Preview

Merck Kl798 Case

Better Essays
Open Document
Open Document
920 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Merck Kl798 Case
Executive Summary
Merck & Company has been presented with an opportunity to invest $30 million for the purchasing rights of an obesity and high cholesterol lowering drug, KL-798 from Kappa Labs. Based on the expected probabilities of success through each product-development phase for this new drug, as well as the costs involved, the net present value of the project is -$1.16 million and is therefore recommended that Merck passes on the investment. Sensitivity analysis also show that adjusting the probabilities of successfully passing each approval process to more realistic expectations has a drastically negative affect on the project NPV.
Data Analysis
Based on the decision tree model, it is recommended that Pat Harlow does not invest in the purchase of KL-798 from Kappa Labs assuming that the current payoffs and expected probabilities given currently are correct and do not change in the future. At the current decision point, during Phase I tests, there is an expected payoff of -$1.16 million based on the probabilities of success further in the future and expected returns. If Merck can negotiate either the price of KL-798 down by more than $1.16 million or reduce their contribution to complete Phase I testing, this could be an attractive option to invest in.
While this project is currently unfavorable, the length of this project and dependency on future variables makes the estimates of market value and probabilities of success very uncertain. From Graphs 1 and 2 in the Appendix, which depict which variables in the decision tree have the greatest impact on the project NPV, the estimated market value of KL-798 on the market, as well as the expected probabilities of passing Phase I and Phase II for the treatment of obesity and high cholesterol, have the largest impacts on whether or not the project is profitable. If Merck can put off making the investment until Kappa Labs has completed and passed Phase I testing, the decision tree indicates that Merck would be

You May Also Find These Documents Helpful

  • Powerful Essays

    The resulting NPV indicates that the project should be accepted and the investor should expect a return on equity of 38.87%. The NPV provides the investor with an expectation of what all future cash inflows will be worth in today’s dollars. The profitability index is closely related to the NPV. It evaluates the project’s feasibility based on future cash flows compared to initial costs. In general, a project is deemed a valid investment if this ratio is over 1. For this investment opportunity the profitability index indicates that it should be accepted.…

    • 3248 Words
    • 13 Pages
    Powerful Essays
  • Satisfactory Essays

    Super Project

    • 462 Words
    • 2 Pages

    For Super Project, I calculated a positive NPV of $70M, an IRR of 12% (with WACC=10%) and a payback recovery of 6.7 years against a 10 year required payback. Those three factors tell me to accept the project. A positive NPV will result in profitability over the 10 year period, a positive EVA, & positive MVA. A positive IRR indicates we will be earning more than we are paying for the project and it will increase shareholder’s wealth. However, sensitivity analysis showed me that our NPV and IRR have steep slopes (extremely sensitive) which could change my decision. If WACC increased, the NPV could become negative meaning outflows exceed inflows (not profitable). If IRR falls below the WACC, they will be paying more than what will be earned back. It will also…

    • 462 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    week five for ops 571

    • 639 Words
    • 2 Pages

    According to the project descriptions, $450,000 has been spent on the product and they average a total of $575,000 being spent in order to bring the product to the market. Even though the dollar amount spent in this project is high, the return on investment for this project is high; by the third year the product is forecasted to have a return of investments of $750,000. The product life of this project is forecasted to be 7 years. Because this product has not been used we would be the first company to launch the product to the market which would create an innovative style allowing our company to be the leader in the industry.…

    • 639 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    A dialog between Ventria and its stakeholders offered the options of prioritizing their long list of projects to the one or two with the greatest likelihood of successful commercialization. Analyzing the medical activate proteins to determine which would be which would be a more successful use for the company. Didn’t meet the demonstrated need was there other company’s already proving this particular product and the methods of…

    • 459 Words
    • 2 Pages
    Good Essays
  • Good Essays

    The team viewed the video “Cost of Capital” as part of our weekly team discussion. In the video, Amil Singh discussed the cost of capital for Pfizer Inc. Pfizer Inc. is the world 's largest research-based pharmaceutical company that develops its own products in America. Pfizer revenue is about $65 billion with market gap close to $140 billion (John Wiley and Sons, 2012). The cost of capital is the "rate of return that capital could expect to earn in an alternative investment of equivalent risk" (Investopedia LLC, 2015). When the company researches and develops a new product it can take nearly eight to ten years before it hits the market and see a profit. In this paper, we will look at how Pfizer addresses its cost of capital and issues with research and development.…

    • 865 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    The purpose of this paper is to research, analyze and whether to recommend Merck & Co. to potential investors. I will be using both qualitative and quantitative analysis based on previous years of data for the company. I will provide efficient background information (life cycle analysis) including a brief history of Merck & Co., it’s stock chart since being added to the market, any advantages or disadvantages it has within its industry and important news that may affect a potential investor’s willingness to buy or sell this stock.…

    • 1517 Words
    • 7 Pages
    Powerful Essays
  • Good Essays

    Burroughs Wellcome Company produced a drug that proved to be the number one treatment of acquired immune deficiency syndrome (AIDS) in 1987. The company has been pressured to reduce the price of Retrovir when it had been reduced twice since 1987. The high price was set because the virus was still relatively new and the company was unsure of the market they needed to target, the possible advent of new therapies, or profit margins customarily generated by new medicines. After reducing the prices twice and providing a reasonable explanation for the high prices, the pressure to reduce the pricing still continued. The problem in this case is should Burroughs Wellcome reduce the price of Retrovir?…

    • 1130 Words
    • 5 Pages
    Good Essays
  • Powerful Essays

    Provider Consolidation Paper

    • 3976 Words
    • 16 Pages

    Figure SEQ Figure \* ARABIC 5 Analysis of Price Sensitivities by Disease and Product Characteristics. These can be used to design endpoints in clinical trials…

    • 3976 Words
    • 16 Pages
    Powerful Essays
  • Good Essays

    Merck Essay

    • 695 Words
    • 3 Pages

    Rejecting this investigation could have had a serious impact on the morale of Merck employees, who are "inspired to think of their work as a quest to alleviate human disease and suffering world-wide". Along the same lines, the approval for the 3 stages of clinical trials was also a decision based on Merck's overall corporate philosophy. A possible way in which the situation could have been improved at this stage would have been to start exploring a strategic partnership with a third party international entity or government, in order to increase the likelihood of achieving a future deal that would allow Merck to recoup some of the funds invested in this project, if a viable medication was ever…

    • 695 Words
    • 3 Pages
    Good Essays
  • Good Essays

    According to the case, Bernard’s value of original opportunity was $68.465K. Subtracted by the initial investment of $90K, the NPV was $21.535K. Thus, he planned to pass the opportunity. But his friends offered him alternatives which may generate positive outcomes to the project. With no options to either expand or buyout or both, if the viewer would be functional and website would be a winner, Bernard could make NPV= $366.44K by selling the business in six months. If the viewer were competitively functional in four months, but the website failed, Bernard would abandon the Web business and sell technology. He would add $25,000 of his money to turn the viewer into a shrink-wrapped software product. The selling price would be $450K and he would get a third of that. After being discounted to present, NPV would be $24.11K. He would have to sell the web business if the viewer was not functional and the website was successful. Bernard could get a third of the selling price of $300K which equaled $100K in six months. The NPV would be $1.29K. If both fail, eh would lose $90K in total. We’ve known…

    • 537 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    Drug Discovery KPIs

    • 1572 Words
    • 55 Pages

    KPIs for Drug Discovery STRATEGIC IMPERATIVES • • Product Quality Benchmarking among the competitors CRITICAL SUCCESS FACTORS • • • Sustainable quality High Standards Optimal Pricing Strategy KEY PERFORMANCE INDICATORS • • • • • Pioneers in Quality and Standards • • Positive results of Quality Control and Assurance Market leaders in Quality • • • Customer retention= % of old customers of the total customers Total volume of Sales each year as compared to the previous years New Customers Continued government approvals and number of new licenses granted Credibility Ratings-­‐ Statistics obtained from US FDA and other regulatory bodies. Market Share in developed economies Volume of recommendations from physicians and hospitals • • High Quality and Efficient Operations Production, Distribution & Supply • • • • Effective and Efficient Drug discovery and design • • • • • Focused Trained Personnel Innovative & technology driven strategy Integration with other business units • • • • • • Cross BU sales Volume of new distributors Customer satisfaction surveys Inventory turns Reduced lead times Efficient R&D schedule…

    • 1572 Words
    • 55 Pages
    Powerful Essays
  • Better Essays

    Biocon Case Study

    • 1848 Words
    • 5 Pages

    Even if the Drug Controller General of India (DCGI) grants permission for BIOMAb in fall 2006, Biocon should still conduct phase 3 trials before launching. Both Biocon and Clinigene are new to the industry and strong reputations have yet to be developed. Therefore, Biocon must means make sure BIOMAb is a proven quality drug before it’s released. Biocon should enter the cancer pharmaceutical sector as soon as possible to begin building a name for itself in the cancer industry by selling other generic cancer drugs first. R&D costs may be significant, but not as much as creating drugs from scratch. This would generate revenue and start getting Biocon’s name familiar in the market. Also, by waiting to launch, Biocon would be postioned to defend BIOMAb better if and when Eribtux uses the lack of Biocon’s experience against them.…

    • 1848 Words
    • 5 Pages
    Better Essays
  • Best Essays

    company analysis report

    • 1511 Words
    • 7 Pages

    CSL is a global specialty biopharmaceutical company that produces life-saving and life-enhancing medicines that enable many thousands of people lives in the world can enjoy the normally healthy lives. And the business of CSL Limited distribute in more than 20 countries with over 10,000 staff. On the other hand, the headquarters of CSL is in Australia. (CSL annual report 2011, p.1) And the business of the CSL Limited can be separate to three parts which are CSL Behring, CSL Biotherapies and Research and Development. (CSL annual report 2011, p.2) And during 2010 to 2011, CSL Limited achieved international sales growth for the plasma products in both established and emerging markets. And CSL promises to continue to build the capacity to develop and produce new and improved therapies (CSL annual report 2011, p.3)…

    • 1511 Words
    • 7 Pages
    Best Essays
  • Good Essays

    Merck Case

    • 587 Words
    • 4 Pages

    Merck had a 14% increase in sales between 1997 and 1998 and 22% increase in sales from 1998 – 1999, and a 13% annual increase in earnings over the same period. Merck’s business strategy consists of two parts: (1) developing and marketing new drugs through internal research, and (2) developing partnerships with smaller biotechnology companies. Since 1995, Merck had launched 15 new products that earned $5.9 billion on sales of $32.7 billion. Furthermore, Merck may agree to license new drugs from other firms and with its larger capital and greater assets, can assume the risk of submitting the drug through various regulatory approval phases. If the drug becomes profitable, Merck can earn significant cash flows while paying a royalty to the licensor. However, most important is the option that Merck has in deciding when to abandon or continue on this project (deferability or optionality). If Merck reaches a point when its expected NPV is negative, it can simply abandon the project. As a licensee, Merck can allow smaller biotechnology firms to focus on research and development. These smaller firms often have smaller budgets and are not financially or personnel equipped to handle the costly and long FDA approval process, and the subsequent marketing, distribution, and sales of new drugs. This task is better suited for a larger company, such as Merck, which has more resources and money.…

    • 587 Words
    • 4 Pages
    Good Essays
  • Good Essays

    Marketing and Phase Trial

    • 1171 Words
    • 5 Pages

    Sensing the arrival of Erbitux into the Indian market some of members of Biocon management wanted a fast launch of BioMab. Cancer is a very critical illness and any deficiency in the medicine can be fatal for individuals. So ideally Biocon should first go for 3rd phase trial, check the competency of the product and then go for launch. They should not look for a short term advantage of being first entrant. Since of their product face any rejection (or have any drawback), it can be devastating on the reputation of the company. This can dampen the company’s image which can badly go against them.…

    • 1171 Words
    • 5 Pages
    Good Essays