Should you launch the drug today

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Question - You work for a pharmaceutical company that is developing a new drug to reduce cholesterol. Based on current information, the drug's NPV is estimated to be 200 million dollars. Specially, you want to find out whether the drug can also be sold to pregnant women. Right now the drug is not approved to be used for that group. This R&D will cost 10 million dollars and will last for one year. If the research turns out to be positive, you can increase the drug's NPV to 250 million (in one year). However, if the research turns out negative results, you have to go back to the original plan. In that case the NPV of drug is still 200 million (next year). The probability of success is 30%, and the discount rate is 10%. Should you launch the drug today, or should you do additional research and wait until next year?

Reference no: EM133109540

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