A very good answer would include the following.

Investment would need to increase the probability of success in Phase II from 40 to 80 percent (that is, increase of 40 percentage points). There are multiple ways to approach this calculation. One method is shown here:

If a candidate drug passes Phase II, then it has a 50% x 90% = 45% chance of being successfully marketed and sold. Since a successful candidate drug is worth $1.2 billion, a candidate drug that passes Phase II is worth 45% x $1.2 billion = $540 million.
To break even (that is, to make the $150 million investment worthwhile), the value of the candidate drug that passes Phase II would need to increase to $540 million + $150 million = $690 million. This means, the probability of combined success in Phase I and II would need to increase by (150/540) = 28 percentage points.
So the current probability of Phase I and II, that is, 70% x 40% = 28% would have to increase by 28 percentage points, to 56%. In order to come up to 56%, Phase II probability would have to increase from 40% to 80% (70% x 80% = 56%).
This seems like a very big challenge, as an increase by 40 percentage points means that the current probability of 40% needs to double.

Helpful hint

It is always good to provide a “sanity check” on your numbers and to provide common-sense commentary and insights on the implication of your calculations.

GlobaPharm Question 3 Reveal