Question

NEWS WIRE R&D BARRIERS Stifling Would-Be Competition Washington, DC-The Federal Drug Administration (FDA) today "named and shamed" the biggest pharmaceutical companies for stifling the development of generic drugs. Companies wanting to develop generic substitutes for branded drugs must prove the bioequivalence of their products to their branded counterparts. To do that, they need large supplies-typically 1,500 to 5,000 units of the branded drug for testing. The generic companies complain that the branded companies deny or delay access to the needed inventory. When that happens, the generic companies can lodge a complaint with the FDA. The FDA today released a list of those complaints. Celegne topped the list, with 31 "inquiries, the largest number concerning access to its Revlimid drug, which sells for $20,000 a month to treat blood cancer and raked in over $8 billion in sales last year. The branded producers claim that they limit the distribution of their pricey drugs for safety reasons. Dr. Scott Gottlieb, FDA's commissioner, says the branded companies are gaming the system" to suppress the development of generic substitutes Source: FDA News Release of August 13, 2018 If generic producers were able to produce a substitute for Revlimid that reduced Revlimid's sales by 50 percent, how much less revenue would Celegne take in per year? Approximately billion less

Answer 1

Question 1

At present, Celegne earns a revenue of $8 billion per year.

If Revlimid's sales decreases by 50 percent due to availability of generic drugs then, in that case, sales revenue of Celegne will also decrease by 50%.

Decrease in sales revenue = 50% of Current sales revenue = 0.50 * $8 billion = $4 billion

So,

Celegne would take in approximately $4 billion less revenue per year.

Question 2

Total golf balls sold = 15 million

Prov1 price = $4 per golf ball

Total revenue at Prov1 price = 15 million * $4 = $60 million

Costco's price = $1.25 per golf ball

Total revenue at Costco's price = 15 million * $1.25 = $18.75 million

Decrease in total revenue = Total revenue at Prov1 price - Total revenue at Costco's price

Decrease in total revenue = $60 million - $18.75 million = $41.25 million

So,

The Titleist would take in $41.25 million less revenue.