Excel Model - Will venmo 25 dollars

You are the risk manager of a generic drug manufacturer. You have a generic substitute of a patented drug you want to introduce to the US market. The annual market for the patent holder is about $60 million. Under a special provision of US law you can bring a lawsuit against the drugs patent holder so that if you are successful in your litigation you can sell your generic to the market before its patent expires. The law allows you to proceed with selling your generic drug while the litigation is on-going. The patent holder has filed an injunction to stop you from selling your generic while the litigation is on- going, but the court has denied the injunction.

Do you proceed with launching the generic while litigation is on going or do you wait? If you launch will the patent holder settle? There is an offer from an insurance firm to cover potential damages you may be liable to the patent holder in the event the court rules against you. Should you buy this coverage?

Launching a generic drug before the outcome of a patent suit is resolved is a common strategy in the generic drug industry. The industry calls this strategy a launch-at-risk In the recent past there have been just over 300 cases of a launch-at-risk. In 21% of these cases the patent holder settled with the generic drug manufacturer, and for the remaining cases the courts ruled in favor of the generic in 48% of the cases. Note, however, that the patent holder you are suing settled only in 7% of the cases involving it.

The cost of litigation to you will be between $3 and $5 million, plus any damages you will have to pay if the court rules against you. An insurance coverage to cover only damages you may be liable to the patent holder is $11.5 million. Under this law, courts determine damages to the drugs patent holder on the basis lost sales (not lost value) incurred by the patent holder. The patent holder sells each capsule for $3. You estimate their gross margin at 60%. In similar cases damages ranged from 50% to 100% of the patent holders losses.

Under the provision of the law you have sued the patent holder, once you launch your generic you will have a 6-month exclusivity, after which other generic manufacturers can introduce their own versions of the generic drug. Because the price of generic drugs is substantially lower, during the exclusivity period you will have 50% to 60% of the total market for the drug, and after the 6-month exclusivity period, generic versions of the drug will have 90 to 95% of the market.

You have consolidated revenue of $523 million and net profit of $69 million. You have invested in the development of the generic drug half a million. During the exclusivity period you project a price of $2.10 (+/- 10%) per capsule. Your gross margin will be about 90% (+/- 5). After the exclusivity period your gross margin is not likely to change, but the price per capsule is likely to drop to $1 (+/- 10%)