Reference no: EM132904113
A pharmaceutical company has a new drug under development and would like to know how much profit potential it has. The drug has to be tested to get FDA approval. One hundred subjects will be used in the test trials. The FDA will approve the drug if at least 20 out of the 100 subjects have a "positive response" to the drug. The company's research leads them to believe that each individual subject has a 0.24 probability of a positive response.
R&D costs for this drug up to this point have been $8 million dollars, and this money has already been spent. Expected continuing development and manufacturing process improvement costs which are needed before knowing about the FDA results are $4.8 million. In addition, if it passes the FDA requirements, future advertising costs are expected to be $12 million, with a standard deviation of $1.5 million (if the drug passes FDA regulations, which is unknown).
The total population of potential users of the drug is 50 million. The company expects to get 8 percent of that market if its drug is successful. Assume a normal distribution with a Coefficient of Variation (CV) of 0.25.
There is a one-in-four chance of one particular competitor entering this market, and if it does, the share of the market will be reduced from 8% to 6% (same CV).
The revenue per customer is expected to be $5.
-What is the mean profit?
-What is the probability the company makes no profit at all?
-What is the maximum profit they can make?Model this simulation along with all of these questions in the spreadsheet, and upload your file here.
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