GMAT Question of the Day (June 15)

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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 to be incurable. However, to develop the new medicine, the company spent nearly $5 billion in research and development costs. Given the size of the market for Dendadrine and the amount of the initial investment in its development, the company would need to sell Dendadrine at a price that is at least 5 times greater than its variable costs just to break even. Yet the company’s management claims that Dendadrine will soon become the major driver of the firm’s profits.

Which of the following statements best reconciles the management’s claim with the evidence on the expenditures associated with the development of Dendadrine?

A. The pharmaceutical firm has been granted a patent to become the sole producer and distributor of Dendadrine, and drugs under patent protection typically sell at prices that are at least 10 times greater than their variable costs.

B. Development of some pharmaceutical products involves substantial initial expenditures on research, testing, and approval.

C. In issues related to personal health, corporate profits should not become the primary consideration.

D. Several other pharmaceutical companies are working on new medicines that may become effective substitutes for Dendadrine.

E. While Dendadrine can be highly effective in treating stomach disorders, it may also result in serious side effects such as dizziness and hallucinations.

Question Discussion & Explanation
Correct Answer - A - (click and drag your mouse to see the answer)