Whether Merck Should Take Licensing of Davanrikrug

merk case
of 19
All materials on our website are shared by users. If you have any questions about copyright issues, please report us to resolve them. We are always happy to assist you.
Related Documents
   Whether merck should take licensing of davanrikrug Merck & Co. Inc. has been for several years a global research driven pharmaceutical company and has been enjoying significant brand value and market share, thanks to its emphasis on intensive research. As a result, the company has been consistently making a gross margin of about 45% every year, and a net profit margin of about 20%. This scenario would soon change, as the company would be losing the exclusive rights of manufacturing many of its prominent drugs, as the patents for the same would expire in 2002. To overcome this scenario the company has decided to take the license of Davanrik, an antidepressant that can also work for weight loss from a small pharmaceutical company, LAB Pharmaceuticals. In spite of the high failure rate of the drug, it has immense potential to generate positive cash flows to the tune of $ 13.98 million for Merck & Co. Inc. The drug should be more profitable with time, helping in sustain the brand reputation of Merck as a research driven organization. It is recommended that Merck & Co. Inc. goes ahead with the agreement with LAB Pharmaceuticals, due to several monetary and non-monetary reasons. This measure would give Merck & Co. Inc., the luxury of time to perform indigenous research too. Introduction to the case In the year 2000, the management and leadership of Merck & Co. Inc. had met in a board meeting to decide the future of the company as most of their licenses for patents would expire in the year 2002. Merck & Co., Inc. has been well recognized as a research driven global pharmaceutical leader that discovers, manufactures and markets a wide range of human and animal products. However, it faces a challenge currently, which can cause a severe fall in revenues, and also damage the brand repute, if the company does not take adequate measures to focus on research. LAB Pharmaceuticals, is a company that specializes in developing compounds for treatment of neurological disorders, approaches Merck & Co., Inc,. and offers them to lice nse ‘Davanrik’, a drug being developed by LAB Pharmaceuticals, to help reduce depression, obesity and possibly both too. An important issue to note is that the drug was in the pre-clinical stage and was not yet ready for manufacturing. It has to go through the stringent three-phase clinical tests, and then be approved by the FDA, before being available for bulk production. As with most other drugs, the testing phase of the drug is prolonged, would go on for seven long years and is a very costly affair. The research has a huge chance of failure, especially during the first and second stages.  The licensing agreement between Merck & Co., Inc. and LAB Pharmaceuticals clearly states that Merck & Co., Inc. would be responsible for all approvals from the FDA, the complete end-to-end manufacturing process and also the marketing of the product, until it reaches the final customer. If the research fails in the middle, LAB Pharmaceuticals would not be held responsible for the loss. In return for the right of licensing, Merck & Co., Inc. would pay LAB Pharmaceuticals an initial fee, a royalty on the sales and make additional payments to LAB at every stage of approval. Get help with your essay  Read more about our  Essay Writing Service >  Looking for examples of OUR work?  Click here to see our  Essay Writing Examples >  Want to know more about our services?  Take a look at our  Writing & Marking Service Index >  The proposition is not without its hindrances, but one major force that is driving Merck to accept the offer is due to the simple fact that Merck is soon going to lose a significant market share when it would need to compete with manufacturers of generic substitutes. The deal does seem lucrative as it generates a positive Present Value of Net Cash flow’s to the tune of $ 13.98 million in the beginning. Hence, over the period of the license the investment should yield high yield for Merck & Co., Inc., reducing the loss caused by the expiration of many other patents. The following paragraphs talks about the questions asked in the assignment, and provide solutions for the same with the help of illustrations too. Net Present Value of Davanrik Licensing statement  Probable Outcome Launch costs Tree CF Tree Cash outflow Tree Cash Inflow Net Cash flow Tree Prob. calculation Tree prob. Expected CF Launch depression 250 CF+ -520 1200 $680 .6*.1*.85 0.051 34.68 (Phase 1, 2 & 3 success - pursue depression only)    (Phase 1 & 2 success & 3 failure - pursue depression only) CF- -270 0 ($270) .6*.1*.15 0.009 -2.43 Launch weight loss 100 CF+ -320 345 $25 .6*.15*75 0.0675 1.6875 (Phase 1, 2 & 3 success - pursue weight loss only)
Similar documents
Related Search
We Need Your Support
Thank you for visiting our website and your interest in our free products and services. We are nonprofit website to share and download documents. To the running of this website, we need your help to support us.

Thanks to everyone for your continued support.

No, Thanks