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DECISION ANALYSIS WITH SAMPLE INFORMATION 563

MANAGEMENT SCIENCE IN ACTION

New Drug Decision Analysis at Bayer Pharmaceuticals
rug development requires substantial investment Probability assessments were made concerning
D and is very risky. It can take 15 years to research both the technical risk and market risk at each stage
and develop a new drug. The Bayer Biological Prod- of the process. The resulting sequential decision tree
ucts (BP) group used decision analysis to evaluate the had 1955 possible paths that led to different net
potential for a new blood-clot-busting drug. Six key present value outcomes. Cost inputs, judgements of
yes-or-no decision nodes were identified: (1) begin potential outcomes and the assignment of probabil-
preclinical development, (2) begin testing in humans, ities helped evaluate the project’s potential contribu-
(3) continue development into phase 3, (4) continue tion. Sensitivity analysis was used to identify key var-
development into phase 4, (5) file a licence application iables that would require special attention by the
with the FDA and (6) launch the new drug into the project team and management during the drug devel-
marketplace. More than 50 chance nodes appeared opment process. Application of decision analysis
in the influence diagram. The chance nodes showed principles allowed Bayer to make good decisions
how uncertainties – related to factors such as direct about how to develop and market the new drug.
labour costs, process development costs, market
Based on Jeffrey S. Stonebraker, ‘How Bayer Makes Decisions to
share, tax rate and pricing – affected the outcome.
Develop New Drugs’, Interfaces, no. 6 (November/December 2002):
Net present value provided the consequence and the 77–90.
decision-making criterion.

Payoff (R Million) Probability
9 0.05
5 0.15
14 0.08
20 0.72
1.00

Figure 13.11 PDC Decision Tree Showing Only Branches Associated with Optimal
Decision Strategy

Favourable
Report 0.77 3

Strong (s 1 )
Large (d ) 0.94 20
3
8
Weak (s ) –9
2
Market Research 2 0.06
Study

)
Strong (s 1 14
Unfavourable Medium (d 2 ) 0.35
1 Report 0.23 4 10
Weak (s 2 ) 5
0.65

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