TO: Burroughs WellcomeFROM: Chris SatoRE: Retrovir IntroductionAlthough HIV and AIDS were first discovered in the late 50’s, and the first human virus 1983, not a lot of research or funding was put into learning more about the disease. It wasn’t until the mid 80’s that efforts were made to learn more about the disease. Burroughs Wellcome took a big leap in the pharmaceutical industry and clenched a nonexistant market and became a monopoly in creating a drug to treat HIV and AIDS, resulting in an inelastic demand for their drug, Retrovir. Furthermore, upon reviewing the data and information you provided on your currentsituation, I am submitting the following recommendations regarding the price reduction of Burroughs Wellcome’s drug Retrovir. I recommend that you continue to drop the price of Retrovir to a point where it is affordable to the average consumer but still profitable for Burroughs Wellcome. I believe that my recommendations will suit your company well and will eventually benefit your company in the pharmaceutical market.BackgroundWhen your company Burroughs Wellcome first came out with the drug in a test market, things went according to plan. It wasn’t until HIV/AIDS groups stepped in and demanded that the drug be released to the general public. When your company caved in to their demands, the wholesale price was set at $188, far more than most drugs at the time, but understandable as the virus HIV was relatively new. Continually under scrutiny by the advocates and government, you continued to drop your prices from $188 to $150, and finally to $120, and even dropped the dosageof patients with less severe cases in order to conserve the use of Retrovir. However, not that the prices have remained at $120 for some time, the HIV/AIDS advocates are once again becoming restless.RecommendationWith that being said, I believe that my recommendation could prove as a win-win situation for both you the producer, and the consumer. Your company Burroughs Wellcome should continue to reduce the price to $105 from its original $120. Also, I believe that you should urge your consumer to take the necessary amount 1200mg a day instead of what you are currently recommending for those with a less severe case.Basis For RecommendationI believe that $105 is the best price to set for Retrovir for a number of reasons. The first one I’m sure that is in all of your heads is financials. I know that this past year the company made gross sales of $225.1M and 52.44M in net profit, and that $15 may seem like a big number now, but once you drop the new price at the beginning of the fiscal year, you’ll see why $15 had never seemed so small. If you had implemented this price for the past year, your net profit would have shown $26.11M instead of $52.44M. Yes this is just about half of what you would have made, but there are several factors that will make this number go up in the next fiscal year. First off, when you lower the price, Retrovir will be more affordable to a wider range of consumers. Secondly, if you withdrawal your statement and recommend again that the consumers should take 1200mg of Retrovir, they will be more inclined to purchase more of the drug at a lower price, boosting sales while maintaining the cost. And finally, because you were the first to tap into this market, you are currently a monopoly with Retrovir, making this a price inelastic product. Although people may complain about the price, they will still continue to buy the drug because it is a necessity. That being said, if you were to lower the price without competition, you would only have to worry about your own companies safety, and with the lower prices, your company will receive good publicity, being a peoples company, once again boosting sales and gaining free advertisement through the media and consumer word of mouth. I believe that making this price adjustment will make back a large chunk of that $26.33M lost (Appendix A), and will bring even greater profits over the next few years. Alternatives, Risks, AssumptionsAnother recommendation would be to set the price lower, but not as low. This is not recommended because after several years, the wolves will return and demand that you once again lower your price, and if the price becomes to low, than you may put yourself out of business, but if you take a big leap and drop the price to $105, the consumers will be less likely to come back and demand another price reduction because the one you just implemented was a bigger, thus more fair reduction.Next StepsThe next step would be to implement this new price reduction at the beginning of the coming fiscal year, and get the word out there so that people will be “lining up” to get Retrovir at a reduced price.APENDIX