Merck

‍Analysis and Key Findings

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Decision Tree
Expected Monetary Value
Two possible alternatives were examined: to buy the patent for KL-798 or not to buy. If thedrug is purchased and Merck follows through with the research then the Expected Monetary Value of this option would be a loss of $ 260 000.00. This Criterion is calculated using the decision tree inAppendix A Decision Tree Diagram on page ZZ (When Referencing to the appendix we need to make sure we mention the page number).

The Decision tree shows what decision should be made given thecircumstances. First, assuming that Merck will proceed with the purchase of KL-798, Merck will have to make a choice as to whether to complete Phase I, which only has 60% chance of success and will cost5Million dollars. If they pass phase I, according to the EMV criterion, it would be advisable to continue on to phase II which has a number of different outcomes. Firstly, there is a chance that they couldcure obesity only, cholesterol only, or both cholesterol and obesity.

If phase II gives an indication that it cures obesity, then Merck should continue on with Phase III and seek FDA approval. Ifphase II gives an indication of cholesterol success then Merck would be advised not to continue with phase III. This is for two reasons, firstly, a cholesterol drug will not make any money for thecompany, furthermore, Merck already has Zocor which is a drug proven to have adverse effects on the cholesterol level in human body. In both of these cases Phase III will cost 140Million.

Phase IIshowing signs that it can produce results that indicate it is a potential cure for both obesity and cholesterol. Surprisingly this outcome is less preferred then being a cure for obesity only, becausecontinuing to phase III will require a significantly larger investment of 140Million. Phase III can lead to FDA approval of the following drugs, obesity, cholesterol, or both a cholesterol and obesity...