1] Cephalon Inc., April 1998, HBS Case 9-298-116.fin414.
phalon Inc. – Case Questions (Due November 13, 2014)
You should submit your assignment by email (firstname.lastname@example.org). You can
work on this report individually or in a group with up to five members. Each group
should submit a single case report with the names of all group members on the report. In
your report, please answer the questions listed below. Make any assumptions you feel
are necessary to provide a complete answer to the questions. There are no correct
answers, and part of your job is to take use the facts of the case to make reasonable
assumptions 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 follows
a strategy of making an immediate one time payment to purchase all of the rights to this
drug rather than making a stream of payments under the milestone payment/interim
license/purchase option agreement that was in place? Explain your reasoning.
(2) Evaluate the SBC proposal to sell Cephalon capped call options (e.g., Black and
Scholes equation. Relevant parameters such as volatility and interest rate are given in
reference ). Estimate the value of these options and compare this to the value of the
stock they will give up in order to purchase the options.
(3) Would you recommend that Cephalon accept the SBC proposal? How does this
financing strategy compare to a strategy of waiting to see if Myotrophin is approved and
then issuing equity?
For those who present their work in class (e.g., power point slides) will be given extra 2
 Cephalon Inc., April 1998, HBS Case 9-298-116.
 Chacko, George, Peter Tufano, and Geoffrey Verter, 2001, Cephalon, Inc. Taking
Risk Management Theory Seriously, Journal of Financial Economics 60:449-485.