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Burroughs Wellcome and AZT

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Xue Zhang

on 20 September 2016

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Transcript of Burroughs Wellcome and AZT

AZT Pricing Recommendation

Overview of the Issue
Option 3: Aggressive Price Change
Option 2:
Moderate Price Change
The Decision
Significantly lower to appease consumer protests
Maintains 60% gross margin
Opens drug availability to developing countries experiencing rapid spread of HIV
1.5 million US patients, millions more worldwide

Lowers margin of AZT by ~10.6% per capsule
Increase of $197 million for $ break-even and 447 million units for unit break-even
Greater risk of revenue if mandated dosage decrease for patients
Slight decrease in price to demonstrate ability to respond to consumers' needs
Maintain company authority in price decisions
Potential gain in market share as drug becomes more affordable to larger pool of patients
Lowers margin of AZT by ~2% per capsule
Increase of $34 million for $ break-even and 77 million units (17, 579 additional PWAs) for unit break-even
Consumers will argue that this is not significant enough price decrease
Consumers boycott of Zovirax, Actifed, and Sudafed

Option 1: No Price Change
Based on Jim Harvey's speech structures
Protestors from the AIDS Coalition to Unleash Power (ACT UP)
Protests at the New York Stock Exchange
Protesters threatening a widespread boycott of all BW products if we don’t drop AZT price

To determine appropriate price point that emphasizes company growth while taking into account consumer needs
Amend public relations after protest debacle
Stock price plummets from $12.55* to $11.32* immediately following the protests (Sep. 15, 1989) *1989 exchange rate of 1.68
Zovirax currently comprises 23% of total company revenue
Increase demand and sales
Improve brand image by demonstrating that we respond to needs of patients and the broader medical community
Boost return on sales and equity
Stabilize stock prices through positive public perception of company
Lower AZT price to $1.40 per capsule

*Assuming 12 100mg capsules per day regiment
Lower AZT price to $1.10 per capsule
Option 4:
Recommended Approach
Ability to pay off fixed costs and R&D
Protestors will keep fighting against our company
Lose potential customers
Revenue lost in other pharmaceutical divisions
Stock price goes down
Maintain current price of $1.50 per capsule, which is $6,570* per year per patient
Consult with public relations department to devise a proactive strategy to rebut this protest
$5,515* per person per year
$1.26 per AZT capsule
Maintains comfortable margin of 65% per capsule
Under performing current company gross margin by 5.6%
Consumers may argue this is not significant enough price decrease
Short-run dividend impairment
Cut costs in other divisions to cover discounted price per capsule

$4,818* per customer per year; 59.9% margin per capsule
$6,132* per customer per year; margin of 68.5% per capsule
*Assuming 12 100mg capsules per day regiment
*Assuming 12 100mg capsules per day regiment
Assert company authority and refusal to bend to protestor whims
Maintaining price can lead to high margin on AZT
*Assuming 12 100mg capsules per day regiment
Based on 1992 expected sales of 1 billion, we would reach breakeven
Ideal gross margin for continued industry competition
Mitigating consumer frustration while maintaining profit prioritization
1200 mg. vs 500 mg. per day
Total Investment in AZT:
$80 million for AZT testing and development
$700 million R&D prior to discovery of AZT
$1.104 billion or 736.5 million units
Full transcript