Merck & Company:  Evaluating a Drug Licensing Opportunity

Richard S. Ruback; David B Krieger

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Case | HBS Case Collection | October 2000 (Revised March 2003)

Merck & Company: Evaluating a Drug Licensing Opportunity

by Richard S. Ruback and David B Krieger

Abstract

This explores the valuation of an opportunity to license a compound before it enters clinical trials. Describes Merck's decision tree evaluation process is presented. Information required to evaluate a specific licensing opportunity is provided, including the costs of the three phases of the review process, the revenues if approved, and the probability of various outcomes. It includes an introduction to decision tree analysis and valuation.

Keywords: Decision Making; Cost vs Benefits; Opportunities; Valuation; Outcome or Result; Pharmaceutical Industry;

Format: Print

6 pages

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Citation:

Ruback, Richard S., and David B Krieger. "Merck & Company: Evaluating a Drug Licensing Opportunity." Harvard Business School Case 201-023, October 2000. (Revised March 2003.)

About the Author

Richard S. Ruback

Willard Prescott Smith Professor of Corporate Finance

Finance

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Teaching Note | HBS Case Collection | May 2018 (Revised May 2018)

Lind Equipment

Richard S. Ruback, Royce Yudkoff and Ahron Rosenfeld

Teaching Note for HBS No. 212-012. Lind Equipment, a Canadian manufacturer and distributor of industrial electrical safety equipment, was purchased in December 2007 by Brian Astl (HBS 2006) and Sean Van Doorselaer. Lind’s performance was negatively impacted by the Great Recession and exchange rate changes soon after its acquisition. The acquisition was financed mostly with subordinated and seller debt (50%) and equity (44%); only 6% was provided by its senior lender, HSBC. When Lind violated HSBC’s loan covenants, the bank refused to negotiate and insisted that Lind repay its loan in full. Astl and Van Doorselaer had to decide on a refinancing plan.

Keywords: acquisition; recession; seller debt; equity; Financial Condition; Borrowing and Debt; Capital; Revenue; Financing and Loans; Financial Strategy; Financial Management; Acquisition; Financial Crisis; Currency Exchange Rate; Insolvency and Bankruptcy; Manufacturing Industry; Industrial Products Industry;

Citation:
Ruback, Richard S., Royce Yudkoff, and Ahron Rosenfeld. "Lind Equipment." Harvard Business School Teaching Note 218-119, May 2018. (Revised May 2018.) View Details

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Supplement | HBS Case Collection | April 2018 (Revised May 2018)

Rose Electronics Distributing Company

Richard S. Ruback and Royce Yudkoff

Citation:
Ruback, Richard S., and Royce Yudkoff. "Rose Electronics Distributing Company." Harvard Business School Spreadsheet Supplement 218-741, April 2018. (Revised May 2018.) View Details

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Teaching Note | HBS Case Collection | May 2018

Greg Mazur and the Purchase of Great Eastern Premium Pet Foods

Richard S. Ruback, Royce Yudkoff and Ahron Rosenfeld

Teaching Note for HBS No. 211-085. Greg Mazur (HBS 1997) identified a small firm, Great Eastern Premium Pet Food, in December of 1998 that fit his search criteria and decided to offer the seller a cash price of $1.2 million plus an earn-out equal to 1% of revenue over the next five years. He planned to invest $500,000 of his own money in the acquisition and finance the remainder with a senior loan in a formal letter of intent.
Great Eastern Premium Pet Food was a regional distributer of pet food products that operated in a highly competitive environment, with low profit margins, and no exclusive products. Great Eastern was barely profitable in 1997 and had profits of about $140,000 in 1998. Mazur evaluated the acquisition using a financial model that assumed a sales growth rate of 12.5% per year, and a gradual improvement in profit margin from 2% to 7.5% over five years. He identified ways to grow sales through changes in the composition and structure of the sales force and to improve margins through managing costs. The case explores the rationale for the acquisition and its evaluation, including the reasonableness of the financial model and its sensitivity to alternative assumptions.

Keywords: Acquisition; Entrepreneurship; Financing and Loans; Negotiation Deal; Strategic Planning; Valuation; Analysis;

Citation:
Ruback, Richard S., Royce Yudkoff, and Ahron Rosenfeld. "Greg Mazur and the Purchase of Great Eastern Premium Pet Foods." Harvard Business School Teaching Note 218-122, May 2018. View Details

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Merck & Company: Evaluating a Drug Licensing Opportunity

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