Make a decision tree and risk profile for Trunck to assess the Jovani opportunity

Phase I testing of Broconi in humans would cost $25 million, including a $5 million licensing fee to Jovani. The probability of Broconi successfully completing Phase I human trials is 75%. In parallel with Phase I human testing, Trunck can test Broconi for equine safety. Since human and equine testing can be performed at the same lab, some costs can be combined, resulting in a net combined cost of $70 million, including $10 million licensing fees to Jovani ($5 million for each potential market). Alternatively, Trunck can choose to initially put Broconi through only equine Phase I testing at a cost of $60 million, including the $5 million licensing fee. Both human and equine testing is a 2 year process. It is believed that Broconi has a 90% chance of being effective in horses if it is effective in humans, but only a 45% chance of being effective in horses if it does not pass Phase I testing in humans.

Trunck believes that there could be severe negative repercussions of trying to market and sell Broconi as an effective drug for both humans and horses. At the conclusion of Phase I testing they would therefore have to decide whether to proceed with further testing of the drug for human use or whether to present the drug to the Association of Racing Commissioners International (RCI) for inclusion as a permissible substance for the horse racing industry. Historically the RCI has an 80% acceptance rate of drugs put forward to the commission. RCI meets monthly to approve or deny applications. If after Phase I testing, Trunck decides to go the route of considering Broconi for human rather than equine use, the drug would need to proceed to Phase II testing in humans. Phase II testing would take 2 years. The cost for testing Broconi would be $30 million, including a $5 million milestone payment to Jovani. The probability of the drug successfully passing Phase II testing is estimated at 20%. The cost for Phase III testing would be $100 million, including $25 million to Jovani. The likelihood of success in this phase is estimated at 90%. If Broconi were approved , it would cost $125 million to launch and would have a commercialization present value of $750 million. Launching the drug for the equine market would cost $30 million, but would have a commercialization present value of $200 million.