A Pharma company (FatFree Inc.) has developed a new drug, called NewCure that reduce fat in the body and improves health. The drug can is effective only on a certain population. At the beginning of the current year the, there are between 900,000 and 1,100,000 target patients that can use the product. NewCure needs only to be administered once a year. The number of target patent is expected to grow by an average of 5% per year, and FatFree company is 95% sure that the number of patients will grow annually by 3% to 7%. Pharma company is not sure what the first-year market share will be for NewCure, however the worst-case estimate is 20% market share, their most likely estimate is 40% and their best case is 70%. FatFree believe their market share will remain constant over the years until competitor enters the market. There are three potential competitors and the probability of any one competitor entering the market is any year, is 40%. FatFree estimates that for every competitor who enters the market, their market share will decrease by 20% but not until the year after the competitor enter. In other words it will take a year for each competitor to reduce FatFree market share. No competitor leaves the market once they enter. a) Use simulation to estimate the profitability of FatFree using a five-year horizon and an annual discount rate of 10%. A dosage of FatFree sells for $4.80, the variable cost per dosage is $1.00 and the annual fixed costs are $500,000. Compute the 95% confidence interval of the number of trials you ran to evaluate NPV. c) What is the 95% CI about NPV, please provide a concise answer. d) Perform all the sensitivity analysis and explain what each of the analysis signifies and answer the following questions a. What factors influence NPV of FatFree the most and the least? b. How much does the expected NPV change as each factor changes? c. If we limit NPV to only the best (or the worst) possible values, then which factors are influential? A Pharma company (FatFree Inc.) has developed a new drug, called NewCure that reduce fat in the body and improves health. The drug can is effective only on a certain population. At the beginning of the current year the, there are between 900,000 and 1,100,000 target patients that can use the product. NewCure needs only to be administered once a year. The number of target patent is expected to grow by an average of 5% per year, and FatFree company is 95% sure that the number of patients will grow annually by 3% to 7%. Pharma company is not sure what the first-year market share will be for NewCure, however the worst-case estimate is 20% market share, their most likely estimate is 40% and their best case is 70%. FatFree believe their market share will remain constant over the years until competitor enters the market. There are three potential competitors and the probability of any one competitor entering the market is any year, is 40%. FatFree estimates that for every competitor who enters the market, their market share will decrease by 20% but not until the year after the competitor enter. In other words it will take a year for each competitor to reduce FatFree market share. No competitor leaves the market once they enter. a) Use simulation to estimate the profitability of FatFree using a five-year horizon and an annual discount rate of 10%. A dosage of FatFree sells for $4.80, the variable cost per dosage is $1.00 and the annual fixed costs are $500,000. Compute the 95% confidence interval of the number of trials you ran to evaluate NPV. c) What is the 95% CI about NPV, please provide a concise answer. d) Perform all the sensitivity analysis and explain what each of the analysis signifies and answer the following questions a. What factors influence NPV of FatFree the most and the least? b. How much does the expected NPV change as each factor changes? c. If we limit NPV to only the best (or the worst) possible values, then which factors are influential
