Problem 1 The firm is planning on receiving a regulatory permission to sell its
ID: 2819933 • Letter: P
Question
Problem 1
The firm is planning on receiving a regulatory permission to sell its product in different regulated markets. The details are presented in Table 1. The marketing department conducted research and summarized the cost and duration of processing the application, the odds of a positive outcome, and the sales opportunities. Deciding what market the firm should enter is based on the potential profit generated over a 24-month period.
You need to decide which market the firm should start the regulatory approval process.
Table 1: Summary of Marker Research
Agency Name
Processing Fee
Average Processing time (months)
Approval
Chance
Annual Sales per market
USA
FDA
248 K
5
0.8
$1,000,000 per month
EU
MDD
300 K
1
0.85
$700,000 per month
China
CFDA
82K
3
0.9
$660,000 per month
Japan
PMDA
320K
12
0.9
$250,000 per month
India
CDSCO
47K
5
0.95
$470,00 per month
Agency Name
Processing Fee
Average Processing time (months)
Approval
Chance
Annual Sales per market
USA
FDA
248 K
5
0.8
$1,000,000 per month
EU
MDD
300 K
1
0.85
$700,000 per month
China
CFDA
82K
3
0.9
$660,000 per month
Japan
PMDA
320K
12
0.9
$250,000 per month
India
CDSCO
47K
5
0.95
$470,00 per month
Explanation / Answer
In this case, We need to decide which market to approach for regulatory approval
Our time horizon is 24 months
We will start regulatory process in the market which have chances to generate highest profit
So profit = Total Revenue over 24 months - cost
Cost is processing fee
Potential total Revenue over 24 months in this case = (Revenue per month*(24-approval time)*Approval chance)
We have deducted approval time as this time will be consumed in getting regulatory approval, so remaining time is remaining time from 24 months
We have multiplied by approval chance as this is the probability that our product will be approved and we can launch in the market
For US,
Processing fee = 248K i.e. 248000
Average Processing time = 5 months
Approval chance = 0.8
Revenue = $1,000,000 per month
Total revenue over 24 months = ((24-5)*1000000*0.8) = $15,200,000
Cost = 248,000
Profit = 15,200,000 - 248,000 = $14,952,000
For EU,
Processing fee = 300K i.e. 300000
Average Processing time = 1 month
Approval chance = 0.85
Revenue = $700,000 per month
Total revenue over 24 months = ((24-1)*700000*0.85) = $13,685,000
Cost = 300,000
Profit = 13,685,000 - 300,000 = $13,385,000
For China,
Processing fee = 82K i.e. 82000
Average Processing time = 3 months
Approval chance = 0.9
Revenue = $660,000 per month
Total revenue over 24 months = ((24-3)*660000*0.9) = $12,474,000
Cost = 82,000
Profit = 12,474,000 - 82,000 = $12,392,000
For Japan,
Processing fee = 320K i.e. 320000
Average Processing time = 12 months
Approval chance = 0.9
Revenue = $250,000 per month
Total revenue over 24 months = ((24-12)*250000*0.9) = $2,700,000
Cost = 320,000
Profit = 2,700,000 - 320,000 = $2,380,000
For India,
Processing fee = 47K i.e. 47000
Average Processing time = 5 months
Approval chance = 0.95
Revenue = $470,00 per month
Total revenue over 24 months = ((24-5)*47000*0.95) = $848,350
Cost = 47,000
Profit = 848,350 - 47,000 = $801,350
Potential profit is highest in US so we will start regulatory process in US.
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