BACKGROUND INFORMATION FOR THE VANATIN CASE
Assume that it is January 2013 and that you are a member of the Booth Pharmaceutical Corporation Board of Directors. You have been called to a Special Board Meeting to discuss what should be done with the product known as “Vanatin.”
Vanatin is a “Fixed-ratio” antibiotic sold by prescription. “Fixed-ratio” means that it contains a combination of drugs. It has been on the market for more than 13 years and has been highly successful. It now accounts for about 18 billion dollars per year, which is 12 percent of Booth Company’s gross income in the United States (and a greater percentage of net profits). Profits from foreign markets, where Booth is marketed under a different name, are roughly…show more content… In fact, it was typical of comments that had been made about fixed-ratio drugs over the past 20 years. These impartial experts, then, believe that while all drugs have some possibility of side effects, the costs associated with Vanatin far exceed the possible effects.
The special Board Meeting has arisen out of an emergency situation. The FDA has told you that it plans to ban Vanatin in the United States and wants to give Booth time for a final appeal to them. Should the ban become effective, Booth would have to stop all sales of Vanatin and attempt to remove inventories from the market. Booth has no close substitutes for Vanatin, so that consumers will be switched to close substitutes currently marketed by rival firms. (Some of these substitutes apparently have no serious side effects.) It is extremely unlikely that bad publicity from this case would have any significant effect upon the long-term profits of other produces made by Booth. The Board is meeting to review and make decisions on two issues:
1. What should be done with Vanatin in the domestic market (the immediate problem)? 2. Assuming that Vanatin is banned from the domestic market, what should Booth do in the foreign markets? (No government action is anticipated in any of the foreign markets.)