Mercks & Company: Evaluating a

Drug Licensing Opportunity

Group #4:
Abdurrazaq Azzhar B
Edward Lumenta
Larinda Rakhmat H
Miftahul Ahyar A
M.Yusuf Musa
 Davanriks Potential Cash flow
Phase I Phase II Phase III
Test Subject 20-80 healthy 100-300 of patient 1000-5000 of patient
people volunteers volunteers
Test Objective Safety Effectiveness and Safety and efficacy in
potential side long term use
effects
Duration 2 years 2 years 3 years
Cost $30 million $40 million Depression : $200mn
Weight loss : $150 mn
Both: $500 mn
Initial Fee/ $5 million $2.5million Depression : $20mn
Milestone Fee to Weight loss : $10 mn
LAB Both: $40 mn
Davanriks Potential Cash flow
Phase I Phase II Phase III
(clinical
testing)
Chance of 60% Depression: 10% Depression: 85%
success Weight loss: 15% Weight loss: 75%
Both: 5% Both: 70%

Depression: 15%
Weight loss: 5%
Both: 10%
 Davanriks Potential Cash flow
Depression only Weight loss only Both
Cost to launch $250 million $100 million $400 million
Commercializatio $1.2 billion $345 million $2.25 billion
n
present value

All cash flows are expressed as after-tax present values discounted to time zero,
including capital expenditures
Present value is calculated as the after-tax present value of 10 years worth of
cash flows from the drug discounted back to today. It was believed that after 10 years,
the drug had very little value to the company since it would be off its patent by then
(and thus a terminal value of zero was used in the calculations)
TreePlan Trial Version 0.85 1 1 TreePlan.com
Phase 3: OK Launch PV
0.1 680
Phase 2: Depression only -200 680 -250 680 1200 680

-40 537.5 0.15

Phase 3 : Fail
-270
-200 -270

0.75 1 1
Phase 3: OK Launch PV
0.15 25
Phase 2: Weight Loss only -150 25 -100 25 345 25

-40 -36.25 0.25

Phase 3: Fail
-220
-150 -220

0.7 1 1
0.6 Phase 3: OK Both Launch PV
Phase 1 : OK 1280
-500 1280 -400 1280 2250 1280
-30 43.3
0.15 1 1
Phase 3: OK Depression Launch PV
0.05 380
Phase 2: Depression + Weight Loss -500 380 -250 380 1200 380

-40 879.75 0.05 1 1

Phase 3: OK Weight Loss Launch PV
-325
-500 -325 -100 -325 345 -325
In-License
0.1
0 13.98 Phase 3: Fail
-570
-500 -570

0.7
Phase 2: Fail
-70
1 -40 -70
13.98
0.4
Phase 1: Fail
-30
-30 -30

No License
0
0 0 For Evaluation Only
Conclusion
Based on decision tree we can conclude the best option
would be acquire license, because more profitable.