Part 2. MM4XL Tools > 1. Strategic Tools > Decision Tree > 1. An Example as an Appetizer > Background

Decision Tree


While researching for fighting rheumatoid arthritis, scientists at VitroLab, a biotech company in Palo Alto, California, discovered a molecule with a broad spectrum of applications. The case was investigated by the New Business Development department and the assessment produced the alternative strategies summarized in the table below (figures in millions of dollars).

VitroLab cannot afford to enter more than one business, so the question the board is called to answer is which sector to enter, if any.

InvestmentExpected salesEMV
Surgery 18 0 - 145 89.8
IT partner 12 65 - 180 84.9
Coating 11 60 - 100 79.8
Sell out 0.25 25 - 31 27.6
IT alone 21 35 - 45 21.5

  1. The new molecule is attractive to the surgical industry because it increases the performance of other materials used in human implantations. To approach this segment would require new production facilities and an expansion of the sales organization. The investment is estimated at $18 million. Expected sales range between 0, should they fail to get FDA approval, and $145 million.
  2. The molecule is appealing to the IT industry for replacing more expensive and less performing components in storage media such as CDs and DVDs. VitroLab has solid relationships with several medium and large IT companies, and the alternative routes they considered are two: either (i) to find a partner, which would lower their financial exposure, or (ii) to enter the business alone. Having a partner would require an investment of $12 million and could bring sales between $65-180 million. Going alone raises the investment to $21 million but is expected to produce sales for $35-45 million only.
  3. The military industry found the molecule useful as coating material for preventing damage and increasing performance of parts exposed to such things as flying, boating, and drilling objects. To enter the business VitroLab need production and logistic facilities for an investment of $11 million and could expect sales in the range $60-100 million.
  4. Finally, VitroLab considered out-licensing the molecule for a value estimated between $25-31 million.

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