Reference no: EM133188025

1. Assume that Merck will follow the advice of George W. Merck, "We try never to forget that medicine is for the people. It is not for the profits. The profits will follow, and if we have remembered that, they have never failed to appear," and answer the following questions (1a,1b) under this assumption.

a. Build a decision tree to evaluate the decision facing Pat Harlow. What would you recommend?

b. What is the risk profile of accepting the Kappa's proposal option, assuming that Merck will follow the above advice? Interpret this risk profile from both the corporate and Pat Harlow's perspectives.

c. Are there any intangible benefits to Merck (not considered in your decision tree) associated with putting a drug (obesity, cholesterol, or both) on the market? If so, could you give a minimum dollar amount on such intangible benefits (by using your decision tree model) to help Pat justify accepting the proposal?

2. Now, suppose that we relax the assumption that we will always follow Merck's advice. What should Pat Harlow do regarding KL-798? What does the new optimal strategy look like? How much does the expected value increase? How does the risk profile of this new strategy compare to the previous one? (Assume that, in this new scenario, if Phase II results indicate efficacy for both maladies, Merck has the option to start Phase III trials leading to a drug treating only obesity or only cholesterol besides the possibility of starting it for a drug treating both.)

3. What would you recommend for further improvement of EV and risk profile? (Hint: Think who carries the most risk between Merck and Kappa Labs.)

4. What discussion topics should Pat raise with the project team? (Provide point-by-point clear discussion topics based on your entire analysis guided by the above questions.)