Using supply and demand and competitive analyses, explain what happens to a pharmaceutical company's revenues and profits from an individual drug once it loses its patent protection. Then identify at least one strategy the company can use to mitigate the losses; be sure to support your suggestion using economic analysis.

When a pharmaceutical company's patent expires they lose their market power, meaning they can no longer raise the price of the drug for which they have the patent sufficiently above marginal cost. As a result, they will not receive above normal profits anymore and their total revenues will decrease, which will bring the price of the drug down. To keep their market power, a pharmaceutical company must innovate through research and development to find new drugs and get more patents. Some pharmaceutical companies increase the price of the drug by a lot while they still have the patent to mitigate the inevitable future losses. For example, Valeant pharmaceuticals increased the price of Cuprimine $500 to $24,000.