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  • Merck-Drug-Licensing-Blank-Tree - Solved 2021

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    sanjayhk7
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    Merck & Company is evaluating a drug licensing opportunity from a company called LAB. The document presents a decision tree to analyze the potential cash flows and probabilities of success or failure at different phases of clinical trials for three indications - depression, weight loss, and a dual indication. It calculates the expected value of milestone payments at different phases and expected royalty payments to LAB. The total expected value of the opportunity is $31.03 million, of which LAB's share would be 55%.

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    Merck-drug-licensing-blank-tree - solved 2021

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    Merck & Company is evaluating a drug licensing opportunity from a company called LAB. The document presents a decision tree to analyze the potential cash flows and probabilities of success or failure at different phases of clinical trials for three indications - depression, weight loss, and a dual indication. It calculates the expected value of milestone payments at different phases and expected royalty payments to LAB. The total expected value of the opportunity is $31.03 million, of which LAB's share would be 55%.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    6 views5 pages

    Merck-Drug-Licensing-Blank-Tree - Solved 2021

    Uploaded by

    sanjayhk7
    Merck & Company is evaluating a drug licensing opportunity from a company called LAB. The document presents a decision tree to analyze the potential cash flows and probabilities of success or failure at different phases of clinical trials for three indications - depression, weight loss, and a dual indication. It calculates the expected value of milestone payments at different phases and expected royalty payments to LAB. The total expected value of the opportunity is $31.03 million, of which LAB's share would be 55%.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 5

    Tree

    Merck & Company: Evaluating a Drug Licensing Opportunity

    Number below each action node represents the cash flow at that node

    Number below each outcome node represents the probability of that outcome (conditional on all prior outcomes)

    Weight loss launch cost after Phase III success -100

    73.30
    Success
    60.00%
    13.98
    Launch
    Phase I
    -30

    Failure
    13.98
    Davanrik 40.00%
    Opportunity

    Do not
    license
    0

    Page 1
    Tree

    Product Failure Probability EV of Milestone Payments


    Phase I 40% Initial
    Phase II 42% Phase I
    Phase III - Depression 1% Phase II - Depression
    Phase III - Weight Loss 2% Phase II - Weight Loss
    Phase III - Dual 0% Phase II - Dual
    Failure 85% Total

    EV of Royalty Payments
    Total Paymnt to LAB

    Total Value of the Opportunity


    Share of LAB

    Page 2
    Tree

    950
    Depression
    607.5 success
    Launch 85.00%
    nditional on all prior outcomes) 607.5 Phase III
    Depression -200
    success
    Failure
    10.00%
    15.00%
    Abandon
    0 245
    Weight Loss
    33.75 Success
    Launch 75.00%
    Phase III
    33.75 -150
    Weight Loss
    Failure
    73.30 Success
    Launch 15.00% 25.00%
    Abandon
    Phase II
    -40 0
    1850
    949.75
    Dual Success
    Launch
    Phase III 70.00%
    949.75 -500
    950
    Dual Success
    Depression
    5.00% success
    Abandon
    15.00%
    0
    245
    Weight Loss
    Success
    5.00%
    Failure
    70.00%
    Failure
    10.00%

    Abandon
    0

    Page 3
    Tree

    EV of Milestone Payments Payment (mn) Probability Prob. wt. Payment


    5 100% 5
    2.5 60% 1.5
    Phase II - Depression 20 6% 1.2
    Phase II - Weight Loss 10 9% 0.9
    Phase II - Dual 40 3% 1.2
    9.8

    EV of Royalty Payments 7.25


    otal Paymnt to LAB 17.05

    otal Value of the Opportunity 31.03


    Share of LAB 55%

    Page 4
    Tree
    Terminal cash flows

    Inflow Outflow Gross Inflow to LAB probability prob. wt. amount


    1200 -250 1,263.16 63.16 5% 3.22

    345 -100 363.16 18.16 7% 1.23

    2250 -400 2,368.42 118.42 2% 2.49

    1200 -250 1,263.16 63.16 0% 0.28

    345 -100 363.16 18.16 0% 0.03

    Page 5

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