Merk & Company Case Report
Merck & Company Case Report
Prepared by: Group 7
Date: 26/09/2014
Group Members: HAN Qi, 1155060413
LI Yickho, 1155000895
PENG Keshu, 1155053635
YANG Dezhong, 1155055844
ZHANG Yexin, 1155053624
Introduction
Merck & Co., a global research-driven pharmaceutical company, is generating substantial profit mainly by discovering and manufacturing exclusive drugs. Its popular products have brought in significant amount of sales to the company; however, the patents of these drugs are expired in two years. To solve this problem Merck is considering whether to license a new drug named Davanrik developed by LAB. This new drug may have potential effect on the treatment of depression, obesity, or both. To help Merck making a decision, this report will first analyze the profitability model and financial condition of the company, and thenevaluate the expected value of the licensing arrangement by drawing decision tree to show every possible outcome.
Question 1. How has Merck been able to achieve substantial returns to capital given the large costs and lengthy time to develop drug?
Mature business model with diversified operating strategy
The pharmaceutical industry has always been high cost but high return. Discovery, testing, and approval process of a drug may take decades; however, when a drug could finally go into the market, sales may also be huge. As a successful global research-driven pharmaceutical company, Merck’s business is well operated and is quite profitable mainly due to the reason that the company is currently running at a mature stage. Many of its products have been accepted by the market while few are still under discovering.The drugs launched by Merck are mostly effective in the treatment of tenacious diseases such as osteoporosis or asthma, so not many substitutes can be found for these exclusive patent drugs available in the market before. Therefore, by holding diversified portfolio with more finished products and less testing drugs, Merck is able to
Prepared by: Group 7
Date: 26/09/2014
Group Members: HAN Qi, 1155060413
LI Yickho, 1155000895
PENG Keshu, 1155053635
YANG Dezhong, 1155055844
ZHANG Yexin, 1155053624
Introduction
Merck & Co., a global research-driven pharmaceutical company, is generating substantial profit mainly by discovering and manufacturing exclusive drugs. Its popular products have brought in significant amount of sales to the company; however, the patents of these drugs are expired in two years. To solve this problem Merck is considering whether to license a new drug named Davanrik developed by LAB. This new drug may have potential effect on the treatment of depression, obesity, or both. To help Merck making a decision, this report will first analyze the profitability model and financial condition of the company, and thenevaluate the expected value of the licensing arrangement by drawing decision tree to show every possible outcome.
Question 1. How has Merck been able to achieve substantial returns to capital given the large costs and lengthy time to develop drug?
Mature business model with diversified operating strategy
The pharmaceutical industry has always been high cost but high return. Discovery, testing, and approval process of a drug may take decades; however, when a drug could finally go into the market, sales may also be huge. As a successful global research-driven pharmaceutical company, Merck’s business is well operated and is quite profitable mainly due to the reason that the company is currently running at a mature stage. Many of its products have been accepted by the market while few are still under discovering.The drugs launched by Merck are mostly effective in the treatment of tenacious diseases such as osteoporosis or asthma, so not many substitutes can be found for these exclusive patent drugs available in the market before. Therefore, by holding diversified portfolio with more finished products and less testing drugs, Merck is able to