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Finance 414 Case 9 Assignment Fall 2014

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Question;Cephalon Inc. - Case Questions (Due November 13, 2014)You should submit your assignment by email (yunha@bus.msu.edu). You canwork on this report individually or in a group with up to five members. Each groupshould submit a single case report with the names of all group members on the report. Inyour report, please answer the questions listed below. Make any assumptions you feelare necessary to provide a complete answer to the questions. There are no correctanswers, and part of your job is to take use the facts of the case to make reasonableassumptions to arrive at answers you can defend. You will be graded on the quality,depth, and persuasiveness of your answers. Please show the details of all calculations.Please limit your report to 5 pages including all text and supporting tables and exhibits.(1) If Myotrophin is approved by the FDA, would you recommend that Cephalon followsa strategy of making an immediate one time payment to purchase all of the rights to thisdrug rather than making a stream of payments under the milestone payment/interimlicense/purchase option agreement that was in place? Explain your reasoning.(2) Evaluate the SBC proposal to sell Cephalon capped call options (e.g., Black andScholes equation. Relevant parameters such as volatility and interest rate are given inreference [2]). Estimate the value of these options and compare this to the value of thestock they will give up in order to purchase the options.(3) Would you recommend that Cephalon accept the SBC proposal? How does thisfinancing strategy compare to a strategy of waiting to see if Myotrophin is approved andthen issuing equity?For those who present their work in class (e.g., power point slides) will be given extra 2points.References[1] Cephalon Inc., April 1998, HBS Case 9-298-116.[2] Chacko, George, Peter Tufano, and Geoffrey Verter, 2001, Cephalon, Inc. TakingRisk Management Theory Seriously, Journal of Financial Economics 60:449-485.

 

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