MedImmune Incorporates is a biotechnology company that presently has five products in the market and wide range of products under research and development. MedImmune has been profitable with major contribution of revenue from the sales of Synagis. MedImmune has been using merger and acquisition as a way to gain extra market shares and accelerate MedImmune’s revenue growth in order to stay competitive in the hostile industry. MedImmune has considered Aviron as a great choice as the target of merger, Aviron had a blockbuster drug that could provide stable revenue sources like MedImmune’s Synagis, even through Aviron had reported annual losses from 1998 to 2000 in a substantial way, MedImmune still has positive confidence on Avrion would become profitable in next few years with Flumist sales. The common strategy for pharmaceutical and biotechnology companies to remain competitive is to invest heavily for new and improved drugs. Where the cost of each new product depends on the complexity, which could reach as high as $500 million.
MedImmune and Aviron focused on different market segments with overlap on new drug research, especially on immune system. The shared value on drug research and development would provide extra advantages for both MedImmune and Aviron, the board application of existing research accomplishment would allow both MedImmune and Aviron to elaborate and further exploitative existing research and drug development. With proper collaboration, the intrinsic value of FluMist could get recognized in MedImmune’s study on immune systems. The merger between Avrion and MedImmune would provide extra research and development insights for both company and accelerate the development for possible new products. Despite Aviron’s poor profitability at current stage, the merger between MedImmune and Avrion could create huge financial benefits in the future.
From qualitative evaluations, this merger would also bring in new innovations to MedImmune. Innovation today is valued as a great asset for MedImmune, where most pharmaceutical company focused on develop drugs with maximized revenues, however with Orphan drug act, the revenue stream that most Orphan drugs provide is lucrative as well, with $150,000 per patient per year that would last for more than 20 years. Therefore, the synergy that create by this merger could encourage the development of new drugs research and development which enlarge the target market for both company.
. For MedImmune, Avrion’s FluMist could complement its existing product line, buying already developed and existing product would be more feasible than research for a new one. With interest to purchase Avrion, MedImmune has to offer a reasonable price for Avrion, with negative cash flow generated by Aviron’s financial performance, discounted cash flow of Aviron does not present the value of Aviron’s possible future income with Aviron has been unprofitable over the past three reporting years. Hence, the valuation for Avrion would be limited to two methods, first is to offer price based on net asset value on the book plus goodwill, the second is to offer price based on the market value of Avrion’s stock. Avrion reported around $90,000 expenses on research on and development in 2000, this expenses was generated by its main product FluMist and other two product also related to immune systems. With interest to market FluMist, MedImmune should recover research expenses for FluMist that incurred, MedImmune could offer to purchase Avrion with total values of Aviron’s asset value would include its short-term investment and fixed asset value less than amortization plus the value of FluMist’s research and development expenses, which could considered as the licensing fee for MedImmune to market and sale FluMists. For the second method, MedImmune could valuate Avrion with its stocks which trading at $25 in 2000, the stock price for Aviron grow for $8 from 1999 to 2000, with around 40% increase on revenue for the same period, the stock price also climbed for around 50% as well. The revenue and stock price growth has promoted rapid growth in the next few years for Aviron if FluMist took off in the market, therefore the value of Avrion could be best forecasted through the perpetual growth model. In this case, the perpetual growth rate would increase further making the Aviron’s drug research a more valuable asset.
To reduce the possible risk of this merger, a stock swap could be used to mitigate possible loss that MedImmue might endure that caused by Avirion’s financial situation. MedImmune could use stock swap and purchase Avrion’s stock at current market value and offer shares of MedImmune stock as compensation. Mergers and acquition were often initiated as cash transaction, where MedImmune would bare all risks and expect the value of synergy would materialize, where for stock swap the risk would shared between the two company. With concerns regarding to Avrion’s financial condition, stock transactions would benefit both companies and realized the value of synergy in a quicker way than cash transaction.