Dendarine CR

[rte.sushil]

A certain pharmaceutical firm recently developed a new medicine, Dendadrine, that provides highly effective treatment of severe stomach disorders that were previously thought to be untreatable. However, to develop the new medicine, the company spent nearly $5 billion in research and development costs. Given the size of the market for Dendadrine and the amount of the initial investment in its development, the company would need to sell Dendadrine at a price that is at least 5 times greater than its variable costs just to break even. Yet the company’s management claims that Dendadrine will soon become the major driver of the firm’s profits.

Which of the following statements best reconciles the management’s claim with the evidence on the expenditures associated with the development of Dendadrine?


The pharmaceutical firm expects to be granted patent protection for Dendadrine; drugs under patent protection typically sell at prices that are approximately ten times their variable costs.
The development of some pharmaceutical products involves substantial initial expenditures on research, testing, and approval.
In clinical tests, Dendadrine has proven far more effective at treating severe stomach disorders than any prior available treatments, without any serious side effects.
No competitors are developing or planning to develop new medicines that might compete with Dendadrine in the marketplace.
Millions of people suffer from severe stomach disorders, representing an estimated one to two billion dollars every year in revenue.

OA: A
Source: manhattan GMAT cat
In this question,
i rejected A because it is not necessary that with 10x prices, the medicine will be able to bring the revenue. It may quite possible that many people are not interested to buy the medicine because of higher prices.

E: since the market is 1-2 billion dollars every year and no other medicine in market is avaialble to competer Dendraine (highly effective treatment of severe stomach disorders that were previously thought to be untreatable), so this means that the company can get this 1-2 b$/year

i know i am wrong:( but what can make my thinking correct, Please help.


Thanks!!

[jnelson0612]

Sushil, we're happy to help, but before we do please tell us--did you read the explanation for why E is not the best answer? What did you think of that explanation?

[HemantR606]

I have another doubt in this question.

(A) Even if the medicine is patent protected and can be sold for very high prices, there is a possibility for another company to make an equally or more effective drug at a cheaper price to treat stomach disorders. In this case, the management's claims cannot hold strong as Dendadrine loses to this new drug.

(D) Since there is no competitor for Dendadrine in the near future, people are left with no other option, and Dendadrine drives the company into profits.

Is there any flaw in my interpretation? If there isn't, why isn't (D) the answer?

[HemantR606]

Hello, I haven't received any answer for my question. Is there anything wrong whit my question?

[tim]

You cannot change answer choice A into something that doesn't work and then try to claim that that version doesn't work! Well, you can, but then of course that doesn't provide any evidence that A doesn't work. :) Notice that you have ignored what A says: "drugs under patent protection typically sell at prices that are approximately ten times their variable costs." This leaves no room for misinterpretation. If we accept the clear statement in A, we have to accept the fact that the drug will sell for 10x regardless of any other concerns you choose to bring up. To do anything else would be like taking a DS statement that says x=3 and asking "what if x didn't equal 3?"

The corollary to this is that D is wrong precisely because it *doesn't* give us any direct evidence that the drug will sell at a price that will cover the company's costs.

As for your question about why your post hasn't been answered, it's because you replied to your own post. Every time you do that it puts the question at the absolute end of the queue for us to answer. Bumping a question is the most effective way to cause a delay in getting your question answered.

[anirban.nitb]

What about E ? If company earns one to two billion dollars every year in revenue , then the company will obviously cover the variable costs in a few years and will run into profit .
On what basis then we should reject E ?

[Chelsey Cooley]

Answer choice (E) mentions 'revenue'. The conclusion of the argument mentions 'profit'. When you see this mismatch, you can almost certainly do something with it: can you figure out how it's useful here?

[JEETG442]

According to option A, the denadrine drug is patented and can charge higher prices. But if the drug does not sell well enough, sales will definitely go down. I thought A makes an unwarranted assumption that a patented drug will always sell well enough to gather profits, however high the med's price may be. Where did I go wrong?

[RonPurewal]

remember, in "strengthen"/"weaken"/"evaluate"/"explain" problems you are NOT trying to PROVE anything!
you're just looking for something that can plausibly have a certain effect.

[wasim.iit]

What I'm not clear about is that break even depends not only on the selling price but also on the quantity sold (in addition to fixed and variable costs). None of the choices takes care of both. (A) speaks only about the selling price. Others speak only about quantities sold, market size and so on. How do we arrive at the right answer?

[elenas903]

Sushil, we're happy to help, but before we do please tell us--did you read the explanation for why E is not the best answer? What did you think of that explanation?

The explanation is not convincing. However, it points to the very common mistake - students do not state the target (profits in this case)
We do not need revenues!
But A says that they EXPECT patent not that they have obtained it. There is an uncertainty in the option. I expect to become a millionaire next year - I can expect anything

thanks

[elenas903]

Sushil, we're happy to help, but before we do please tell us--did you read the explanation for why E is not the best answer? What did you think of that explanation?

The explanation is not convincing. However, it points to the very common mistake - students do not state the target (profits in this case)
We do not need revenues!
But A says that they EXPECT patent not that they have obtained it. There is an uncertainty in the option. I expect to become a millionaire next year - I can expect anything

thanks

instructors, please comment on that