Multistage investment projects are subject to several sources of uncertainty, but also present significant embedded flexibilities both during and after the development process. An important characteristic of this class of projects is that as the firm incurs a cost and invests, it learns both about the difficulty of developing and implementing the project and also about market conditions. We develop a real options model where the firm continuously updates its prospects of timely completion and future market conditions. This information can then be used to optimally decide whether further investment is warranted or not, given the expected future revenues of the whole venture. We apply this model to a Research and Development (R&D) project in the pharmaceutical industry and value this investment opportunity as a compound contingent claim where the underlying asset is the value of the completed project, and find that the opportunities to abandon and to expand into related markets and applications once the original product is proven successful have a significant impact on the value of the project as a whole. This article differs from previous work in the field by capturing the potential upsides that may occur during product development through a novel quality model, and their effect on the expansion opportunities during the market phase. We use a simulation approach for the solution and show that for complex real options models, this method can be an effective way to value such projects while providing adequate precision compared to other models in the literature.

Vibrio cholerae CVD103-HgR, the first live attenuated vaccine licensed for human use produced by recombinant DNA technology, was genetically compared to its parent strains 569B and CVD103. The genetic stability for both lyophilized vaccine in final container form and for viable organisms shed from vaccinees was determined. Results obtained lead us to conclude: (i) the genetic composition of the examined genes in CVD103-HgR is identical to that of the parent strains except for the alterations induced; (ii) the level of mercury resistance depends on the orientation of the mer operon within hlyA, with the highest level being observed for the orientation found in CVD103-HgR; (iii) no DNA sequences from plasmids used in construction remain in the genome; (iv) the strain is genetically stable; and (v) both CVD103-HgR and its parent strains contain defective lysogenic prophages. We have further confirmed that a certain amount of restriction fragment length polymorphism (RFLP) exists around the chromosomal ctx locus within V. cholerae strains of the classical biotype (detectable on chromosomal DNA restricted by either HindIII or EcoRI, but not PstI).