Case report Merck&Co: Evaluating a drug licensing opportunity

Background
The case is set in the year 2000. Merck&Co. is a global, research-driven pharmaceutical company that discovers, develops, manufactures and markets a broad range of human as well as animal health products. It operates directly or through established joint ventures and provides pharmaceutical management services (PBM). During the last 5 years the company has launched 15 new successful products; the most popular drugs generated the amount of $5.7 billion in worldwide sales. Between 1998 and 1999 a 20% increase in sales was observed. Merck owns patents on their most popular drugs, however they will expire by 2002. Once the patents are expired, sales will decline when generic cheap substitutes enter the market. The company aims at maintaining a healthy pipeline in the drug 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 receptors involved in causing depression it also seemed to block the receptor in CNS responsible for appetite. It is currently in pre-clinical development, ready to enter the FDA clinical approval process consisting of three phases. Problem definition
An opportunity occurred to license the drug Davanrik, with the potential to treat both depression and obesity, from a small pharmaceutical concern, LAB Pharmaceuticals, that was lacking the resources to complete the lengthy approval process, manufacture the compound and