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AM Pharma Creating Value A Case Solution

Solution Id Length Case Author Case Publisher
2156 569 Words (3 Pages) Jim Pulcrano, Tim Knotnerus, Marion Owczarczak-Fogli, Mohammed El Ansari Institute for Management Development : IMD-7-1948
This solution includes: A Word File A Word File

The process from developing to bringing the drug into the market is lengthy and costly. As a result, many early-stage biotech companies do not complete the process. The business model of small biotech companies depends on developing compounds that prove to work well through the first two stages of the clinical trial. The expense made through this process is covered through investors who are pitched the effectiveness of the drug. The price that is attained from the sale of the compound to the large pharmaceutical company then benefits these investors. 

Following questions are answered in this case study solution:

  1. What is the economic logic (business model) of biotech companies?

  2. What were the company’s strategic options mid-2014?

  3. What exit opportunity should the company pursue?

  4. What deal values and elements would be mutually acceptable to AM-Pharma and Pfizer?

Case Study Questions Answers

Large pharmaceutical companies are now largely dependent on external innovation apart from their internal research. This shows in the research in 2016, where 68% of drugs approved by the FDA originated from small biotech companies.

2. What were the company’s strategic options mid-2014?

Being a mid-sized pharmaceutical company, AM-Pharma faced a financial limitation with completing the clinical trials. While the opportunity was huge, and the first stage had been successful, the expense of the second phase required additional capital. In the initial round, raising capital through investors had resulted in year-long delays in the clinical trial process. 

AM Pharma had the option to delay the clinical trial process until new financing was secured. This would mean further delay in bringing the drug into the market. The second option was to begin the process and continue pitching investors hoping to raise funds. The third option was to reduce the number of people involved in the clinical trial, which would be covered by AM’s current capital.

3. What exit opportunity should the company pursue?

The first exit option for AM-Pharma was to sell its portfolio to a larger pharmaceutical company. The second option was to get itself listed on the stock exchange to raise additional capital from the public to complete the final phase of the trial. However, initial investors were waiting for their return on investment, a quicker way to gain profits was a merger and acquisition exit strategy.

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