Drug Development. A pharmaceutical company has a new drug under development and

Question

Drug Development. A pharmaceutical company has a new drug under development and would like to know how much profit it might expect to make. The drug has to be tested to pass FDA approval. One hundred subjects will be tested and the company estimates that the probability that each subject will pass the test is 25 percent. The FDA will approve the drug if at least 20 out of the 100 subjects pass. Future R&D costs will be between $3 and $5 million (uniformly distributed). Advertising costs will run between $12 and $18 million, with $16 million the most likely amount. The total population of potential users of the drug is 40 million. The company expects to gain 8 percent of this market if its drug is successful. (Assume a normal distribution for market share with a standard deviation of 2 percent.) There is a one-in-four chance of a competitor entering this market, and if it does, the monopoly share will be reduced by 5 to 15 percent (uniformly distributed). The profit per customer is expected to be $12.
a. What is the mean profit?
b. What is the probability the company makes no profit at all?
c. What is the maximum profit they can make?

Please answer all following questions (a, b, c), show the steps and formula through Excel, and provide explanations.

Explanation / Answer

Questions Formulae Explanation a. What is the mean profit? -$2,00,00,000 =(Expected number of Users* Profit per user)*Probability of getting FDA Approval)- Expenses on R&D and Advertising b. What is the probability the company makes no profit at all? 95.00% The company will not make any profit if it doesnot get FDA approval and the chances for the same are 95% c. What is the maximum profit they can make? -$2,00,00,000 Total Universe                 4,00,00,000 Number of drug users DD Inc User base Probability Market Share Number of users                    32,00,000 75% 8% Number of users (if Competitior enters)                    28,80,000 25% 7% Number of users                    32,00,000 Expected number of users                    31,20,000 =SUMPRODUCT(B8:B9,C8:C9) Profit per user $12 Probability of Clearing Getting FDA Appproval 0% R&D Expense (Mean) $40,00,000 Mean expense is considered as expense is uniformly distributed Advertising expense (Mean) $1,60,00,000 Most likely expense is considered Probability of clearing 1 subject 25% Probability of clearing atleast 20 subjects out of 100 subject 0.00000000000091 =(25/100)^20

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.