the importance of price erosion

Good morning all

I don't quite know how much we should be worried about price erosion for Fonda.

However, my gut feel is that we should be very worried.

let me explain. there have previously been figures floating around that ACL was expected to receive 30-35 cents in every dollar of Fonda sales made by DRR, based on the profit share entitlement of around 50%.

Now, I recall that these expectations were also based on DRR selling its product for about 80% of the price of GSK branded product.

Therefore - let's assume that GSK has a unit selling price of $125. The expectation was that DRR would sell for $100.

Of that, $40 would be applied to DRR's production and sales and marketing costs, leaving $60 which would be split between DRR and ACL.

But now I am seeing reports that DRR may actually be selling at a 50% discount to the GSK price???

Now, DRR's unit selling price is $62.50 instead of $100. But DRR's costs remain constant at $40.

Suddenly, the profit pool is down to $22.50 to be split equally between the two parties.

Our $30 has just become $11.50.

I am confident that the the maths shown above is spot on. What I don't know is whether reports of the level of discounting taking place in the market are correct. Any insight on this front would be very interesting.

Cheers

GD