Main Issue In 2000, Rich Kender, Vice President of Financial Evaluation and Analysis at Merck & Company was discussing the opportunity of investing in licensing, manufacturing and marketing of Davanrik, a drug originally developed to treat depression by LAB Pharmaceuticals. LAB proposed to sell the right of all the future profit made from the successful launch of Davanrik at the cost of an initial fee, royalty payments and additional payments as the drug completed each stage of the approval process. Merck & Company's organizational goal is to constantly refresh it's company's drug development portfolio and reach as many customers as possible during the patented time. So there was not only the potential of financial gain or quantitative aspect of the offer, but also the qualitative value which will be added by getting better positioning in the risky pharmaceuticals industry. Presenting team analysis The presenting team started out by giving a background about the industry and the companies. The main issue and financial terms were explained. However we feel that some of the assumptions such as Merck's flexibility to back out from building the plant in case of failure were not clearly mentioned. They failed to explain why Davanrik's market risk was lower than its stand alone risk. Discounted cash flow method which is the traditional financial tool for evaluating capital allocation was rejected without explanation. We can rationalize not using DCF for its inability to capture risk uncertainty. Passive investments such as stocks and bonds are good candidates to use DCF on. Once these investments are made investors cannot influence the cash flow generation. We agree that decision tree can be used to make preliminary judgment and real option analysis can be used to get more definitive answer. We think that sensitivity analysis and scenario analysis could have been useful since all inputs may change over time. Merck's investment valuation Decision tree approach: This approach is suitable for projects that do not have to be funded all at one time. The alternatives, probability of payoffs are identified using diagrams which are simple to understand and interpret with brief explanation giving important insights. It identifies managerial flexibility to reevaluate decisions using new information and then either invest additional funds or terminate the project. Results of decision tree: This analysis shows that the projects NPV as 13.37 million dollar. Our result is slightly different than the presenting team because of rounding. But both of our teams had positive NPV which suggest that the project should be accepted.
The painkiller Vioxx was introduced in 1999 by Merck & Co. It has been used by over 20 million Americans since it was put on the market. Vioxx remained on the market for approximately five years without adequate warnings about its risks. In September of 2004, Merck took Vioxx off the market after a study revealed that it doubled the risk of heart attack or stroke for patients that used it for more than 18 months. Although Merck claimed that they had no idea of these possibly lethal side effects, some internal documents imply that they had been aware of the problem for years and had not made moves to change it. Over 300 lawsuits have been filed against Merck, and it is expected that thousands more will arise.
Bristol-Myers Squibb is a worldwide health and personal care company with major businesses in medicines, beauty care, nutritionals, and medical devices. BMS is a leader in innovative therapies for cardiovascular, metabolic and infectious diseases, central nervous system and dermatalogical disorders, and cncer. They are also leaders in consumer medicine, orthopaedic devices, ostomy care, wound management, nutritional supplements, infant formulas, and hair and skin care products.Some of the very well known products manufactured by Bristol-Myers Sqibb are Bufferin, Excederin, Enfamil, Clairol, and Sea Breeze. Another large part of BMS is their research and development of new pharmecutical products. Their annual budget for research and development is in excess of one billion dollars.
The two main issues in this case are the project analysis and financial forecasting. The project should be analyzed before doing the forecasting, because any recommendations on the project will affect financial forecasting for the next two years.
Earlier 2002, the stock price of Agnico-Eagle Mines sharply decreased by $1 finally closed at $13.89. This price has reached one of the lowest level, from the company's historical perspective. As a professional equity portfolio manager, who has a large number of AEM stocks on hand. Acker and his team are necessary to find a proper way to estimated the fair value of AEM as well as its equity. Discounted Cash Flow (DCF) has been chosen to do this job. The theory behind DCF valuation approach is that the firm's value can be estimated by using the expected future free cash flow discounted by an appropriate discounted rate (Koller etc 2005). However several assumptions need to be clearly examined within this approach. The following sections are showing the process of DCF step by step.
...eting tool that show the differences between the present value of revenues and the present value of expenses. The project can be profitable when the net present value is positive. In other words, the present value of revenues is greater than the present value of expenses. Profitability index is another tool for evaluating investment projects, which is the ratio of the PV of benefits on the PV of costs. A project can be beneficial if the profitability index is greater than 1. Also, it has the same idea as NPV that In other words, the present value of benefits is greater than the present value of costs. However, these two methods (NPV and Profitability Index) have been used to evaluate the proposal of implementing EHR.
Background: Merck & Co. is an American pharmaceutical company and one of the largest pharmaceutical companies in the world. In 1971 the United States approved the use of an MMR vaccine made by Merck, containing the Jeryl Lynn strain of mumps vaccine. In 1978 Merck introduced the MMR II, using a different strain of the rubella vaccine. In 1997 the FDA required Merck to conduct effectiveness testing of MMRII. Initially it was over 95%; to continue the license; Merck had to convince the FDA that the effectiveness stayed at a similar rate over the years.
On the surface, making sure a project measures up to a range of consistent, prescribed criteria in order to be accepted would appear to be a sound business practice. But in our opinion, we think DC only focused on the financial management. We think they should utilize the strategy map strategy. A strategy map provides a uniform and consistent way to describe that strategy, so that objectives and measures can be established and managed. The strategy map provides the missing link between strategy formulation and strategy execution. (Norton and Kaplan, 2004 *1) Furthermore, DC won't only focus on the financial report; they also manage by human resource and other strategic elements. Also, any of the above financial calculations or assumption could bring the wrong settlement or the expectations will be seriously biased.
Projects are widely used by many organizations and government institutions in the course of conducting their business. One of the reasons for this is because they have been proven to be effective in initiating change and translating strategic programs into daily activities. However, it has been established that most projects fail to deliver on time, budget, and customer specifications. In most cases, this failure is caused by over-optimism by the project management team. This over-optimism commonly referred to as optimism bias can simply be defined as overestimating the projects benefits and conversely underestimating its cost and duration time. Research have portrayed that this is often caused by failure to properly identify, understand, and manage effectively the risk associated with the project therefore putting its success at jeopardy(Mott McDonald, 2002). Fortunately, this biasness can be detected and minimized during the project gateway process.
It will allow more opportunities for the Merck & Co. to innovate from. Not all great ideas are being generated within Merck and this strategy will allow us access to those other great ideas. Open innovation will help Merck jump back in the lead of developing the larger number of new pharmaceutical drugs. They have already dipped their toe in with the “reverse-merger” with Schering-Plough which was great way to introduce the idea to the organization and culture within Merck. This course of action is the most ethical because it allows the company to maintain its core strategy of differentiation. It will also help continue the reputation of being innovative by supplying more ideas to work with within the R&D department. It will create more possible drug choices for consumers and profits for the company to enjoy, especially shareholders. An external idea could help produce the next Nobel Prize for the R&D
10. Collis, David, and Troy Smith. "Strategy in the Twenty-First Century Pharmaceutical Industry:Merck&Co. and Pfizer Inc." Harvard Business School, 2007: 8-12.
Eli Lilly and Company is an American global pharmaceutical company. Colonel Eli Lilly, a pharmaceutical chemist and veteran of the U.S. Civil War, founded Eli Lilly and Company on May 10th, 1876 in the state of Indiana, Indianapolis which is where the company's headquarters are currently located.
For decision making purposes, the projects can be further divided into two groups which is independent project and mutually...
To test the financial feasibility and plan acceptability, there must be information on the magnitude, and share of estimated project cost that are reimbursable. This information can be derived from cost allocation. Also where cost sharing is required in the multipurpose planning process cost allocation can be applied. Cost allocation also provides information necessary for allocating the real expenditures ensuring that the cost account are maintained in line with plan formulation and allocation principles during the subsequent c...
One of the key areas of long-term decision-making that firms must tackle is that of investment - the need to commit funds by purchasing land, buildings, machinery, etc., in anticipation of being able to earn an income greater than the funds committed. In order to handle these decisions, firms have to make an assessment of the size of the outflows and inflows of funds, the lifespan of the investment, the degree of risk attached and the cost of obtaining funds.
As noted in section 1 and 5, the MD has acquired a wealth of knowledge and market since he worked in the same industry for the past five years. Financing has not been covered yet, therefore, the discussion on financial risk will take place in section 7. Other the other hand, Gartner and Liao (2011) indicates that strategic risks should also be considered which looks at the overall success of the new venture and its rate of growth in the next few years. While high risks yields high returns, Spinelli and Adams (2016, p.126) argues that ‘entrepreneurs take calculated risks and avoid risks they do not need to