Facts in the Case

Company Alpha is the industry leader in the HIV drug industry. They have invested $150 million in research to produce the drug. This investment is a fixed cost. There are a few other smaller companies in the market. The company market share is given in the Excel data sheet.

The government has put a price ceiling on retail price $1.20 per capsule. Company Alpha sell the drug at a wholesale price at $0.80 per capsule. The variable cost per capsule is $0.40. HIV patients are required to take 5 capsules per day. It is estimated that only 75% of the patients take their medicine regularly. Companies use this usage rate to calculate their revenue and cost estimates.

About 70% of the HIV patients depend on the government to pay for their drugs through Medicare and other subsidy programs. In a way, the government (in fact taxpayers) is literally funding the HIV drug industry.

Data given for Calculation

Deaths from HIV/AIDS (Number)

New Infections of HIV/AIDS (new cases of HIV infection)

Number of people living with HIV (includes new patients)

Retail Price/Capsule

Wholesale Price/Capsule

Variable Cost/Capsule

Market share (%) of Alpha

Calculate the followings for the company

Total number of patients =Total patients*Market share

Yearly total revenue, cost, and profit

(Caveat: Actual quantity sold is influenced by dosage and usage rate)

Revenue = Price * Quantity

Cost = Variable Cost * Quantity

Profit = Revenue - Cost

Breakeven quantity = (Fixed Cost / Price Variable Cost)

Any other data analysis to answer the question

Take one position only, not both.

Position 1: The private companies and the advocacy groups have different perspectives in marketing the drug. Company Alpha has been given a special license to sell the drug for 20 years. Their license has expired. They have been given a two-year grace period to continue. The Company is lobbying to renew the license for another 10 years. They are opposed to price ceiling and want to deregulate the price. Other companies in the industry are supporting Company Alpha, the industry leader.

Position 2: The advocacy groups argue that, the taxpayers are literally guaranteeing a fixed income to the drug companies. They oppose the renewal of the license. They suggest that the government should buy the license from the drug companies. Government is willing to pay twice the fixed cost (e.g., $300 million to Company Alpha). The Government will enter into a contract manufacturing with the pharmaceutical companies. Under such arrangement, companies will be producing the drug for the government. It is estimated that this strategy will decrease the variable cost of each capsule by 50%, a substantial savings for the government.

Question

You may take any of the above position and develop a marketing campaign for your argument. What would be your value proposition? How would you market your idea to win the hearts of the citizens and the lawmakers? Support your arguments with data.

Calculate and report the data for the company first. Then take your position and answer the question.

Total number of patients =Total patients*Market share

Yearly total revenue, cost, and profit

Breakeven quantity = (Fixed Cost / Price Variable Cost)