Bristol-Myers Squibb Company (BMS) engages in the discovery, development, license, manufacture, marketing, distribution, and sale of pharmaceutical and other health care products. Selected financial information for the company is as follows:

BMS’s Year 2 annual report disclosed the following information in its footnote:

Required

1. Historically, the loss of patent protection on a brand name pharmaceutical product has resulted in a 70 percent decline in product sales. Assuming that

(a) BMS’s patent protection on Plavix is lost as of the beginning of Year 3,

(b) revenue and earnings for Year 3 would, in the absence of the loss of patent protection, have equaled those of Year 2, and

(c) the after-tax margin on Plavix is 60 percent, estimate BMS’s revenue and earnings for Year 3. How material are these financial effects?
2. BMS’s Plavix patent is carried on its balance as an intangible asset valued at \($120\) million. In the event of patent protection loss, how should the company reflect this in its financial statements?
3. How should the capital market react to

(a) the disclosure that a patent infringement suit involving Plavix had been filed against BMS and

(b) the disclosure that the suit had been lost (won)?

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Year 2 Revenue Net income. Total assets. $19.4 billion 2.4 billion Year 1 $20.9 billion 30.4 billion 3.1 billion 27.5 billion Total liabilities. 20.2 billion 17.7 billion