Loading presentation...

Present Remotely

Send the link below via email or IM


Present to your audience

Start remote presentation

  • Invited audience members will follow you as you navigate and present
  • People invited to a presentation do not need a Prezi account
  • This link expires 10 minutes after you close the presentation
  • A maximum of 30 users can follow your presentation
  • Learn more about this feature in our knowledge base article

Do you really want to delete this prezi?

Neither you, nor the coeditors you shared it with will be able to recover it again.


Fin 431 Presentation

No description

Kelly Huang

on 15 October 2012

Comments (0)

Please log in to add your comment.

Report abuse

Transcript of Fin 431 Presentation

John Scarbrough
Josh Quarles
Weiyun Huang (Kelly) Merck & Company Evaluating a Drug Licensing Opportunity Merck & Company Rich Kender, Vice President of Financial Evaluation and Analysis at Merck, is working with his team to decide whether they should license Davanrik a new drug that will treat depression and obesity. Davanrik was developed by a small Pharmaceutical company named LAB but they lacked the resources to see the drug through the whole approval process. LAB will be paid an initial fee, a royalty on all sales and make additional payments as Davanrik completes each stage of the approval process. Background Merck has the capital to sustain the large required capital to develop a drug.
Merck’s gets exclusive rights and are able to pull in large monetary gains.
Once the generics begin production Merck’s margin and volume will be decreased.
Through the strategy of having a constant flow of newly developed drugs they are able to keep returns up. Merck’s sustainable returns If the costs of launching Davanrik for weight loss are $225
Merck should bid no more than $10.75M Expected value (5% royalty fee) Phase 1(100%)= $5 million
Phase 2 (60%) = $2.5 million
Phase 3 Depression(10%)= $20 million
Phase 3 Weight Loss(15%)= $10 million
Phase 3 Both(5%)= $40 million
Depression Success(85%)= $1.2 billion *.05
Weight Loss Success(75%)= $345 million *.05
Depression Fail(15%)= $1.2 billion *.05
Weight Loss Fail(5%)= $345 million *.05
Both Success(70%)= $2.25 billion *.05 $16.68 million
(probability of success X payoff if successful) + (probability of failure X payoff if failure) Expected Payoff = Never do weight loss, even if Phase II testing allow us to.
Because If the costs of launching Davanrik for weight loss are $225 If success: NPV before phase II = (345M-225M)*0.75=120M *0.75=$90M

Less than the cost continuing $150M

So, The tree would get pruned.

Decision tree gonna looks like this... Pruned weight loss : -(40+30)-(25*0.75+(-220)*0.25)
Back out = 33.75 * 0.15*0.6 = 3.0375

Back out $125M from lower part of the tree: 125*0.05*0.05*0.6

The PV is lowered by 3.0375+0.19 = 3.2275

PV now = 13.98 - 3.2275 = $10.75 million I) Global research
II) PBM service
III) Launched 15 products
IV) $5.9 billion sales
V) sales increased by 20% from 1998
VI) Vasotech, Mevacor, Prinvil, Pepcid generated $5.7 billion in sales
VII) develops new products through internal research and through initiative with biotech companies. Operating Information 5+.6(2.5)+(.6)(.1)20+(.6)(.15)10+(.6)(.05)40+.6(.1).85(1200).05+.6(.15).75(345).05+.6(.05).15(1200).05+.6(.05).05(345).05+.6(.05).7(2250).05=5+1.5+1.2+3.06+1.16+.27+.03+2.36=
Full transcript