Merck and Company: Evaluating a Drug Licensing Opportunity

Topics: Decision tree, Arithmetic mean, Variance Pages: 2 (306 words) Published: October 14, 2008
Should Merck license the compound?
Merck would be responsible for
1) the approval of Davanrik
2) the manufacture of Danavrik
3) marketing of Danavrik
Merck would pay LAB for
1) initial fee
2) royalty on all sales
3) make additional pymts as Danavrik completed each stage of approval process (3 Phases) Additional facts: approval process should take 7 years
patent will cover 17 years (7 of approval process nad 10 yr period of exclusivity beginning in yr 7) 1 Assumptions: All Cash flows are expressed as after tax present values discounted to time zero, including capital expenditures At any point "failure," investment decision is to stop funding Assuming Standard deviation of 0.5 Using T= 7 years in Black-Scholes Valuation

2 Decision Tree
See worksheet "Decision Tree"

3 Detailed description of Real Option Technique
"First, using a decision tree, I came up with a simple expected value of $13,980,000......


Merck & Company: Evaluating A Drug Licensing Opportunity
Should Merck license the compound?
Merck would be responsible for
1) the approval of Davanrik
2) the manufacture of Danavrik
3) marketing of Danavrik
Merck would pay LAB for
1) initial fee
2) royalty on all sales
3) make additional pymts as Danavrik completed each stage of approval process (3 Phases) Additional facts: approval process should take 7 years
patent will cover 17 years (7 of approval process nad 10 yr period of exclusivity beginning in yr 7) 1 Assumptions: All Cash flows are expressed as after tax present values discounted to time zero, including capital expenditures At any point "failure," investment decision is to stop funding Assuming Standard deviation of 0.5 Using T= 7 years in Black-Scholes Valuation

2 Decision Tree
See worksheet "Decision Tree"

3 Detailed description of Real Option Technique
"First, using a decision tree, I came up with a simple expected value of $13,980,000 based...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Opportunities for Traditional Drug Companies Essay
  • Drugs Essay
  • Case Study2 Merck Company Essay
  • Evaluating a Companies Budget Procedures Essay
  • The Timberland Company Challenges and Opportunities Essay
  • Newell Company The Rubbermaid Opportunity Essay
  • Merck Essay
  • Essay about In-Licensing in Pharma

Become a StudyMode Member

Sign Up - It's Free