Revenue Forecasting Techniques for New Pharmaceutical Drugs

Revenue Forecasting Techniques for New Pharmaceutical Drugs

The three ways of estimating market size (product revenue) include bottom up market analysis, analyst reports and research reports, and analogue (similar products) markets. The best approach would be to have a good bottom up model and cross checking the market estimation results with the external reports and similar product revenues.

In case of new pharmaceutical drugs, the market size and revenue estimation (bottom up approach) involves the following steps:

  • Potential Market Size Estimation
    • Total Population, Population in Target Markets
    • Incidence/Prevalence
  • Addressable Market Size Estimation
    • % Diagnosed
    • % Treated for Disease
  • Penetration, Pricing Studies, Competitive Analysis, Compliance Analysis, Reimbursement Analysis and Utilization Patterns Analysis
    • % Prescription of Drug
    • Price per Day of Drug
    • Actual Ave Days Used

There are four important ways in which a novel drug can take up considerable share in the market:

  • Better efficacy and/or safety than current treatments
  • Synergistic with existing treatments
  • Better outcomes in certain patient subgroups
  • Better marketing in the face of generics

Defining Pharmaceuticals New Drug Market:

 1. Estimation of Incidence and Prevalence

  • Prevalence:
    • Total number of potential customers at any one point in time
    • Best for products purchased by same customer on a recurring basis (e.g. chronic Rx)
  • Incidence:
    • Number of new potential customers each year
    • Best for products treating one time acute event (e.g. heart attack)
  1. Identification of Segments
  • All potential customers are not alike
  • Segmentation helps refine penetration and share forecasts
  • It also allows to refine estimates and focus efforts by identifying “early adopters”
    • For example:
      • Severely affected patients (25% of the market)
      • Moderately affected
      • Mildly affected
  1. Analysis of Change Over Time
  • Customer base and segmentation are influenced by factors that change over time
  • Growth drivers analysis provides insight into changing and/or emerging markets

Building Penetration Scenarios:

Penetration is usually the main driver of revenue forecasts. There are a few different means to estimate the peak penetration that a new product can be expected to achieve:

  • Historical penetration of comparable products
  • Objective comparisons versus currently available treatments (efficacy, safety, convenience)
  • Physician interviews to gauge acceptance and potential use versus competing treatments (preference share analysis)
  • Analysis of likely reimbursement and factors related to achieving reimbursement from key payer groups
  • Mapping of commercial effort into physician prescribing behavior (companies often use IMS analysis)
  • Almost all “bottoms up” approaches to penetration analysis tend to overestimate penetration in practice. Preference analysis tends to do a poor job of predicting actual prescribing behavior in the face of detailing and sampling
  • Comparison versus pipeline products and relative timing to market

Research Methodology for Market Size Estimation and Penetration Analysis:

  • Primary market research (Structured Interviews) to determine usage and dependence on pricing
    • By Physician Segment
    • By Disease State (e.g., first line, second line)
  • Historical analysis of impact of order of entry1,2
  • Penetration Analysis to understand prescriber concentration, sales force design, prescribing behavior and reimbursement positioning

References:

  1. Kalyanaram,”The order of entry effect in prescription (Rx) and over-the-counter (OTC) pharmaceutical drugs,” International Journal of Pharmaceutical and Healthcare Marketing, 2008, pp. 35-46.
  2. Hans Bauer and Marc Fischer, “Product life cycle patterns for pharmaceuticals and their impact on R&D profitability of late mover products,” International Business Review, 2000, 703-725.

 

2016-10-18T06:50:57+00:00 Categories: Analyst Insights|