This article describes a case in which decisions are made by two biopharmaceutical firms in pursuit of FDA approval of a drug to treat idiopathic pulmonary fibrosis (IPF). The case contains information on each firm’s estimates of costs, revenues and likelihood of success, as well as average values for these available from the scientific literature. The case provides an opportunity to apply decision analysis in the form of decision trees to various decision problems and to perform sensitivity analysis. It can be used as an introduction or as an application of decision trees after an introduction. The students are first exposed to one firm’s simple decision based on expert opinion, which is then modified by the inclusion of data. The advantage of expressing information in a tree diagram becomes apparent. The tree diagram is then examined to expose hedging strategies, one of which introduces the second larger firm as a potential licensee. The second firm presents its own view of the decision process based on its own expertise, thus allowing for a rich discussion of sensitivity analysis. Students are to evaluate the first firm’s approach to decision making and whether the second firm should be a licensee or not. Teaching Note: Interested Instructors please see the Instructor Materials page for access to the restricted materials. To maintain the integrity and usefulness of cases published in ITE , unapproved distribution of the case teaching notes and other restricted materials to any other party is prohibited.
['David P. Kopcso', 'Howard Simon', 'Annie Gao']
Case Article—Idiopathic Pulmonary Fibrosis