INTRODUCTION

Merck & Company : Evaluating the Licensing Opportunity

Various recently-born biotech companies sell their technologies in either finished or early stage to bigger companies in need of financing capital to preceed business, while those bigger companies acquire technologies to scout for promising profitable business. This sort of process needs numbers of decision makings and agreements from both parties on the valuation methods is crucial here. The valuation method being used has to hold objective validity and generality. For the managers to make accurate forecast of future profitability in managing companies, quantified decision making process is needed. Here we are dealing about whether Merck should give financial support to the R&D project of Davanrik offered by LAB, and about the process of valuation and the final decision. First we are to make brief of LAB’s business proposal and practice detailed valuation functions to decide if the proposal is profitable or not. And finally we will make a decision based on the valuation process in perspective of Rich Kender, Vice President of Financial Evaluation & Analysis of Merck.

Brief introduction of Merck and its agenda regarding Davanrik project As a world-class pharmaceutical company concentrated on R&Ds, Merck is performing various researches and developments upon medical supplies for human and animals. Merck is providing Pharmaceutical Benefit Management (i.e. PBM) through a company called Merck-Medco Managed Care. Apparently it is a giant pharmaceutical company with more than 15 blockbuster medical supplies, revenue of $3270 million and net profit of $590 million, ever since 1995. One constraint of Merck is that most of its profit is over-concentrated on the major top 4 items, and in order to diversification of profits Merck is facing a pressure to launch a new business item or take another