The year is 2009 and the Ethical Pharmaceutics Company has just received FDA approval for high-risk angioplasties and is bringing AngioMin to the market early January 2010 at the price of $200. The cost of manufacturing a single dose of AngioMin is $40.

The key benefit of AngioMin is reduced side effects, complications, and risk of death following angioplasty. These benefits are most pronounced in the very high risk patients.

Ethical Pharmaceutics Company's marketing department decided to focus on the top 100 hospitals in the US where 80% of angioplasties are performed. In 2010 there will be 700,000 angioplasties and this number is expected to grow at 5% each year. 50% of all angioplasties are high risk and 20% of high risk angioplasties fall into the "very high risk" category.

Ethical Pharmaceutics Co. is planning an aggressive marketing campaign to get on hospital formularies because (1) AngioMin's patent protection will expire in late December 2010, after which point sales would immediately go to zero, (2) while there is no chance a better substitute will enter the market in 2010, Ethical Pharmaceutics Co. management estimates a 20% probability for each year 2011-2020, that a new significantly better than AngioMin drug will be brought to market and will replace AngioMin in any hospital that was using AngioMin at the time.

Please help the Ethical Pharmaceutics Co. marketing team estimate

1. CLV (customer lifetime value) of an average top hospital acquired in 2010, assuming that all high-risk patients will get 1.5 doses of AngioMin during the angioplasty procedure
2. CLV of an average top hospital acquired in 2010, assuming that only very high-risk patients will receive AngioMin (on average 1.5 doses will be needed per procedure)
3. To help the marketing team communicate the time value of acquiring hospitals as early as possible, calculate the net present value in 2010 of an average top hospital acquired in 2015. Assume that this hospital would administer AngioMin only to very high risk patients (on average 1.5 doses). Note that this is only possible if the new and better substitute is not brought to market by 2015 and make sure that your calculations reflect this fact.

2. Predatory Lending Inc. sells financial services (high interest micro loans) through independent agents. Good agents generate $2,000 in net revenue in the first year, a figure that grows at 5% annually. Poor agents, on the other hand, produce $1,000 in year one and 20% less revenue each successive year. There is no way to tell in advance whether an agent will be good or bad. In the past, about 40% of new agents have turned out to be good and 60% poor. Of the good agents, 50% are loyal, they tend to like the work and remain with the company with a 90% probability year to year, and 50% are not loyal, they leave Predatory Lending and go to work for a competitor after the first year. Similarly, 80% of the poor agents are loyal (i.e., the competition wouldn't hire them) and have a 90% probability of staying with the firm year to year and 20% drop out after the first year and go back to school. (For simplicity, assume that revenues from agents that drop out in year one are not discounted.)

Given that recruiting and training costs are $5,000 per new agent:

1. What is the CLV of each of the 4 possible types of agents (good loyal/ non-loyal and bad loyal / non-loyal? (Assume a 10% discount rate)

1. Can Predatory Lending Inc. remain in business given it current operating situation?