Risk management in the development of new products in the pharmaceutical industry

Abstract

One of the greatest challenges facing the pharmaceutical industry is the process of selecting which new products to develop. In this study, the product development and investment decision problem was examined. A hypothetical case of new product investment in either Product A and/or Product B by a hypothetical company called Healthcare Company was investigated. As employed in previous empirical studies, the NPV framework was utilized to examine the strategies for new product development. Additionally, the stochastic dominance methodology was employed to help with further examination of the dominant strategy. Three investment scenarios were investigated in this article: 100% of investment devoted to only one of the products and an equal investment in each of the drugs. The results suggested that the healthcare company should only invest in one of the pharmaceutical drugs. All of the methods utilized in this study yielded consistent outcomes.