Assignment
Prescription Drug Development
The Idiopathic Pulmonary Fibrosis (IPF) case itself is focused on InterMune’s decision whether to license the rights to Pirfenidone, a drug in development to treat IPF. However, for this assignment you are to focus only on understanding Marnac's perspective in choosing which drug to develop. I suggest you read the case from the beginning even though some of the preliminary material is about InterMune, but you can skip the final section, “InterMune and Pirfenidone” on the final page. However, don’t overlook Table 1 on the back page, which is referred to earlier in the case.
Your report should describe Marnac’s problem landscape, weave in answers to the two sets of questions below, and conclude with your recommendation to Marnac of which drug to develop, supported by your analysis.
Please express monetary amounts in millions of dollars ($M) both in the models you construct and in your team report.
1. First cut analysis: This is a "back of envelope" analysis that one may be tempted to do as a starting point. Use the information in the final paragraph of the left column on p. 108 (it begins with, "Based on prior experience...") to create a decision tree. Use your tree to make a recommendation to Marnac.
Which drug should Marnac pursue? Why? Please weigh both risk and return to inform your choice.
How sensitive is this decision? To which factors?
2. Detailed analysis: Decision trees are a powerful tool in providing a more nuanced analysis that takes into account the contingency nature of costs and revenues. Use the data in the section titled "Drug Development Process and the FDA Approval Process" to:
Create a decision tree to determine the expected value of the drug Pirfenidone. Use $74.25M and $48.15M as the costs for the “IND” and “NDA” approval steps (see if you can figure out how to deduce these numbers from the other information given—if so, include it in your report).
What is the expected value of the drug in this analysis? Is it different from the First Cut Analysis? (It should be). Why?
Identify two or three factors to which this value is most sensitive.
