Case Study - Merck & CoMake sure you label graphs & tables, abstract should be around 300 words

Essay by wtf07University, Master'sA+, May 2013

download word file, 9 pages 0.0


Leading up to the year 2000, Merck & Co., Inc. had gained success in the pharmaceutical industry with drugs like Vasotec, for help with blood pressure ("Vasotec," 2013), and Pepcid, to relieve issues with stomach acid ("Pepcid complete," 2013). Merck had generate about $5.7 billion through the sales of their more popular drugs, however, the company fears that sales will decline as "generic substitutes become available." Looking to revitalize sales, Merck is finding that new drugs need to be developed and tested to ensure that they remain on "the leading edge" of the pharmaceutical market. Davanrik was developed by LAB Pharmaceuticals to treat depression. By testing Davanrik in three different phases, Merck can learn the effectiveness of the drug as well as gather information on what it would take financially in order to market and produce this drug. Using decision tree analysis, we were able to look at each individual phase of testing and gauge the probabilities of success and failures while also taking a glimpse at financial investments, costs, and values.

The first phase involved the testing of the drug to determine its safety. If the drug makes it past Phase I, testing begins in Phase II. The second phase will test the drug's effectiveness in treating depression and/or weight loss. In Phase III, safety and effectiveness are tested through long term use. Depression and weight loss would, again, be studied and the effectiveness and safety determined (Ruback, 2003). Merck has accounted for various financial outcomes and probabilities on drug successes and failures for each of the three phases. Using this information and our decision tree analysis, we have determined that the new drug would yield a net present value of $13.98 million and thus would recommend that Merck & Co., Inc. should use this opportunity to license...