This is a complex, real situation. In this assignment, we will focus on understanding Marnac’s perspective.
Your report should describe the problem landscape, and weave answers to the following two sets of questions:
1. First cut analysis: This is a “back of envelope” analysis that one may be tempted to do as a starting point. Please use the information on page 108 left side, in the paragraph “Based on prior experience…” to create a decision tree. Subsequently, please answer the following questions:
a) Which drug should Marnac pursue? Why? Please weigh both expected return and risk to inform your choice. (The tree you build will provide you the expected return. As for risk, this refers to the various benchmark criteria presented in section 13.2.1.)
b) Is the expected return highly sensitive to any inputs?
2. Detailed analysis of Pirfenidone: Decision trees are a powerful tool in providing a more nuanced analysis that takes into account the contingency nature of costs and revenues. Please use the data in the section titled “Drug Development Process and the FDA Approval Process” to:
(a) Create a decision tree to determine the value of the drug. Use $74.25 and $48.15 as the costs for IND and NDA approvals, respectively (see if you can figure out how to deduce these numbers from the other information).
(b) What is the expected value of the drug in this analysis? Is it different from First Cut Analysis? (It should be). Why?
(c) Identify two or three inputs to which the expected value is most sensitive.
Hint: It may be helpful to start the tree for Q2 with a decision node for developing Pirfenidone or not. (though it isn’t necessaruy to do this)
Please submit a 3-5 page report plus analysis, with a total page limit of 8-9 pages (this includes trees and data). Please be complete and concise. I have seen great reports that are 4-5 pages in total.
