How should the capital market react to the disclosure

Assignment Help Accounting Basics
Reference no: EM132795331

Question - Legal Proceedings: Patent Infringement. Bristol-Myers Squibb Company (BMY) engages in the discovery, development, license, manufacture, marketing, distribution, and sale of pharmaceutical and other health care products. Selected financial information for the company is as follows: TA 1 Year 2 Year 1 Revenue. Net income Total assets Total liabilities $19.4 billion 2.4 billion 30.4 billion 20.2 billion $20.9 billion 3.1 billion 27.5 billion 17.7 billion BMY's Year 2 annual report disclosed the following information in its footnote:

Legal Proceedings and Contingencies Various lawsuits, claims, proceedings, and investigations are pending against the Company and certain of its subsidiaries. In accordance with SFAS No. 5, Accounting for contingencies, the Company records accruals for such contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. These matters involve antitrust, securities, patent infringements, the Employee Retirement Income Security Act of 1974, as amended (ERISA), pricing, sales and marketing practices, environmental health and safety matters, product liability and insurance coverage. The most significant of these matters are described on the next page.

Plavix Litigation The Company's U.S. territory partnership under its alliance with Sanofi is a plaintiff in three pending patent infringement lawsuits instituted in the U.S. District Court for the Southern District of New York. Plaintiffs' infringement position is based on defendants' filing of their Abbreviated New Drug Application (ANDA) with the FDA, seeking approval to sell generic clopidogrel bisulfate prior to the expiration of the composition of matter patent in Year 9. Plavix is currently the Company's largest product ranked by net sales. Net sales of Plavix were approximately $3.3 billion and $2.5 billion for the years ended December 31, Year 2 and Year 1, respectively. Loss of market exclusivity of Plavix and the subsequent development of generic competition would be material to the Company's sales of Plavix and results of operations and cash flows and could be material to its financial condition and liquidity.

Required -

1. Historically, the loss of patent protection on a brand name pharmaceutical product has resulted in a 70 percent decline in product sales. Assuming that (a) BMY's patent protection on Plavix is lost as of the beginning of Year 3. (b) revenue and camnings for Year 3 would in the absence of the loss of patent protection, have equaled those of Year 2, and (c) the after-tax margin on Plavix is 60 percent, estimate BMY's revenue and earnings for Year 3. How material are these financial effects?

2. BMY's Plavix patent is carried on its balance as an intangible asset valued at $120 million. In the event of patent protection loss, how should the company reflect this in its financial statements?

3. How should the capital market react to the disclosure that a patent infringement suit involving Plavix had been filed against BMY and (b) the disclosure that the suit had been lost (won)?

Reference no: EM132795331

Questions Cloud

What is the total initial cash outflow : What is the total initial cash outflow? Your corporation is considering replacing older equipment. The old machine is fully depreciated and cost $57,612.00
How much would be the total effect of the error : No corrections have been made for any of the errors. (Ignore income tax considerations). How much would be the total effect of the error
How much would marston be willing to pay for conroy : If Conroy has $10 million in debt outstanding, how much would Marston be willing to pay for Conroy? Enter your answer in millions.
What is the maximum assessed value in the current year : The Save Our Home amendment caps the increase in assessed value at 3%. What is the maximum assessed value in the current year
How should the capital market react to the disclosure : How should the capital market react to the disclosure that a patent infringement suit involving Plavix had been filed against BMY
How much are the equivalent units for materials : 20% complete as to conversion costs, and 75% complete as to materials cost. How much are the equivalent units for materials under the FIFO method?
Define how experiences influenced your sense of worth : Write a one-two page paper (typed, single spaced, 12 font, and 1 inch margin) describing your ideal and Pygmalion self. Write about any heroes or other.
Create a technology-based diversity : The new work environment requires an entrepreneurial mindset to cope with change and uncertainty resulting from the health pandemic' in the workplace
How large a sum must khaadi accumulate by the end of year : How large must Khaadi's equal, annual, end-of-year deposits into account be over the 12-year accumulation period to fully fund Ms. Wajeeha retirement annuity.

Reviews

Write a Review

Accounting Basics Questions & Answers

  How much control does fed have over this longer real rate

Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest.   How much control does the Fed have over this longer real rate?

  Coures:- fundamental accounting principles

Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.

  Accounting problems

Accounting problems,  Draw a detailed timeline incorporating the dividends, calculate    the exact Payback Period  b)   the discounted Payback Period. the IRR,  the NPV, the Profitability Index.

  Write a report on internal controls

Write a report on Internal Controls

  Prepare the bank reconciliation for company

Prepare the bank reconciliation for company.

  Cost-benefit analysis

Create a cost-benefit analysis to evaluate the project

  Theory of interest

Theory of Interest: NPV, IRR, Nominal and Real, Amortization, Sinking Fund, TWRR, DWRR

  Liquidity and profitability

Distinguish between liquidity and profitability.

  What is the expected risk premium on the portfolio

Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.

  Simple interest and compound interest

Simple Interest, Compound interest, discount rate, force of interest, AV, PV

  Capm and venture capital

CAPM and Venture Capital

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd