history in preventing disease such as smallpox, polio, measles, mumps, rubella, and chicken pox.
FluMist
FluMist, Aviron’s primary product, has undergone and continues to undergo clinical trials. Many of these trials are coordinated with the National Institute of Health investigators. FluMist has been tested in 24,000 healthy children and adults and has been generally shown to provide a protection against influenza. Typical side effects of the treatment were sore throat, nasal decongestion, and a slight fever.
The Biologics License Application, or BLA, for frozen FluMist was submitted to the United States Food and Drug Administration in October 2000. In September 2001, the FDA requested additional information regarding clinical and manufacturing data from the company.
PIV-3
PIV-3 is a common childhood respiratory virus that causes croup, cough, fever and pneumonia. For children in the United States, more than 60% are infected by the age of two and 80% of those who contract the disease do so by age four. Aviron is presently engaged in the research and development of a vaccine to treat this disease.
CMV
A member of the herpes virus family, CMV infections can result in mild symptoms such as a sore throat, headache, fatigue and swollen glands. In more drastic cases of infection, CMV can diminish the strength of the immune system and can often be found in patients with AIDS, cancer, and transplant patients.
Conclusion
The board of MedImmune believed that Aviron was a good strategic fit but didn’t know what to offer. While the company had some attractive features, it still lacked positive earnings and cash flow to generate a value. They didn’t want to insult the management of Aviron with a low offer, but also felt the pressure to offer an appropriate price. It had been their experience that a purchase like this one was better done as a friendly transaction.
Exhibit 1
MedImmune
Products Under Development
|
|
|
Product |
Indication |
|
|
|
|
Synais RSV Marketed |
Prevention of RSV disease |
|
|
|
|
CytoGam Marketed |
Prophylaxis of cytomegalovirus |
|
|
|
|
RespiGam Marketed |
Prevention of serious RSV |
|
|
|
|
Ethyol Marketed |
Reduction of cumulative renal toxicity |
|
|
|
|
Ethyol Marketed |
Reduction of the incidence of severe xerostomia |
|
|
|
|
NeuTrexin Marketed |
Alternative treatment of Pneumocystis carinii pneumonia |
|
|
|
|
Synagis RSV Phase 3 |
RSV disease in bone marrow transplant |
|
|
|
|
Synagis RSV Phase 4 |
Prevention of RSV children under 2 years |
|
|
|
|
Synagis RSV Phase 3 |
Children under 2 years with congenital heart disease |
|
|
|
|
Ethyol Phase 3 |
Treatment of NSCLC |
|
|
|
|
Ethyol Phase 2/3 |
Reduction in radiotherapy |
|
|
|
|
Neutrexin Phase 3 |
Treatment of colorectal cancer |
|
|
|
|
MEDI-507 Phase 1 |
Treatment of graft-versus-host disease |
|
|
|
|
MEDI-507 Phase 2 |
Treatment of psoriasis |
|
|
|
|
Ethyol Phase 2/3 |
Head and neck cancer |
|
|
|
|
MEDI-491 Phase 1 |
Prevention of B19 parvovirus infection |
|
|
|
|
UTI Vaccine Phase 2 |
Prevention of urinary tract |
|
|
|
|
HPV Cervical Cancer |
Prevention of cervical cancer |
|
|
|
|
Vitaxin Anti Phase 1 |
Treatment of cancer |
|
|
|
|
Numax Preclinical |
Prevention of RSV disease |
|
|
|
|
|
|
|
Exhibit 2
MedImmune
Stock Performance
|
|
|
|
2000 |
|
1999 |
|
|
|
|
|
|
|
High |
Low |
High |
Low |
|
|
|
|
|
First Quarter |
76.25 |
43 |
22 |
14.33 |
|
|
|
|
|
Second Quarter |
80.69 |
42 |
24.67 |
15 |
|
|
|
|
|
Third Quarter |
86.13 |
57.75 |
40.21 |
22.96 |
|
|
|
|
|
Fourth Quarter |
72.63 |
44.63 |
58.6 |
29.67 |
|
|
|
|
|
Year End Close |
47.69 |
|
55.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit 3
MedImmune
Product Sales
|
|
|
|
|
|
|
|
|
|
|
Product Sales (In Million) |
2000 |
1999 |
|
|
|
|
|
Synagis |
427 |
293 |
|
|
|
|
|
CytoGam |
36.5 |
34.7 |
|
|
|
|
|
Ethyol |
21.4 |
19.6 |
|
|
|
|
|
Other Products |
10.9 |
9.5 |
|
|
|
|
|
Total |
495.8 |
356.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit 4
MedImmune
Total Assets
|
|
|
|
31-Dec-00 |
31-Dec-99 |
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
Cash |
84,974 |
36,570 |
|
|
|
|
|
Marketable securities |
406,455 |
214,750 |
|
|
|
|
|
Trade receivable, net |
115,635 |
86,894 |
|
|
|
|
|
Inventory, net |
46,633 |
31,777 |
|
|
|
|
|
Deferred tax assets |
22,319 |
23,132 |
|
|
|
|
|
Other current assets |
11,796 |
8,715 |
|
|
|
|
|
Total Current Assets |
687,812 |
401,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
86,383 |
87,452 |
|
|
|
|
|
Deferred tax assets, net |
194,761 |
128,990 |
|
|
|
|
|
Marketable securities |
34,825 |
19,074 |
|
|
|
|
|
Other assets |
2,794 |
11,070 |
|
|
|
|
|
Total Assets |
1,006,575 |
648,424 |
|
|
Exhibit 5
MedImmune
Liabilities
|
|
|
|
Liabilities |
|
|
|
|
|
|
Accounts payable, trade |
3,090 |
2,995 |
|
|
|
|
|
Accrued expenses |
72,159 |
65,300 |
|
|
|
|
|
Product royalties payable |
40,553 |
28,527 |
|
|
|
|
|
Deferred revenue |
33,966 |
|
|
|
|
|
|
Other current liabilities |
1,697 |
2,130 |
|
|
|
|
|
Total Current Liabilities |
151,465 |
98,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
9,595 |
10,366 |
|
|
|
|
|
Other liabilities |
1,933 |
2,027 |
|
|
|
|
|
Total Liabilities |
162,993 |
111,345 |
|
|
|
|
|
|
|
|
|
|
Exhibit 6
MedImmune
Statement of Operations
|
|
|
Revenues |
|
|
|
|
|
|
|
|
2000 |
1999 |
|
|
|
|
|
Product sales |
495,803 |
356,815 |
|
|
|
|
|
Other revenue |
44,692 |
26,560 |
|
|
|
|
|
Total revenues |
540,495 |
383,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
Cost of sales |
127,320 |
90,193 |
|
|
|
|
|
Research and development |
66,296 |
59,565 |
|
|
|
|
|
Selling, administrative and general |
157,330 |
139,389 |
|
|
|
|
|
Other operating expenses |
9,231 |
17,409 |
|
|
|
|
|
Total expenses |
360,177 |
306,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
180,318 |
76,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit 7
Aviron
Stock Performance
|
|
|
Year Ended December 31, 1999 |
|
|
|
|
|
|
|
First Quarter |
26.75 |
17.50 |
|
|
|
|
|
Second Quarter |
28.75 |
17.13 |
|
|
|
|
|
Third Quarter |
34.06 |
21.00 |
|
|
|
|
|
Fourth Quarter |
28.75 |
14.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2000 |
|
|
|
|
|
|
|
First Quarter |
54.38 |
15.00 |
|
|
|
|
|
Second Quarter |
35.00 |
21.00 |
|
|
|
|
|
Third Quarter |
59.00 |
27.56 |
|
|
|
|
|
Fourth Quarter |
70.61 |
46.00 |
|
|
|
|
|
|
|
|
|
|
Exhibit 8
Aviron
Assets
|
|
|
|
31-Dec |
|
|
|
|
|
|
|
1999 |
2000 |
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
28,081 |
64,662 |
|
|
|
|
|
Short-term investments |
24,235 |
67,651 |
|
|
|
|
|
Accounts receivable |
3,241 |
23,288 |
|
|
|
|
|
Inventory |
2,082 |
4,264 |
|
|
|
|
|
Other current assets |
1,009 |
2,691 |
|
|
|
|
|
Total current assets |
58,648 |
162,556 |
|
|
|
|
|
Long-term investments |
|
4,506 |
|
|
|
|
|
Property and equipment, net |
25,635 |
27,707 |
|
|
|
|
|
Intangible assets, net |
|
48,046 |
|
|
|
|
|
Deposits and other assets |
7,411 |
5,924 |
|
|
|
|
|
Total Assets |
91,694 |
248,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit 9
Aviron
Liabilities
|
|
|
Liabilities and stockholders' equity(deficit) |
|
|
|
|
|
|
|
|
1999 |
2000 |
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
Accounts payable |
3,038 |
5,106 |
|
|
|
|
|
Accrued compensation |
1,739 |
4,978 |
|
|
|
|
|
Accrued clinical trial costs |
846 |
1,974 |
|
|
|
|
|
Accrued interest |
1,438 |
695 |
|
|
|
|
|
Accrued expenses and other liabilities |
6,591 |
7,654 |
|
|
|
|
|
Current portion of capital lease obligations |
101 |
9 |
|
|
|
|
|
Current portion of long term obligations |
2,680 |
5,945 |
|
|
|
|
|
Total current liabilities |
16,433 |
26,361 |
|
|
|
|
|
Deferred rent |
2,214 |
2,095 |
|
|
|
|
|
Deferred revenue |
|
9,750 |
|
|
|
|
|
Capital lease obligations, less current portion |
9 |
|
|
|
|
|
|
Long-term obligations, less current portion |
112,657 |
89,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit 10
Aviron
Stockholder Equity
|
|
|
|
1999 |
2000 |
|
|
|
|
|
Preferred stock |
|
|
|
|
|
|
|
Common stock |
17 |
25 |
|
|
|
|
|
Paid-in capital |
143,822 |
394,012 |
|
|
|
|
|
Notes receivable |
-83 |
-50 |
|
|
|
|
|
Deferred compensation |
-96 |
|
|
|
|
|
|
Accumulated deficit |
-183279 |
-273401 |
|
|
|
|
|
Total stockholders' equity(deficit) |
-39619 |
120,586 |
|
|
|
|
|
Total liabilities and stockholder's equity |
91,694 |
248,739 |
|
|
|
|
|
|
|
|
|
|
Exhibit 11
Aviron
Statement of Operations
|
|
|
|
Year Ended December 31 |
|
|
||
|
|
|
|
1998 |
1999 |
2000 |
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
Contract revenue and grants |
745 |
22,232 |
32,242 |
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
Research and development |
46,583 |
68,121 |
80,521 |
|
|
|
|
|
Acquisition of in-process research and development |
|
10,904 |
|
|
|
|
|
|
General, administrative and marketing |
10,085 |
13,159 |
13,849 |
|
|
|
|
|
Total Operating Expenses |
56,668 |
81,371 |
105,174 |
|
|
|
|
|
Loss from Operations |
-55,923 |
-59,139 |
-73,032 |
|
|
|
|
|
Other Income(Expense) |
|
|
|
|
|
|
|
|
Interest income |
6,003 |
3,633 |
6,541 |
|
|
|
|
|
Interest expense |
-4,882 |
-6,364 |
-11,020 |
|
|
|
|
|
Total Other Income(expense), net |
1,121 |
-2,731 |
-4,479 |
|
|
|
|
|
Net Loss |
-54,802 |
-61,870 |
-77,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit 12
Aviron
Investments
|
|
|
|
|
|
|
|
|
|
|
Cost |
Gross Unrealized Gains |
Gross Unrealized Loses |
Market Value |
|
|
|
As of December 31, 1999 |
|
|
|
|
|
|
|
Corporate commercial paper |
4,386 |
25 |
|
4,411 |
|
|
|
U.S. corporate notes |
9,251 |
|
-139 |
9,112 |
|
|
|
U.S. corporate bonds |
9,385 |
3 |
-40 |
9,348 |
|
|
|
U.S. government agency obligations |
1,004 |
|
-13 |
991 |
|
|
|
Municipal bonds |
1,810 |
|
-9 |
1,801 |
|
|
|
|
25,836 |
28 |
-201 |
25,663 |
|
|
|
As of December 31, 2000 |
|
|
|
|
|
|
|
Corporate commercial paper |
72,894 |
26 |
-65 |
72,855 |
|
|
|
U.S. corporate bonds |
23,189 |
45 |
-52 |
23,182 |
|
|
|
U.S. government agency obligations |
2,000 |
12 |
|
2,012 |
|
|
|
|
98,083 |
83 |
-117 |
98,049 |
|
|
|
|
|
|
|
|
|
Exhibit 13
Aviron
Property and Equipment
|
|
|
|
1999 |
2000 |
|
|
|
|
|
Property and Equipment |
|
|
|
|
|
|
|
Manufacturing equipment |
5,978 |
6,551 |
|
|
|
|
|
Laboratory equipment |
5,992 |
7,780 |
|
|
|
|
|
Computer equipment |
3,113 |
4,219 |
|
|
|
|
|
Office equipment |
1,070 |
1,202 |
|
|
|
|
|
Leasehold improvements |
18,930 |
19,856 |
|
|
|
|
|
Construction in progress |
280 |
3,704 |
|
|
|
|
|
|
35,363 |
43,312 |
|
|
|
|
|
Less accumulated depreciation and amortization |
-9,728 |
-15,605 |
|
|
|
|
|
Net Property and Equipment |
25,635 |
27,707 |
|
|
|
|
|
|
|
|
|
|
((copyright 2002 – John D. Sullivan
This case was written to stimulate class discussion and analysis and is not a critique of an effective or ineffective management situation.
� MedImmune, Inc. Securities and Exchange Form 10-K. December 30, 2000.
� MedImmune, Inc. Securities and Exchange Form 10-K. December 30, 2000.
4
6