Merck & Co.

Submitted by: Group 7

M226-21 Animesh Yadav M269-21 Pallavi M293-21 Shivam Shekhawat
M228-21 Ankita Balu Solanki M273-21 Pragya Goyal M295-21 Shradha Bijarnia
M233-21 Aroshi Panwar M274-21 Prashant Kumar M304-21 Sumit Yeshwanthrao Kumram
M244-21 Ishita Shailesh Kamat M282-21 Rohit Kumar
M255-21 Mansi Agrawal M285-21 Sanjana Santara
INTRODUCTION
● Dananrik is the new drug that is developed by LAB in order to treat
depression & obesity. LAB is a small company that has been struggling to
get FDA approvals for its compound drugs.
● Due to a lack of cash flow, LAB has approached third parties like Merck & Co
with an offer to license the drug, while 4 of Merck’s patents are about to
expire, this seems to be a good option. In general FDA approval for drug take
around 7 years, while the patent is valid for 17 years, therefore 10 years of
exclusive rights to Merck.
● This case deals with profitability & financial analysis of this deal along with
analysis through decision tree method in order find the best possible
outcome

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1. Should Merck bid to license Davanrik? How much should they pay?

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● Since the EMV of the decision tree is positive, the firm will generate profit. Merck should license Davanrik

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2. How much should LAB expect to receive from the proposed deal?

Expected Profit = (EV of Success

Payment) + (EV of Royalty
Payment)
= 9.8 + 6.69
=$16.8M

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2. How much should LAB expect to receive from the proposed deal?

● From above analysis, LAB should get minimum of $9.8 Mn which is without royalty.

● With a royalty of 5%, They are able to get an amount of $16.68 Mn.

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

● Above amount can vary depending upon the percentage of royalty demanded.
3. How would your analysis change if the costs of launching Davanrik for weight loss
were $225 million instead of $100 million given in the case?

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3. How would your analysis change if the costs of launching Davanrik for weight loss
were $225 million instead of $100 million given in the case?

● Net total EMV of the decision tree will still be positive. Hence, Merck and Co. should
license the drug.

● If Merck finds out that the drug can only cure weight loss after phase 2 trials, it should
not launch the product because EMV is negative, i.e., -60.

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THANK YOU