Merck & Company Evaluating a Drug Licensing Opportunity

If Arundel Partners were to use the traditional DCF methods to find the value of the sequel rights, the NPV would be -$8.42M loss per-film (see Appendix 1).

My recommendation to Marvin Koslow is to follow the first approach of pricing Datril at par with Tylenol ($2.85 retail price, $1.69 trade cost), leveraging Bristol-Myers’ brand name, and positioning Datril as an analgesic with similar relief effects to the those of the already successful, aspirin-based Bufferin and Excedin, but more gentle on the stomach, and without the side effects of aspirin. By doing so, Datril will primarily target aspirin users, specifically those from Bufferin’s and Excedin’s current consumer base, who suffer from upset stomach. I explain my rationale below. According to the case, when Datril was introduced to test markets per the strategy I recommended, it failed to achieve the projected sales figures within the

There are multiple health concerns worldwide and more and more drugs are needed every day. Many drugs however, are extremely expensive to develop, test, and produce. According to the Tufts Center for the Study of Drug Development (2002), it costs up to $802 million to bring a new drug to the market. In 2002, pharmaceutical companies spent $34 billion in research and development (Center-Watch, 2003). In addition to the costs, the overall time from the discovery to approve and market the drug can take up to 15 years.

Many other drugs also lose patent protection leading to the creation of substitutes that are cheaper.

Extremely risky drug discovery and development, lengthening development times which increase development cost, return on investments, and generic competitors.

Prescription drug prices are on the rise in the United States. Currently, the United States does not implement a price control on prescription drugs. Every day the supply and demand for prescription drugs fluctuates. Pharmaceutical companies produce drugs that are necessary for survival. Therefore, it is necessary for research and development to continue in the United States. Those suffering the effects of exorbitant prices must do so until a generic form of a prescription drug is produced. Once approved by the FDA, new drugs will make their appearance on the market and patients will no longer suffer financially. Until then, it is necessary for pharmaceutical companies to price their drugs based on the idea of supply and demand. This produces the profit used to fund research. Price controls discourage innovation. If a price control were set in place, of course the price of prescription drugs would decrease. However, the development of new drugs decreases with it. Today’s generation would benefit from lower prices, while future generations would suffer from the loss of drug innovation.

To better understand the issues associated with the prescription drug industry, it would first be best to understand their development and approval process. For a new drug to enter the market, it must first undergo a lengthy and often expensive research and development. Once a company submits an application for a new drug, it is their responsibility to provide the evidence showing its safety and effectiveness. Until they have undergone these criteria of guidelines and standards set in place, they will not receive FDA approval.

Merck will soon face many challenges in the business of producing drugs. The company's most popular drugs are coming to a close to their patent expiration. One of the best selling drugs is called Zocar, which is used for cholesterol problems. Zocar will have to soon face competition next June from other generic drug makers.

Another issue is too much power is given to scientists in decision-making of candidate drugs. Also there were inadequacies and lack of communication between marketing and research. Merck’s marketing and research needed to realize that the making of the drug is not only the most important part in increasing sales, but it also included a strong advertising campaign that will satisfy the needs of the customers.

Research and Development: Merck is a research-driven company that has a new research and development model incorporating its business strategy. Merck hopes to improve the success of is R&D and to reduce costs by focusing on therapeutic areas that have unmet medical needs, and scientific and commercial opportunity. It plans to develop products within these therapeutic areas that are highly valued by patients and doctors.

Merck was one of the largest pharmaceutical companies in the world. • Merck was about to lose patent protection of two of its best selling drugs, which had been a significant part of their $2 billion annual sales. • Merck began putting millions of dollars into research (up to $1 billion) and within three years, Merck was able to discover four powerful medications. • Profits weren’t all that Merck cared about; Merck’s founder believed that “medicine is for people. It is not for the profits.” • He also believed that following the “medicine is for people” philosophy would lead to profits and had yet to fail.• River Blindness is caused by parasitic worms, which can be found in

Since its humble beginning as a small drugstore, Merck has placed a large amount of importance on improving the health and well-being of its customers. As drug patents expire and genetic forms of their top products become available, Merck’s strategy is to do the unexpected; instead of raising the price of their older products in favor of patent protected new drugs, Merck focuses on reducing their cost in order to better compete with their generic counterparts. Additionally, Merck’s plan for growth now encompasses a much more aggressive pursuit of new drugs in their pipeline through extensive research. Merck became the second largest health care company in the world after the merger with Schering-Plough in 2009 and has

* Competitive Pricing – Merck is sometimes forced to lower prices of products, either ones that have gone off patent to maintain market share in the product, as well as for products that are still on patent in order to compete with rival products for the same treatment that are marketed by competitors

Moreover, generic drugs manufacturers sometimes start production of patent-protected drug analogues even before a patent expires. Although research-oriented companies in many cases are able to protect their patents, they do suffer from lost revenues.

The concept of product patent for pharmaceutical products is likely to make life saving medicine beyond the reach of the poor and deprived section of the society around the world.