Premium Essay

Business Case

In: Business and Management

Submitted By sokot79
Words 2603
Pages 11
9-201-023
REV: MARCH 25, 2003

RICHARD S. RUBACK

Merck & Company: Evaluating a Drug Licensing
Opportunity
Rich Kender, Vice President of Financial Evaluation & Analysis at Merck, was working with his team to decide whether his company should license Davanrik, a new drug with the potential to treat both depression and obesity. The small pharmaceutical concern that developed the drug, LAB
Pharmaceuticals, lacked the resources to complete the lengthy approval process, manufacture the compound, and market the drug. LAB had approached Merck with an offer to license the compound.
Under this agreement, Merck would be responsible for the approval of Davanrik, its manufacture, and its marketing. The company would pay LAB an initial fee, a royalty on all sales, and make additional payments as Davanrik completed each stage of the approval process.

Merck
In 2000, Merck & Co., Inc. was a global research-driven pharmaceutical company that discovers, develops, manufactures and markets a broad range of human and animal health products, directly and through its joint ventures, and provides pharmaceutical benefit management services (PBM) through Merck-Medco Managed Care. Since 1995, Merck had launched 15 new products including
Vioxx™ for the treatment of osteoarthritis, Fosamax™ for the treatment of osteoporosis and
Singulair™ for treating asthma. The Company earned $5.9 billion on 1999 sales1 of $32.7 billion, about a 20% increase from 1998. Exhibits 1 and 2 contain Merck’s Income Statement and Balance
Sheet.
A handful of Merck’s most popular drugs, Vasotec™, Mevacor™, Prinivil™, and Pepcid™, generated $5.7 billion in worldwide sales. The patents for these drugs, however, would expire by
20022. Once the patents expired, Merck anticipated that the sales of these drugs would decline substantially as generic substitutes became available. The only way to...

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