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A certain pharmaceutical firm recently developed a new medicine, Denda
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01 Feb 2025, 06:52
01 Feb 2025, 06:52
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A certain pharmaceutical firm recently developed a new medicine, Dendadrine, that provides highly effective treatment of severe stomach disorders that were previously thought untreatable. However, the company spent nearly $$5$ billion to research and develop the new medicine. Given the size of the market for Dendadrine and the amount of the initial investment, the company would need to sell Dendadrine at a price that is at least five times greater than its variable costs just to break even. Yet company management claims that Dendadrine will soon become the major driver of the firm's profits.
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Question Stats:
75% (02:28) correct
25% (01:59) wrong based on 12 sessions
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Which of the following statements best reconciles the management's claim with the evidence about the expenditures associated with the development of Dendadrine?
(A) The pharmaceutical firm expects to be granted patent protection for Dendadrine; drugs under patent protection typically sell at prices that are approximately 10 times their variable costs.
(B) The development of some pharmaceutical products involves substantial initial expenditures on research, testing, and approval.
(C) In clinical tests, Dendadrine has proven far more effective at treating severe stomach disorders than any prior available treatments, without any serious side effects.
(D) No competitors are developing or planning to develop new medicines that might compete with Dendadrine in the marketplace.
(E) Millions of people suffer from severe stomach disorders, representing an estimated one to two billion dollars every year in revenue.
Re: A certain pharmaceutical firm recently developed a new medicine, Denda
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05 Mar 2025, 01:43
05 Mar 2025, 01:43
Expert Reply
OFFICIAL EXPLANATION
(A). The argument provides information about the substantial costs associated with the development of Dendadrine. Yet the management views Dendadrine as a highly profitable project. To reconcile these claims, the correct answer choice will demonstrate that the drug will generate profits that will more than compensate for the high initial expenditures associated with its development.
(A) CORRECT. If management expects to earn patent protection for the new drug, then the company can also expect to charge the unusually high prices that will more than compensate for the initial research and development costs.
(B) While this choice explains the high costs associated with the development of Dendadrine, it says nothing about how well such products do on the market and whether they subsequently become profitable.
(C) Although this choice supports the idea that Dendadrine will sell well, it does not specifically support the contention that the drug will be profitable in the face of unusually high costs.
(D) Although this choice supports the idea that Dendadrine will be the primary, if not only, treatment for this market segment, it does not support the contention that the drug will be profitable in the face of unusually high costs.
(E) Although this choice supports the idea that the market for Dendadrine is very large and will generate revenues in excess of $\$ 5$ billion within a few years, it does not specifically support the contention that the drug will be profitable in the face of unusually high costs.
(A). The argument provides information about the substantial costs associated with the development of Dendadrine. Yet the management views Dendadrine as a highly profitable project. To reconcile these claims, the correct answer choice will demonstrate that the drug will generate profits that will more than compensate for the high initial expenditures associated with its development.
(A) CORRECT. If management expects to earn patent protection for the new drug, then the company can also expect to charge the unusually high prices that will more than compensate for the initial research and development costs.
(B) While this choice explains the high costs associated with the development of Dendadrine, it says nothing about how well such products do on the market and whether they subsequently become profitable.
(C) Although this choice supports the idea that Dendadrine will sell well, it does not specifically support the contention that the drug will be profitable in the face of unusually high costs.
(D) Although this choice supports the idea that Dendadrine will be the primary, if not only, treatment for this market segment, it does not support the contention that the drug will be profitable in the face of unusually high costs.
(E) Although this choice supports the idea that the market for Dendadrine is very large and will generate revenues in excess of $\$ 5$ billion within a few years, it does not specifically support the contention that the drug will be profitable in the face of unusually high costs.
gmatclubot
Re: A certain pharmaceutical firm recently developed a new medicine, Denda [#permalink]
05 Mar 2025, 01:43
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