Merk Case Summary

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Submitted By maustin
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Merck & Company: Evaluating a Drug Licensing Opportunity
Case Summary

Merck & Company (Merck) a large pharmaceutical company was approached by LAB Pharmaceuticals in 2000 for the purchase option to license and provide funding for a newly developed drug compound called Davanrik. If Merck, the licensee purchased the compound it would be responsible for the design, administration, and funding of the clinical testing of the compound, as well as take care of its manufacturing and marketing. LAB the licensor would receive an initial payment followed by additional payments as Davanrik completes each clinical testing phase. Davanrik was initially developed to treat depression but during the pre-clinical development process the drug not only blocked antidepressant receptors but also blocked the receptor that causes hunger allowing the compound to angle it to treat depression and obesity.

At the time Mercks most popular drugs such as Pepid, Prinivil, Vasotec, Mevacor’s patents were due to be expired in 2002. Since generic substitutions would essentially replace these compounds, Merck could stand to lose almost 50% of its sales revenue equating to a $5.7 billion loss if it did not come up with a new drug to bring to the market. Under the current conditions of potential loss Rich Kender, the Vice President of Financial Evaluation & Analysis at Merck was considering acquisition of the new compound Davanrik from LAB. Kender worked with a tem to decide whether the company should license Davanrik. Merck must also decide and conduct an analysis of how much to bid for the license and potential of failure/success of the drug.

An analysis was conducted to evaluate the potential profitability of Davanrik by looking at the market and market size, researching the scientific aspects of the compound, and potential competition. Manufacturing managers determined the…...

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