The patent on a major drug produced by a pharmaceutical company will soon expire.Sales of the drug contribute 10% to the company's net income.Which of the following statements is most likely to be true in these circumstances?

Question

Quizplus · Accepted Answer

The expiration of a major drug patent means that the company will no longer have monopoly power over that drug, and competitors may enter the market with generic versions, leading to a drop in sales and profits. Investors are likely to factor this future drop in net income into the stock price, causing the P/E ratio to fall. Therefore, choice C is the most likely statement to be true.

The Patent on a Major Drug Produced by a Pharmaceutical