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    Case - Merck and Company Solution

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    MrShyamkumarpaswan
    The document is a project report analyzing a case study about Merck & Company for an operations research course. It discusses Merck's top selling drugs, challenges with expiring patents, and a potential new drug called Davanrik from Lab Pharmaceuticals. It then presents: 1) A decision tree analyzing the FDA approval process and cash flows/probabilities at each stage. 2) An analysis of whether Merck should license Davanrik, calculating the expected monetary value is positive so they should. 3) A calculation of Lab Pharmaceuticals' expected profit from licensing to Merck, determined to be $16.68 million.

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    Case - Merck and Company Solution

    Uploaded by

    MrShyamkumarpaswan
    2K views8 pages
    The document is a project report analyzing a case study about Merck & Company for an operations research course. It discusses Merck's top selling drugs, challenges with expiring patents, and a potential new drug called Davanrik from Lab Pharmaceuticals. It then presents: 1) A decision tree analyzing the FDA approval process and cash flows/probabilities at each stage. 2) An analysis of whether Merck should license Davanrik, calculating the expected monetary value is positive so they should. 3) A calculation of Lab Pharmaceuticals' expected profit from licensing to Merck, determined to be $16.68 million.

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    Operation Research

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    Case_Merck and Company Solution

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    The document is a project report analyzing a case study about Merck & Company for an operations research course. It discusses Merck's top selling drugs, challenges with expiring patents, and a potential new drug called Davanrik from Lab Pharmaceuticals. It then presents: 1) A decision tree analyzing the FDA approval process and cash flows/probabilities at each stage. 2) An analysis of whether Merck should license Davanrik, calculating the expected monetary value is positive so they should. 3) A calculation of Lab Pharmaceuticals' expected profit from licensing to Merck, determined to be $16.68 million.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    2K views8 pages

    Case - Merck and Company Solution

    Uploaded by

    MrShyamkumarpaswan
    The document is a project report analyzing a case study about Merck & Company for an operations research course. It discusses Merck's top selling drugs, challenges with expiring patents, and a potential new drug called Davanrik from Lab Pharmaceuticals. It then presents: 1) A decision tree analyzing the FDA approval process and cash flows/probabilities at each stage. 2) An analysis of whether Merck should license Davanrik, calculating the expected monetary value is positive so they should. 3) A calculation of Lab Pharmaceuticals' expected profit from licensing to Merck, determined to be $16.68 million.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 8

    INDIAN INSTITUTE OF

    MANAGEMENT RANCHI

    Project report on case study

    Merck & company


    Course: Operation Research
    Batch: 2018-20
    Team Members:
    Jafar ghori (X012-18)
    Manish kumar (X015-18)
    Ujjwal kumar (X021-18)
    Rohan kumar (X017-18)
    Shyam kumar (X019-18)
    MERCK & COMPANY
    About :
    • Global research –driven pharmaceutical company.
    • Discovers , develop , manufacture product through
    and markets healthcare products through Merck and
    joint ventures

    Top selling products :


    • Vasotac • Vioxx
    • Mevacor • Singulair
    • Prinivil • Fasomax
    • pepcide

    Challenges :
    • Patents for majority of popular drugs are to expire in 2002.
    • Once the patents expire ,sales are expected to drop due to
    presence of generic version.
    • New drug development to counter the anticipated loss
    Problem statement

    1. Design a decision tree that shows the cash flow and


    probability at all stages of the FDA approval process

    2. Should Merck bid to license Davanrick ? How much they


    should pay.

    3. How much should Lab expect to receive from the


    proposed deal.
    Decision tree
    Ans-1: Decision Tree for FDA approval process
    Q-2: Should Merck bid to license Davanrik?
    How much should they pay?
    Cash flow Probability (in Expected value
    (in Million $) %) (in Million $)
    Launch depression 680 5.1 34.68
    Failure -270 0.9 -2.43
    Launch Wt loss 25 6.75 1.69
    Failure -220 2.25 -4.95
    Launch both 1280 2.1 26.88
    Depression only 380 0.45 1.71
    Wt loss only -325 0.15 -0.488
    Failure Both -570 0.3 -1.71
    Phase -1 failure -30 40 -12
    Phase-2 failure -70 42 -29.4
    EMV 13.98
    Ans: EMV of the decision tree is positive i.e $13.98M,
    hence Merck should license Davanrik
    Q-3: How much should Lab expect to receive from
    the proposed deal?
    Expected value of success payment to LAB
    Expected
    Assumed Royalty = 5%
    Payment Payment (in The cash flows of LAB are :
    Phase (in Million $) Probability Million $) $ 5 million initial licensing fee in Phase I ( irrespective of
    Initial 5 100% 5 success of Phase 1)
    Phase I Success 2.5 60% 1.5 $ 2.5 million in Phase II (Probability of occurrence 0.6)
    Phase II Phase III
    Depression 20 60% X 10% 1.2 $ 20 million if the drug cures only depression
    Phase II Wt Loss 10 60% X 15% 0.9 (Probability of occurrence 0.1)
    Phase II Both 40 60% X 5% 1.2 $ 10 million for weight loss only (Probability of
    Total 9.8 occurrence 0.15)
    $ 40 million if drug cures both depression and weight
    loss (Probability of occurrence 0.05)

    Expected value of Royalty Payment to LAB


    Probability at Assumed Expected
    Cash Flow Stages Probability (%) Royalty (%) Royalty (%)
    Depression 1200 60%*10%*85% 5.10% 5% 3.06
    Weight Loss 345 60%*15%*75% 6.75% 5% 1.16
    Phase-II Depression 380 60%*5%*15% 0.45% 5% 0.09
    Phase-II Wt loss 325 60%*5%*5% 0.15% 5% 0.02
    Phase-II Both 2250 60%*5%*70% 2.10% 5% 2.36
    4500 14.55% 6.70
    Expected profit = (EV of Success Payment) + (EV of Royalty Payment)
    = 9.8 + 6.7
    = $16.68M
    Conclusion…

    With an expected profit of $16.68M , Merck to move forward with the licensing
    proposal from lab pharmaceuticals.

    It would be beneficial for LAB also to move forward with their proposal of licensing
    to Merck

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