...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...
Words: 1134 - Pages: 5
...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 the expected value of the licensing arrangement to LAB? IV. How would our analysis change if the costs of launching Davanrik for weight loss were $225 million instead of $100 million? In our analysis we will build a decision tree that shows the cash flows and probabilities at all stages of the FDA approval process. We will assume a royalty fee of 5% on the cash flows that Merck receives from Davanrik after successful launch. Analysis Merck is in the business of developing compounds for pharmaceutical compounds. The required research and development efforts preceding the launch of a successful blockbuster drug is extensive and lengthy process and is therefore a very expensive one. Nevertheless, Merck has proven perfectly capable to achieve high returns on capital. This is a result of numerous factors. First of all, Merck has been able to generate tremendous amounts of sales. Since 1995, Merck has launched 15 new products, resulting in 1999 sales of $32.7 billion, which includes $15.2 billion...
Words: 581 - Pages: 3
...9-201-023 R E V: M A R C H 25, 2003 RI CH A R D S. R U B A CK 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...
Words: 2375 - Pages: 10
...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...
Words: 2360 - Pages: 10
...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...
Words: 2603 - Pages: 11
...Evaluating a Drug Licensing Opportunity Statement of the problem- Merck must determine whether or not to bid to license Davanrik My recommendation is that Merck must definitely make a competitive bid for Davanrik. The total expected value from the deal based numbers given in the Merck article is a healthy $14million so keeping a 20% incentive, Merck should bid no more than $11million for Davanrik as the initial licensing fee. Looking at the background of Merck, it is clear that it is a successful company with good cash flow and investable assets. Not only can Merck afford to take risk but also given the fact that several of its key patents are expiring in 2002, Merck must replenish its patented product portfolio otherwise Merck risks loosing its profit margins in future. Since the pharmaceutical business is based on high-risk high-reward model, Merck should be aggressive in getting new products on the market. Although Merck could be developing its own new products, Davanrik presents an interesting opportunity since the parent company LAB pharmaceuticals is eager to license the drug in light of its recent FDA rejection. Looking for a much needed cash influx, LAB might be willing to strike a bargain. To evaluate the risks/rewards of the deal we construct a decision tree for Merck. The structure of tree presents a clearer picture of the possible risks and rewards during the comprehensive FDA approval process. Looking at this decision tree in phase 3, perhaps Merck can...
Words: 721 - Pages: 3
...Merck & Company: Evaluating a Drug Licensing Opportunity Case Summary Merck & Company (Merck) a large pharmaceutical company was approached by LAB Pharmaceuticals in 2000 for the purchase option to license and provide funding for a newly developed drug compound called Davanrik. If Merck, the licensee purchased the compound it would be responsible for the design, administration, and funding of the clinical testing of the compound, as well as take care of its manufacturing and marketing. LAB the licensor would receive an initial payment followed by additional payments as Davanrik completes each clinical testing phase. Davanrik was initially developed to treat depression but during the pre-clinical development process the drug not only blocked antidepressant receptors but also blocked the receptor that causes hunger allowing the compound to angle it to treat depression and obesity. At the time Mercks most popular drugs such as Pepid, Prinivil, Vasotec, Mevacor’s patents were due to be expired in 2002. Since generic substitutions would essentially replace these compounds, Merck could stand to lose almost 50% of its sales revenue equating to a $5.7 billion loss if it did not come up with a new drug to bring to the market. Under the current conditions of potential loss Rich Kender, the Vice President of Financial Evaluation & Analysis at Merck was considering acquisition of the new compound Davanrik from LAB. Kender worked with a tem to decide whether the company...
Words: 592 - Pages: 3
...TEACHING NOTE – Adapted From Harvard Business School MERCK & COMPANY: Evaluating a Drug Licensing Opportunity Substantive Issues The case explores the valuation of an opportunity to license a compound before it enters clinical trials and describes Merck’s decision tree evaluation process. It also provides information to evaluate a specific licensing opportunity, including the costs of the three phases of the review process, the present value of the revenues associated with successful outcomes, and the probability of various outcomes. Questions 1. How has Merck been able to achieve substantial returns to capital given the large costs and lengthy time to develop drug? 2. Build a decision tree that shows the cash flows and probabilities at all stages of the FDA approval process. 3. Should Merck bid to license Davanrik? How much should they pay? Is this the STATEMENT OF THE PROBLEM? 4. What is the expected value of the licensing arrangement to LAB? Assume a 5% royalty fee on any cash flows that Merck receives from Davanrik after a successful launch. 5. How would your analysis change if the costs of launching Davanrik for weight loss were $225 million instead of $100 million as given in the case? 6. WHAT IS YOUR RECOMMENDATION? Exhibit TN-1 Decision Alternatives |Phase I |Phase II |Phase III | |Testing...
Words: 521 - Pages: 3
...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...
Words: 511 - Pages: 3
...Pharmaceutical Industry: New Drug Development Semester: 2012 Day of Week/Time: Office Hours: Class Website: Overview This course provides a detailed overview of the drug and biologics development process from discovery through regulatory approval. Special attention is given to the roles, functions and significance of the various disciplines involved in the R&D process, their interactions with each other, and the strategic management of these functions. Attention will also be given to key technologies used throughout the R&D process. The economics of pharmaceutical R&D as well as trends in licensing, outsourcing and partnerships will be covered. The student will gain an understanding of R&D strategy and the relationship between R&D and overall organizational success. Pedagogy The course will employ lectures notes, assigned readings, case analyses, individual homework assignments, and a final project. Each student will analyze three cases from the Harvard Business Review involving pharmaceutical companies. The final project will be a written paper touching on some aspect of managing pharmaceutical research and development. Relationship of Course to the Rest of the Curriculum The pharma value chain comprises all of the functional business elements from drug discovery through commercialization, and includes critical supporting functions, such as supply chain logistics and regulatory and compliance. IT is an enabler at the strategic...
Words: 2063 - Pages: 9
...FINA 6092 Advanced Financial Management 2014-15 Term 1 Case questions Case #A: Butler Lumber Company Questions 1. Why does Mr. Butler have to borrow so much money to support this profitable business? 2. Do you agree with his estimate of the company’s loan requirements? How much will he need to borrow to finance his expected expansion in sales (assume a 1991 sales volume of $3.6 million)? 3. As Mr. Butler’s financial advisor, would you urge him to go ahead with, or to reconsider, his anticipated expansion and his plans for additional debt financing? As the banker, would you approve Mr. Butler’s loan request, and, if so, what conditions would you put on the loan? 4. Has Butler Lumber Company created value for shareholders? Hint: It might help you to analyze the case if you conduct the following analyses: 1. 2. 3. 4. Construct a common-size (percentage) income statement. Construct a common-size (percentage) B/S Using information from 1&2 to find out the operating efficiency Assuming the same operating efficiency in 1990, forecast cash needs for the target growth Case #B: Ocean Carriers Questions Ocean Carriers uses a 9% discount rate. 1. Do you expect daily spot hire rates to increase or decrease next year? 2. What factors drive daily hire rates? 3. How would you characterize the long-term prospects of the capesize dry bulk industry? 4. Should Ms Linn purchase the $39M capesize? Make 2 different assumptions. First, assume that Ocean Carriers in a U.S. firm subject to...
Words: 1115 - Pages: 5
...as a continuation of Finance 552, Corporate Planning and Financing, and is suitable for generalists and finance specialists who seek a solid grounding in corporate financial management. Finance 555 may be substituted for Finance 552 as a prerequisite. Principal topics include: use of discounted cash flow analysis to evaluate investment opportunities, estimating capital costs, or discount rates, capital budgeting systems and their affect on resource allocation decisions, valuing a company or division, merger analysis, corporate restructuring including leveraged buyouts, and issues in financial strategy. When you complete this course, you should be able to: Estimate an investment’s relevant costs and benefits Estimate a company's weighted-average cost of capital and understand its role in investment decision making Use discounted cash flow techniques, decision trees, and simulation to analyze investment opportunities Value (i.e., put a price tag on) companies and divisions Analyze private equity and highly leveraged investments Understand the major issues in the ongoing debate over corporate governance Spot opportunities in which financial restructuring can create value Use valuation techniques to analyze strategic business alternatives REQUIRED MATERIALS 1. Copeland, Tom, Tim Koller, Jack Murrin,...
Words: 3270 - Pages: 14
...The Continuing Evolution of the Pharmaceutical Industry: Career Challenges and Opportunities December 2007 Michael Steiner, CFP®, CPA David H. Bugen, CFP®, MBA Brian Kazanchy, CFP®, CFA, MBA William T. Knox IV, CFP®, CFA, JD Margaret V. Prentice, MBA Lauren Goldfarb Mark P. Hurley Steven E. Cortez Christine L. Boudreaux Benjamin J. Robins Yvonne N. Kanner Shehzad Sippy Adam L. Bartkoski Ana M. Avila RegentAtlantic Capital, LLC Michael Steiner is a Wealth Manager and Principal with RegentAtlantic Capital, LLC, and head of the firm’s Pharmaceutical Executive Services Group (PESG). David H. Bugen is a Wealth Manager and Principal, and Brian Kazanchy is a Wealth Manager. William T. Knox IV is a Wealth Manager and Principal. Margaret V. Prentice is the Chief Marketing Officer and Principal, and Lauren Goldfarb is the Business Development Coordinator. Fiduciary Network, LLC Mark P. Hurley is President and CEO of Fiduciary Network, LLC. Steven E. Cortez is Executive Vice President. Christine L. Boudreaux is Director of Adviser Communications, and Benjamin J. Robins is General Counsel. Yvonne N. Kanner is Executive Vice President and COO, and Shehzad Sippy is a Research Analyst. Adam L. Bartkoski is Director of Adviser Operations and Development, and Ana M. Avila is an Intern. © Copyright Fiduciary Network, LLC, 2007 This material is for your private information, and we are not soliciting any action based upon it. Opinions expressed are our current views only, at the...
Words: 43374 - Pages: 174
...Silberman College of Business Administration Marketing and Entrepreneurship Department Course Description: Survey of sales and marketing practices, constraints and promotion tools in the pharmaceutical and related industries, including new product development and licensing. Prerequisite: MKTG5532 Strategic Marketing and PHAR6605; The Pharmaceutical Industry: Structure and Government Regulations. Outcomes: Upon completion of this course, students should be able to: Understand segmentation and targeting marketing practices and opportunity analysis utilized by the pharmaceutical and related healthcare industries Understand the impact of social, political, legal/regulatory, and cultural environments on the marketing and brand planning processes Apply the fundamental 4P's of marketing (Product, Price, Place, and Promotion) to the pharmaceutical and related industries Understand the approach taken to create and manage pharmaceutical marketing and brand plans Relation to Silberman College of Business Mission: In keeping with the mission of the Silberman College of Business this course provides students an opportunity to develop real-world business skills, namely, develop within students an enhanced facility for applying sound decision-making, problem-solving, and analytic techniques in addressing a variety of the most important pharmaceutical marketing issues. Course Topics: Fundamental marketing management issues involving: ...
Words: 1087 - Pages: 5
...into some strategy topics that you may have only touched upon earlier related to how firms gain a competitive advantage over rivals. In addition, since ICA tends to integrate quantitative and qualitative analysis more than other courses, you will have the opportunity to apply knowledge and skills you've gained across the curriculum (e.g., from finance, ISOM, Marketing, O&M, and Strategy). Building Competitive Advantage The broad focus of the course is on building competitive advantage with special emphasis on how firms can gain access to new resources or capabilities that may grant a competitive edge. We explore strategic investments that are required to compete effectively in uncertain and turbulent environments. Managers often throw up their hands and argue that planning isn’t useful when the landscape is shifting rapidly. However, with the right set of tools, strategic management can have an even greater impact in this setting. We place special emphasis on competitive advantages that stem from valuable and hard-toimitate resources or capabilities. Accordingly, we will focus much of our energy on the question of how to build, acquire or ally to gain access to such capabilities while maximizing the value that accrues to the company. Given the uncertainty inherent in such investments, we will explore how real options analysis may assist managers in making strategic investments of this type. Learning Objectives Our primary goal is to synthesize the set of tools and knowledge students...
Words: 7898 - Pages: 32
