Merck Executive Summary

EXECUTIVE SUMMARY recital of the Problem Merck & Co. , Inc. , a leading pharmaceutic party, faces the threat of the opens of its most(prenominal) popular medicates expiring in 2002. The only way to counter the injury of sales from these drugs going off patent is to develop late drugs in position to refresh the partys portfolio. research lab Pharmaceuticals, a small pharmaceutical company who specializes in the treatment of neurological disorders, has approached Merck with the fortune to license Davanrik, a new drug with the potential to treat two belief and obesity.The drug is currently in pre-clinical evolution and would still need to pass a seven year and three mannikin examen fulfill approved by the FDA. Under the licensing agreement, Merck would compensate research lab with an sign fee, milestone payments as the drug progresses with each phase, and royalty on sales. Merck essential make a decision on whether or not to license the drug. If Merck does get back to license the drug, it must also squ ar off how much the drug is worth. Discussion A decision will be madeusing both qualitative factors and quantitative analysis. Qualitatively, this opportunity is validating for both Merck and research lab.Licensing this drug will abide Merck to insert a newly procure compound into the market and to bypass the discovery and preclinical testing phases. By world able to skip those two phases, Merck send packing go straight to clinical testing saving it six to seven years, which helps Merck write out with its patent life cycle in a more effective manner. research laboratory has never had a drug successfully complete the FDA approval process in its 15-year history. Its stock price had also go by 30% after its most recent FDA denial. Therefore, by licensing this Davanrik to Merck, LAB would be able to receive some much-needed cash.A successful transaction between Merck and LAB could also lead to future opportunities. Quantitatively, a decisi on tree analysis was utilise to value this opportunity because as prospicient as Merck only accepts projects with a validating anticipate value it will introduce profits more often indeed lose money. Through the analysis of the judge value of each possible outcome, the expected value of licensing Davanrikfrom LAB is $13. 98 zillion including payments to LAB of $16. 68 trillion. Although the FDA approval process has a 40% Phase Iand a 70% Phase II failure rate, the cost f failing aboriginal on is only $30 million and $70 million, respectively, relative to the opportunity to piss as much as $1. 28 one thousand thousand if successful. Recommendation Merck should license Davanrikfrom LAB for no more than $13. 98 million. The company is facedwith the risk of declining profits if new drugs argon not developed since many of its patents are expiring soon. Therefore, it is necessary to invest in new drug developments. Also, the expected value of $13. 98 million indicates that thi s opportunity is profitable and that Merck foot receive up to $1. 28 billion by licensing the compound.