generated $5.7 billion in worldwide sales would be expired. In order to anticipate the loss of sales, it is recommended to update the product portfolio by investing in the development of patented new products. LAB proposed 17 years exclusivity on Davanrik, a substance which has probability to be efficacious for depression or weight loss or both indications. Up to now LAB has completed preclinical testing and entering clinical testing. The clinical testing will take about 7 years which is divided into
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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
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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
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development, by constantly refreshing their portfolio, thus preventing the loss of sales from drugs going off patent. New drugs are either developed by internal research (the majority) or through collaboration with biotech companies. The product: Davanrik Davarnik was developed by LAB Pharmaceuticals, a small and relatively young pharmaceutical concern specialized in compounds for the treatment of neurological disorders. Originally it was meat for the treatment of depression. Apart from acting on
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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
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offering them to license one of their compounds called Davanrik. The company is in an uncomfortable financial situation and hesitates to launch the testing of this promising Davanrik, a drug whose use could be dual for weight and depression problems. Davanrik has already successfully completed the preclinical testing and has to complete the approval phases 1 to 3 and the final FDA approval. LAB proposed to Merck to be in charge of the approval of Davanrik, its manufacture and its marketing and would in
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Figure 2). According to the draft of contract regarding to the licensing arrangement between Merck and LAB, the would-be royalty on the eventual sales of Davanrik seems to a must-be terms in the contract, contrary to a contingency provision. So to speak, assuming other things are constant and the royalty fee rate fixes at 5%, the bid to license Davanrik, at the standing point of Merck, should not exceed $ 7.0973 million. In contrast to the NPV of $ 7.0973 million to Merck, the NPV to LAB is $ 16.6828
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following analysis of Merck and Company was to thoroughly examine a drug licensing opportunity with LAB Pharmaceuticals, a small pharmaceutical firm. This firm has offered to allow Merck and Company rights to further development of the drug called Davanrik. The analysis includes calculations of probability and decision trees using the Microsoft program Excel. It is assumed that given probabilities are correct, however sensitivity analyses were conducted to show the overall effect of cost and probability
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Problem Definition Should Rich Kender recommend licensing Davanrik, making Merck & Company responsible for its manufacture and its marketing? In order to provide Rich Kender with a good and thorough analysis and recommendation on the Davanrik licensing project, we need to answer the following guidance questions: I. How has Merck been able to achieve substantial returns to capital given the large costs and lengthy time to develop drugs? II. How much should they pay? III. What is
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decision to license off Davanrik to Merck. This analysis is about how Merck has been able to generate substantial returns given the costly and lengthy time to develop drugs and the potential outcome for Davanrik should LAB licenses off to Merck, Also, the analysis will determine if Merck should license the drug and for how much, and to determine how much LAB would receive given a 5% royalty fee on any cash flow. Lastly, the paper will analyze the change in launching Davanrik for weight loss if the
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