20 Mar Strategy Healthcare

Provide a simple one-page answer to the question. You will be graded on the quality (correctness and effectiveness) of your answer. 

1.     Aradrim is a hypothetical drug that is the only treatment for a rarely-occurring but lifethreatening complication from surgery. This complication affects only a few thousand patients a year. Aradrim’s patent expired almost a decade ago and therefore any company is free to manufacture and sell this molecule. Even though aradrim is not protected by a patent, it is currently manufactured by a single pharmaceutical firm called MSP. Each aradrim treatment costs MSP only a few dollars to manufacture. MSP sells aradrim for thousands of dollars per treatment.

You are the manager of a rival pharmaceutical company that also produces generic (offpatent) drugs using the same basic manufacturing technology that is used by MSP. Your R&D team is confident that you could also produce aradrim, although it would require a substantial investment to ramp up production capacity and to obtain the necessary generic drug approval from the U.S. Food and Drug Administration (FDA). Your firm’s market research shows that customers would view your aradrim product as being identical to aradrim made by MSP. 

You do not know for sure how large your sales would be if you entered the aradrim market. As a benchmark, your analysts forecast that if you were able sell 50% of the current market volume at the current market price, you would be able to recoup this investment within 5 to 7 years.

Question: Should you pursue this opportunity? If so, why? If not, why not? If uncertain, what would you need to know to make a decision? (Hint: Think strategy, not finance. This question is not about calculating an NPV.)