Question: Pharmia plc is a drugs manufacturing company. It is operating in an intensively competitive market and prices are being forced down all over the world. To maintain its position, Pharmia plc utilises the concept of the product portfolio. Currently there are 34 new products in the portfolio, at various stages of development. Pharmia plc cannot predict if any of these will become a major product. However, its belief is that ‘there are a number of runners in the race and the more you have the greater the chance of picking a winner'. The company has also stated that it is a ‘Research and Development (R&D) driven company'. Therefore Pharmia plc always tries to ensure that there is adequate investment in R&D. The other major aspect of its corporate strategy is a belief in aggressive marketing, occasioned by the circumstances of the global market. A product manager of Pharmia plc has been unexpectedly given £5m extra funding and has the following options available:

(i) Tyrix is a drug in the early stages of development. If £5m is invested now, it will reduce the time required before the drug is ready to be sold.

(ii) Medvac has been successfully introduced into the market. It is having to compete against two rival products. An investment of £5m would pay for an advertising campaign which it is thought would increase its market share.

(iii) Sonprex is a mature product and is probably going to be superseded in the near future. An investment of £5m would enable it to be repackaged and allow some promotional activities to be undertaken.