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2. Camer Pharmaceuticals is testing a new product in the market'. The demand for the new product is estimated to be Normally distributed with a mean 2,000,000 and standard deviation 250,000. The demand is estimated to grow at a rate of 4% per year. The R&D costs are estimated to be between $500 millions of dollars and $800 millions of dollars with a most likely value of $700 millions of dollars. Clinical trial costs are estimated to be between $135 millions of dollars and $160 millions of dollars with a most likely value of $150 millions of dollars. There are competitors in the market, and Camer Pharmaceuticals estimates that their market share in the first year will be any number between 6% and 10%, with

2. Camer Pharmaceuticals is testing a new product in the market'. The demand for the new product is estimated to be Normally distributed with a mean 2,000,000 and standard deviation 250,000. The demand is estimated to grow at a rate of 4% per year. The R&D costs are estimated to be between $500 millions of dollars and $800 millions of dollars with a most likely value of $700 millions of dollars. Clinical trial costs are estimated to be between $135 millions of dollars and $160 millions of dollars with a most likely value of $150 millions of dollars. There are competitors in the market, and Camer Pharmaceuticals estimates that their market share in the first year will be any number between 6% and 10%, with

MATLAB: An Introduction with Applications
MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
Section: Chapter Questions
Problem 1P
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**Camer Pharmaceuticals Case Study** Camer Pharmaceuticals is testing a new product in the market. The demand for this product is estimated to be normally distributed with a mean of 2,000,000 and a standard deviation of 250,000. Demand is forecasted to grow at a rate of 4% per year. Research and development (R&D) costs are projected to be between $500 million and $800 million, with a most likely cost of $700 million. Clinical trial costs range from $135 million to $160 million, with a most likely cost of $150 million. There are competitors in the market, and Camer Pharmaceuticals estimates that their market share in the first year will range between 6% and 10%, with each percentage being equally probable. The company forecasts a 20% annual growth in market share. Each monthly prescription is projected to generate $240 in revenue. Variable costs are estimated at $30. The task is to create a simulation model that calculates the net present value (NPV) of this project over three years, assuming a 10% discount rate. This simulation should be run for 1000 iterations to answer the following questions: a. What is the distribution of the NPV (mean and standard deviation)? b. What are the first quartile, median, and third quartile of NPV? c. What is the probability that the NPV over three years will not be positive? d. What NPV are we likely to observe with a probability of at least 0.9? e. What cumulative net profit in the third year are we likely to observe with a probability of at least 0.9? f. What is the 95% confidence interval for the mean NPV? Interpret the resulting confidence interval. g. What is the number of iterations needed if we want to estimate the NPV within $4,000,000? h. Interpret the sensitivity chart. *Note: This problem is adapted from a problem originally developed by Hoffman and Peters and appeared in Winston & Albright's Practical Management Science, Duxbury Press, 1997, p. 879.*
Transcribed Image Text:**Camer Pharmaceuticals Case Study** Camer Pharmaceuticals is testing a new product in the market. The demand for this product is estimated to be normally distributed with a mean of 2,000,000 and a standard deviation of 250,000. Demand is forecasted to grow at a rate of 4% per year. Research and development (R&D) costs are projected to be between $500 million and $800 million, with a most likely cost of $700 million. Clinical trial costs range from $135 million to $160 million, with a most likely cost of $150 million. There are competitors in the market, and Camer Pharmaceuticals estimates that their market share in the first year will range between 6% and 10%, with each percentage being equally probable. The company forecasts a 20% annual growth in market share. Each monthly prescription is projected to generate $240 in revenue. Variable costs are estimated at $30. The task is to create a simulation model that calculates the net present value (NPV) of this project over three years, assuming a 10% discount rate. This simulation should be run for 1000 iterations to answer the following questions: a. What is the distribution of the NPV (mean and standard deviation)? b. What are the first quartile, median, and third quartile of NPV? c. What is the probability that the NPV over three years will not be positive? d. What NPV are we likely to observe with a probability of at least 0.9? e. What cumulative net profit in the third year are we likely to observe with a probability of at least 0.9? f. What is the 95% confidence interval for the mean NPV? Interpret the resulting confidence interval. g. What is the number of iterations needed if we want to estimate the NPV within $4,000,000? h. Interpret the sensitivity chart. *Note: This problem is adapted from a problem originally developed by Hoffman and Peters and appeared in Winston & Albright's Practical Management Science, Duxbury Press, 1997, p. 879.*
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