Analyzing the Burroughs Wellcome, Retrovir Case Study for my Pace University (Lubin School) Advanced Marketing Capstone Course. Equipped with alternatives (with in-depth explanations), a viable recommendation, income statements w/ financial projections for each option, and next steps. Contact me, for further case feedback, at idia.ogala@gmail.com

1. Burroughs Wellcome
Retrovir Case Presentation
Idia Ogala
Advanced Marketing (MAR 599)
Dr. David Hapke
Pace University – Lubin School of Business

2. Overview
— Wellcome PLC is an English multinational firm based in London
— Manufactures in 18 countries, employing 20K ( )
— Burroughs Wellcome (U.S. division) à Largest subsidiary market
($997M annual sales)
— BW: First to introduce a drug effective in combating development
of AIDS
— Retrovir (Second largest selling BW drug)
— Largest Selling Product à Zovirax, a herpes drug
— Retrovir + Zovirax = 34% of worldwide revenue for Wellcome PLC

3. Problem Summary
— Burroughs Wellcome has faced public criticism from external
forces (advocacy groups, politicians, gov’t agencies and
customers) regarding pricing of Retrovir
— Pricing à
— (Originally) $188 for 100 (100-milligram) capsules
— Recommended daily patient intake: 1200 milligrams or
12 capsules/day
— Presented annual cost of: $8,528 to $9,745/patient
depending on retail margins
— Comparatively, annual cost of Interferon (cancer-fighting
drug) à $5,000 annually

4. Problem Summary
“They have an
obligation to
give up money
to allow
access”
“The company
controls
pricing”
Price gouging a
“highly
vulnerable
market”
• Marketing/Direct Manufacturing
Costs à $.30 - $.50/capsule
• Pocketing b/t 276 and 526%
ROI/capsule
• Presumed R&D costs = $90-110M
• Significantly less costs than
typical pharmaceutical R&D
spend ($125M)

5. Problem Summary
Reported AIDS Cases Estimated HIV Cases
1984 5,992
1989 35,198
1990 800K to 1.3M
AIDS Fatality Rate
1981 91%
1989 46%
Lifetime Medical Costs (Male, 30s)
HIV/AIDS Patient $70 - $141K
Heart Attack $67,000
Digestive Tract Cancer $47,000
Leukemia $29,000

6. Problem Summary
— In attempts to remedy situation, two Retrovir price cuts were
made from the original $1.88/capsule price:
— First: December 1987 à 20%
— New Price: (Wholesale) $1.50/capsule
— Second: September 1989 à 20%
— New Price: (Wholesale) $1.20/capsule
— How should upper management at Burroughs Wellcome
handle the pressure?
— What can be implemented to allow them to do what’s
socially responsible without compromising an optimal
business output?
Lets take a look at some alternatives………..

7. Previewing Alternatives
Alternative #1 - Maintaining Status Quo
Maintains the current price & daily suggested intake of Retrovir
Alternative #2 – Reducing Price
Leads to our company instituting a third price cut of 20%, as a
response to backlash
Alternative #3 – Reduce Dosage
20% of customers will now take 500 milligrams/day (amount to
five capsules vs. 12 capsules).

8. Alternative #1 – Do Nothing
This alternative: Maintains the current price & daily suggested
intake of Retrovir
Pros
• Higher margins
• More $$ to reinvest into
future R&D
• Keep all shareholders
happy
Cons
• Potential lawsuit
• Patient deaths from
unaffordability
• PR issues w/ customers +
advocacy groups (social
responsibility)
1990 Net Income Projection à $68,880,600
(Breakdown in “Financials” portion of presentation)

9. Alternative #2 – Reduce Price
This alternative: Leads to our company instituting a third price
cut of 20%, as a response to backlash
Pros
• Positive image
• Less daily, annual costs
per patient
• More people live
• Avoiding legal
ramifications
Cons
• Less return
• Less money to reinvest
into future R&D
• Longer to recoup
investment
1990 Net Income Projection à $55,104,480
(Breakdown in “Financials” portion of presentation)

10. Alternative #3 – Reduce Dosage
This alternative: 20% of customers will now take 500 milligrams/
day (amount to five capsules vs. 12 capsules).
Pros
• Decreases cost per patient
(more affordable)
• Could help more people
(more than double amount
of aid at same rate)
Cons
• Patients being made aware
of reduced FDA rate, and
taking less
• Less effective
• Build up of inventory
• Less annual sales volume/
patient
• More precaution (FDA)
1990 Net Income Projection à $60,821,570
(Breakdown in “Financials” portion of presentation)

11. Our Recommendation
— From the available alternatives, we’ve decided to recommend
alternative #1, to do nothing à maintaining our stance on pricing
and keeping the daily dosage rate the same: 1200 milligrams/day
(or 12 capsules)

12. Supporting Financials*
The income statement above showcases the differences in projected net
income – across three decision alternatives – for the fiscal year of 1990
* = all 1990 projections factor in 53% forecasted increase in unit
volume

13. Revisiting Our Recommendation
Maintain à
— Current Price: $120 per
100 cap (Wholesale)
— Daily dosage rate the
same: 1200 milligrams/
day (or 12 capsules)
Why?
1) Profit responsibility towards
shareholders
2) Need for liquidity to recoup
R&D loss
3) Ability to fund future R&D
for next iteration of Retrovir

14. Rationale
— We feel as though we have
been as moral, socially
responsible as a business
could afford to be, through:
— Producing $10M worth of
free drug for 4,500 AIDS
patients
— Instituting two 20% price cuts
— Supplying metric ton of AZT
to National Institute of Health
AIDS Clinical Trials Group
The focus – at the moment –
NEEDS to be keeping company
shareholders happy + product
development

15. Rationale
— Although 90-110 million was the perceived R&D costs
for Retrovir (which amounts to a 52.45% ROI compared
to ’89 net profit), we argue that this idea is
misconstrued.
— The amount of R&D spent to eventually develop
Retrovir exceeds $726M, which is only a 7% ROI of the
total net income accrued in the fiscal year of 1989
— In industry’s like pharmaceuticals:
— Income accrued needs to be reinvested into R&D (to
support progressive drug iterations)
— Using 28.8%* à Revenue reinvested = $12.9M of
$45.02M (using 1989 net income)
* = Gathered from Statista’s database. Study conducted by PhRMA

16. Roger Martin
Rotman School of Management (University of Toronto)
Expert Opinions: “Balancing Shareholder Value & Corporate Responsibility”

17. Next Steps
1) Lobby for:
— A more generous government subsidy system for patients
— More Medicaid coverage
— Potential Pitch: Burroughs Wellcome Recovery Plan à 5 year gov’t
commitment, via emergency aid, to double HIV/AIDS assistance.
— This helps patients afford drug + helps BW recoup R&D spend
and dedicate funds to new tech during 5-year period
— After 5- year period, BW will drop prices by 50% permanently
(less than cancer drugs)
2) Begin putting saved up R&D funds to use by developing next version of
drug (Retrovir+?)

18. Questions,
Comments,
Concerns?