Hi Anonymous,

Here's a slightly different approach to the calculation that might make more sense:

Currently, the probability of success for a candidate drug before Phase I trial is 70% * 40% * 50% * 90% = 12.6%

If a successful drug is worth $1.2B, then the expected value of a candidate drug before Phase I trial is $1.2B * 12.6% = $151.2M. I would likely round this to $150M in an interview.

In order for the $150M additional investment to break even, we need the expected value to increase by the same amount. So the new expected value needs to be $150M + $150M = $300M.

**What increase would we need to see in the Phase II success rate in order to double the expected value from $150M to $300M?** You could set this up as an equation, but it's pretty apparent just looking at it: it needs to double from 40% to 80%, an increase of 40 percentage points.

Once you have the answer, it's then important to comment on the implications: if we need the Phase II success rate to reach 80% just to break even, this is probably not a good investment.

-Matt