...Should Merck license the compound? Merck would be responsible for 1) the approval of Davanrik 2) the manufacture of Danavrik 3) marketing of Danavrik Merck would pay LAB for 1) initial fee 2) royalty on all sales 3) make additional pymts as Danavrik completed each stage of approval process (3 Phases) Additional facts: approval process should take 7 years patent will cover 17 years (7 of approval process nad 10 yr period of exclusivity beginning in yr 7) 1 Assumptions: All Cash flows are expressed as after tax present values discounted to time zero, including capital expenditures At any point "failure," investment decision is to stop funding Assuming Standard deviation of 0.5 Using T= 7 years in Black-Scholes Valuation 2 Decision Tree See worksheet "Decision Tree" 3 Detailed description of Real Option Technique "First, using a decision tree, I came up with a simple expected value of $13,980,000 based on the costs to complete each phase, the probabilities of completing each phase, and the costs and probabilities associated with failure at each step in the approval process. The expected value of successful completion with Depression only was $36,390,000, for weight only $1,200,000 and for both $26,880,000. The expected value of failure (including failure at any phase) was ($59,490,000). Next, I calculated the Valuations of each successful outcome using the decision tree analysis and the spectrum of outcomes with an asymetric distribution of rewards....
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...case material we can see that the value of licensing arrangement consists of three parts: Initial investment, Milestone Payment and Royalty Fee. In Phase 1, Merck has to pay LAB 5 million initial investment no matter whether Davanrik will get approved by FDA in future. In Phase 2, Merck has to pay LAB 2.5 million Milestone payment if Davanrik successfully complete Phase 1 with a probability of 60%. In Phase 3, the amount of milestone payment Merck has to pay depends on the result of Phase 2. If Davanrik successfully complete phase 2 and was effective only for depression with the probability of 10%, then Merck has to pay 20 million to LAB. If Davanrik successfully complete phase 2 and was effective only for weight loss with the probability of 15%, then Merck has to pay 10 million to LAB. If Davanrik successfully complete phase 2 and was effective for both depression and weight loss with the probability of 5%, then Merck has to pay 40 million to LAB. When finishing all three phases and getting approval by FDA, Merck has to pay Royalty fee to LAB based on the sales with 5% fee rate. After finish all three phases, there is a chance of 85% that Merck can launch Davanrik if the Phase 3 showed that it was only effective for depression and the commercialized present value is 1.2 billion. The chance decreased to 75% if Merck can only be effective for weight loss with 345 million commercialized present value. If Davanrik is effective for both, the chance of successfully launch is 70%...
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...of each of the three companies are; Merck: Pharmaceutical drugs, consumer medical products, Vaccines and Animal medical care products. Whole foods market: beverages, snacks, frozen foods, bakery, grocery, beer, Alcohol, body care products, Animal food products. Johnson&Johnson: Body care products, Baby care products, body Medical products, Oral hygiene products, eye medical products, Medical Devices & Diagnostics, Medical products. Merck company which sells products that are basically medical related products The company`s business is preserving and improving human life. They also work to improve animal health. The company is dedicated to the highest level of scientific excellence and commit their research to improve human and animal health and the quality of life. They strive to identify the most critical needs of consumers and customers, and they devote their resources to meeting those needs. Wholefoodsmarket Company which sells groceries, foods etc. are dedicated to providing high standards and their goal is to sell the highest quality products that they possibly can. They define quality by evaluating the ingredients, freshness, safety, taste, nutritive value and appearance of all of the products that they possess. They care for the general ware fare of their consumers, which includes, food, body care products etc. They also care for dog`s ware fare too by providing the most healthy dog food products available. Johnson&Johnson company which sells medical...
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...Conflict and Change Harvard Case Study Professor: Robert Lazer PhD Team: Zerrin Hejazi, Mark Klabonski, Elizabeth Lamb, Hari Thenneti Pandurangamoorthi, & Hareshkumar Surani The History of Merck U.S. sales office opened in and George Merck, Heinrich’s grandson, was appointed head of the U.S. branch Friedrich Jacob Merck opened Merck in Germany 1668 1827 Heinrich E Merck transformed the business and Merck began manufacturing 1887 Merck merged with Philadelphia pharmacy Sharp & Dohme 1891 The renamed company Merck & Co. opens for business 1953 2009 Merck merged with ScheringPlough Corporation and Organon BioSciences Pharmaceutical Industry • The average drug development time is over fifteen years with an average R&D expenditure of $800 million. • The FDA requires three phases of testing to assess safety and effectiveness. o Test results dictate what is displayed on the drug’s label and how the doctor will prescribe it. • Follow-up studies (Phase 5) can be performed to assess the drug after market release (Phase 4) and amend the drug label for improved sales. Pharmaceutical Success • 1981 to 2001, Merck experienced an upward trend on several industry metrics. • Their Return on Sales (ROS) for their Human Pharma line peaked at just over 40% in 2001 with an average of 24% . • The early 1990’s exhibited a downward trend just prior to Gilmartin assuming the role of CEO. Pharmaceutical Success ...
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...Abstract Merck & Company (Merck) is evaluating the possible acquisition of Medco Containment Services Incorporated (Medco). The Chief Operating Officer, Executive Vice President of Sales and Marketing, and the Chief Financial Officer have all stated their thoughts and concerns regarding this matter. It is my job to make the final recommendation to the Board of Trustees. Executive Summary Merck is a leading pharmaceutical manufacturer and Medco is a leading pharmacy benefits manager. Both companies have a strong hold on their piece of the market. In 1992, Merck had revenue of $9.7 billion while Medco recorded $2.2 in revenue.4 Benefits of the merger include: * Increased marketing potential through Medco’s accumulated data * Access into the Managed Care market * Decreased costs in sales and marketing efforts Risks include: * Merging of corporate cultures * Loss of R&D dollars due to subsidizing Medco * Regulatory and compliance threats. The stated price for the merger is $6.6 Billion. At the time of the merger, I would have recommended to the Board to proceed with the merger as benefits seem to out-weigh the risks. However, in looking back, due to the FTC findings stating the merger did create an unfair advantage to Merck, I would have to re-evaluate. Merck was unable to issue the intended Medco IPO which had a planned offer price of $20 to $22 per share. In 2003 announced its plan to spin off Medco to existing Merck shareholders...
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...MERCK MBA Healthcare Management Capstone (HCM650-1403B-01) Phase 1 Individual Project Student: Brenda Wilfred Instructor: Professor Ruth Lindegarde Colorado Technical University Online August 24, 2014 Repost Professor Timothy Tapp; Applied Managerial Healthcare Finance, Professor Kristaizell Darby: Management the Healthcare Organization (HCM612-1401B-01), Professor Jenson Hagen: ECON616-1402A-0 Applied Managerial Economics, and Professor Kristy Taylor: Systems in Healthcare (HCM632-1403A-01) Abstract Pharmaceutical comes from Greek word “Pharmakeia” with the modern translation as “Pharmacia”. Many people owe their lives to many lifesaving medicines, without which they might not have seen another day in their life. Pharmaceutical companies are responsible for discovering new drugs, marketing them and getting them licensed for their use as medications. All drugs so produced have to go through a strict process of patenting and testing and are subjected to all sorts of safety checks and a variety of laws and regulations. These pharmaceutical companies not only play a very important role in the medicine industry but also play a significant role in the revenue industry and the development of a nation. Here are top 10 pharmaceutical companies in world. The global economic crisis is impacting every area of business and forcing corporations to reevaluate how they conduct operations. In an effort to operate in the leanest most efficient manner, some corporations...
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...Merck Josue Vazquez University of Phoenix Management - MGT/ 521 Dr. Hector Torres Perez February 19, 2014 Merck The history of Merck Company as one of the first pharmaceutical in the world dates all the way back to 1668 when Friedrich Jacob Merck acquired the Angel Pharmacy, which became the heart of Merck and is still owned by the Merck family today. In 1891 Merck in Germany became Merck KGAA or "German Merck" and a United States subsidiary called Merck & Co., Inc. was established in New Jersey. As a consequence of World War I, Merck lost its subsidiaries abroad in 1917, including its American subsidiary Merck & Co., which then became an independent U.S. company. But with the merger with Sharp &Dohme Inc. in 1953 Merck become the largest pharmaceutical producer in the United States. In 1987 Merck was named America’s most admired and most innovative company. In 2006 their vaccine against the Human Papiloma virus, Gardasil was approved by the FDA and is currently they only method of treatment against the HPV virus against the strands that can cause cervical cancer in women. They have also been responsible for the development of vaccines against measles and rubella virus. Merck Company employs an approximate of 51,000 employees in over 120 countries all over the world and owns 31 factories worldwide. It actively participates in charitable organizations, which since 1957...
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...CASE 6-MERCK Problems The first problem is even before the drug was approved, some evidence cast doubt on the safety of Vioxx. The study found—as the company had expected—that Vioxx was easier on the stomach than naproxen. But it also found that the Vioxx group had nearly five times as many heart attacks. Some analysts criticized DTC advertising, saying that it put pressure on doctors to prescribe drugs that might not be best for the patient. Solutions Merck faced serious and terrible situation because its medicine caused patients’ deaths. According to the case, The Merck Inc.’s solution is that recalled all the Vioxx which cause the stock price decrease dramatically. But it is important to repair the company’s image and leave good impression to people. By apologizing to consumers through TV and taking responsible for the mistakes will help Merck Inc. retrieve their consumers. On the other hand, analyst argued that the methods DTC advertise their products are criticized. The reason is that analysts think that “when a patient comes in and wants something, there is a desire to serve them.” Because of the direct-to-consumer ad makes patients believe that all drugs are safe, it is not correct to leave such impression to consumers. Drugs are not safe at all, and doctor should examine all of them before recommending to patients. Recommendations I think the solution is a good symbol to help company’s development. As we all know, if they only cared about profit, not their patient’s...
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...Executive Summary Merck & Co., Inc. is one of the largest pharmaceutical firms in the world. The company is known for its discovery, development, production, and marketing of products and services that are geared towards the maintenance and restoration of health. The company’s business focuses on two areas: human and animal health products and Services and Specialty Chemical products. Medco Containment Services, Inc. is one of the largest pharmacy benefits manager (PBM). The company was mainly responsible for the management of drug benefits for more than 65 million Americans whose prescriptions were filled at retail drug stores or the company’s mail order business. Merck’s acquisition of Medco was one of the largest health care industry mergers, as well as one the largest U.S. corporate unions in the early 1990’s (Olmos, 1993). In addition the merger provided Merck with access to Medco’s technology and information. With the merger they acquired more than 1,000 pharmacists who decided or advised physicians on how prescriptions should be filled (Tanouye, 1993). This merger allowed Merck to increase its pharmaceutical sales through the use of patient information from Medco’s database. The merger was expected to solidify Merck’s presence in the pharmaceutical industry by giving it direct access to the healthcare providers that had influence over the type and price of prescription drugs (Olmos, 1993). Merck acquired all of the outstanding shares of Merck for approximately...
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...benefit management companies and with the right preparation prior to merger the downside of the merger can be minimized. The potential upside given industry trends and where it is headed are too great to ignore. Medco’s position in the market and success as a company, have proven it would be a valuable asset. The insight it can give Merck and the access to the market to increase share and give insight to Merck’s drug treatments will be invaluable. MARKETING & SALES CONSIDERATIONS Currently Merck has to send out its own reps to doctors where Medco does the same to doctors and companies. This will eliminate that area for Merck and result in a $1 billion annual savings in redundant marketing costs by a reduction of Merck’s sales force by using the marketing strategies of Medco’s database and ideology of marketing to plan managers as opposed to doctors. OPERATERATIONAL CONSIDERATIONS Medco’s database that allows Merck to identify prescriptions that can be switched from competitors to their brand will help increase market share while weakening competition. Merck pharmacists will be able to suggest these switches to the patient’s doctor. FINANCIAL CONSIDERATIONS Medco has about 33 million customers in the United States and manages 95 million prescriptions a year for government, unions, insurance firms and companies. Revenues for Medco were $2.2 billion. OTHER FACTORS (REGULATORY ISSUES – HUMAN RESOURCES ISSUES – SYNERGY ISSUES) Synergy between Merck and Medco could...
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...MERCK AND RIVER BLINDNESS 1. Think about the definition of stakeholders — any parties with a stake in the organization’s actions or performance. Who are the stakeholders in this situation? How many can you list? On what basis would you rank them in importance? People suffering from the disease or those who potentially may be infected – would directly benefit from the cure Merck employees at all levels – profitability and the economic health of the company affects current employees Merck shareholders – inability to profit from the drug might have a negative effect on shareholder’s value, but taking the stand on “doing the right thing” might have a favorable effect on company’s reputation and increase the value of the stock Various healthcare organizations – Merck is one of the leaders in the industry whose actions or inactions may affect the state of the industry as a whole One way to rank stakeholders in importance is by their level of benefit from the drug putting people suffering from the disease in the first place as they would benefit the most from the invent of the cure. Then, employees and shareholders would share the second place, provided that the company would most likely not be able to recover funds invested in the long and expensive process of developing the drug which in turn would affect company’s profitability. Finally, various healthcare organizations would rank third; the effect on them would depend on the level of their involvement in the process...
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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 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...
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...Merck: Business Analysis Tamikiia Brown MGT521 July 11, 2011 Sharon Palmitier Merck: Business Analysis Merck is a flourishing research-driven pharmaceutical company, which discovers, develops, manufacturers, and promotes an extensive variety of human and animal health products. Although Merck is one of the biggest pharmaceutical companies of the world, they still come across problems today while striving to sustain a lead against its competition. Merck has achieved success with its lengthy history of breakthrough drugs and the development of three significant pharmaceutical products: antibiotics, vitamins, and hormones. Merck’s success relies heavily on its management and how they modify the business model in place to that of the ever-changing economy. Influence of Economic Trends The global pharmaceutical market is likely to undergo a wide variety of changes with new competition arising in India, China, Malaysia, South Korea, and Indonesia. This new competition has a growing economy and has made a difference between the product cost and disposable income of consumers. According to NASDAQ (2011),“ Global pharmaceutical market sales are expected to grow at a 4-7% through the year 2013 largely being driven by the growing access to health care in emerging economic regions” (para. 2-5). Short-term growth within this area is stimulated by the United States market, as it continues to be the largest pharmaceutical market in the world. A focal point on research and...
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...MNGT/521 University of Phoenix November 7, 2011 Kevin Wilhelmsen Merck’s Business Environment There are many factors a business, such as Merck, must have in order to be successful, for example strong financial statements, leading technology, and globalization. With the help of income statements, balance sheets, and cash flow statements, a financial analysis can be applied in a wide variety of situations to give business managers the information they need to make critical decisions (Financial Analysis, 2010). They also provide information in regards to the financial health of a company. Pharmaceutical companies are using technology to conduct clinical trials, which has proven to be beneficial to research, development, and the introduction of new products. Globalization is also important for Merck when it comes to product distribution. Outsourcing was been adopted by Merck in order to produce equal quality vaccines and medications at a cheaper cost. Review of Finances Analyzing a company’s income statement, balance sheet, and cash flow is a prime way in determining their success. A comparison can be made between the competition in the industry and a leader can be established. An analysis can also show which company is spending more on research and development and in turn, producing better products. After review of the income statements, Merck’s worldwide sales were $12 billion for the third quarter this year...
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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 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...
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