QANTD (Quick And Not Too Dirty) Forecasting

QANTD (Quick, and Not Too Dirty)

Forecasting Josef Bossart

Pharmanumbers LLC MaRS Future of Medicine™ Series

August 24, 2010 Toronto, ON

QANTD Forecasting August 24, 2010, Toronto, ON

1.  Reinforce the mission critical nature of forecasts and opportunity modeling.

2.  Review forecast methodology. 3.  Introduce the Pharmaladder forecast

approach. 4.  Identify key data sources for forecast

development.

Presentation Objectives


1.  Consolidates product vision in a qualitative and quantitative manner

2.  Quantifies product opportunity –  Supports/challenges investment hypothesis –  Permits evaluation of product and pipeline

options

3.  Identifies opportunities and threats 4.  Underpins deal valuation

Why Forecasting?


1.  No forecast is ever right •  The future changes beyond anyone’s ability to anticipate it •  ‘Zone of uncertainty’.

2.  No forecast is ever wrong •  A forecast reflects the outcomes using defined assumptions.

Assumptions may be wrong but not the forecast (assuming no arithmetic error).

3.  A forecast is one model of reality; it is not reality. More models ! more potential realities.

4.  GIGO – garbage in, garbage out.

Forecasting Limitations


CEO and Board R&D Team Finance Team Production Team Project Management Team Commercial Team Investors Bankers Patient Advocacy Groups Others (Internal and External) …..

Forecast Audience


And each one of these groups have their own

needs and expectations related to your forecast.


Quantitative Components 1. Sales - Currency and units - Competitive parameters (market share, …)

2. Profit 3. Costs - R&D - Manufacturing - Sales and marketing

4. Net present value

Forecast Deliverables


Qualitative Components 1. Timing of key events - Product development milestones - Revenue

2. Comparative performance - Competitors, pipeline

3. Treatment algorithms - current and future trends

4. ‘What if’ scenarios - market evolution (patients, payers, …) - competitive environment

Forecast Deliverables


Financial (Mandatory): - Expense and investment forecasts - Revenue & income forecasts (sales, license fees, royalties, …) - Unit forecasts - Profit forecasts - NPV forecasts

Strategic (Optional): - Market ‘position’ and market share - Treated indication (on & off-label) - Development timelines - Reimbursement levels - Competitive environment

Types of Forecasts


A statement of the future opportunity offered by a defined set

of current assets as they are impacted by the environment and the strategic and tactical actions

undertaken by the developer.

What is a Forecast?


Revenue Forecast Components

Market Size (Units)

Market Share (Units)

Price/Unit


Revenue Calculation

Market Size Revenue Price

per Unit Market Share X X =


Revenue forecasts challenges: 1.  Modeling the appropriate market(s)

–  Indications, patients, competitors, …

2.  Estimating market units and share 3.  Forecasting treated patient market evolution

–  Population growth, treatment trends, compliance, …

4.  Building market share models (year-to-year) 5.  Estimating pricing trends 6.  Defining the evolving competitive environment

Forecast Challenges


1.  Understanding the qualitative nature of the market in order to estimate the quantitative aspects.

2.  Building on limited data points from reliable sources often available at little or no cost.

3.  Accepting that most markets behave in a consistent and predictable manner, even though individual elements may vary considerably.

4.  Cross-checking individual data points and sources to maximize forecast validity.

5.  Regular forecast updates to identify inconsistencies and market changes.

Quick and Not Too Dirty Means


Revenue Forecast Challenges

Market Size (Units)

Market Share (Units)

Price/Unit


1. A simple approach to estimating unit market share(s).

2. Relates unit market share to a product’s position on a market ladder.

PharmaLadder Forecasting


•  Simple estimation of market share and units by relative ranking of a product’s market ‘position’.

•  Doesn’t demand formal quantitative market research analysis.

•  Identifies key challenges, opportunities and objectives as a result of the forced ranking process.

PharmaLadder Benefits 36%

18%

15%

13%

9%

3%

2%

2%

1%


Market share distribution for leading products in the US

hypercholesterolemia market.

Hypercholesterolemia Unit Ladder (2008)

Simvastatin

Lipitor

Crestor

Vytorin

Lovastatin

Pravastatin

Zetia

Welchol

Lescol

33%

27%

8%

8%

8%

7%

6%

1%

<1% Note: Products in red are generics.


Hypercholesterolemia Unit Share Evolution

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 Mevacor - 1987 G. Lovastatin - 2001 Zocor - 1991 G. Simvastatin - 2005 Pravachol - 1991

G. Pravastatin - 2006 Lescol - 1993 Lescol XL - 2000 Lipitor - 1996 Crestor - 2003

Welchol - 2000 Zetia - 2002 Vytorin - 2004


Hypercholesterolemia Rx Evolution

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

2000 2001 2002 2003 2004 2005 2006 2007 2008

Mevacor - 1987 G. Lovastatin - 2001 Zocor - 1991 G. Simvastatin - 2005 Pravachol - 1991 G. Pravastatin - 2006 Lescol - 1993 Lescol XL - 2000 Lipitor - 1996 Crestor - 2003 Welchol - 2000 Zetia - 2002 Vytorin - 2004

Rx in thousands

Lipitor

Lovastatin

Simvastatin

Crestor


Hypercholesterolemia Market Shares

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008

9 8 7 6 5 4 3 2 1


PharmaLadder Foundations

1.  In the aggregate Pharma market share distributions are more similar than different.

2.  Product performance within a market is impacted more by product features, investments and competitors than the nature of that market.

3.  A product is most effectively modeled in relation to its competitors. A market is best modeled in relation to the environment (a rising tide lifts all ships).

4.  Ranked product unit market shares are remarkably consistent across different Pharma markets, varying primarily as a function of market participants.


Ladder Unit Shares

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

5 Products 6/7 Products 8 Products 9 Products 10 Products 11-14 Products 15+ Products

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15


PharmaLadder Unit Shares by Product Number

5 Products 6/7 Products 8 Products 9 Products 10 Products 11-14 Products 15+ Products 1 56% 48% 38% 34% 30% 24% 16% 2 27% 25% 25% 20% 20% 22% 13% 3 9% 14% 16% 14% 16% 14% 10% 4 6% 6% 8% 11% 12% 11% 9% 5 3% 3% 5% 9% 8% 8% 9% 6 2% 4% 4% 6% 7% 9% 7 1% 3% 4% 3% 6% 7% 8 1% 2% 3% 3% 7% 9 2% 2% 2% 4% 10 1% 2% 3% 11 1% 3% 12 2% 13 2% 14 2% 15 1%

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9

1


1.  Generics must be fully integrated into all new product forecasts.

2.  Generics very rapidly cannibalize sales of brand products (~80% in a single year)

3.  Generics are no longer adversely impacted by terminated promotion of the brand product.

4.  Generic products can grow faster than the market in terms of unit sales and represent a substantial competitive threat.

Factoring in Generics


PharmaLadder Models - Pros and Cons

Pros: 1.  Eliminates a finger to the

wind forecast of unit market shares.

2.  Explicitly defines who and what stand in the way of more share and sales.

3.  Easily adapted as the market evolves and changes.

4.  Intuitively communicated to team members and supports what-if discussions.

Cons: 1.  There will be market specific

differences between actual and projected market shares.

2.  Doesn’t offer guidance for early uptake market share.

3.  Best applied to pipeline stage products, but can provide macro opportunity statement for marketed products.

4.  Doesn’t address non-US markets.


Revenue Calculation

Market Size

(units) Revenue Price


!!


For the purpose of QANTD (quick and not too dirty) forecasting prescriptions are the unit basis: •  Reported product units (bottles, pills, kilos) vary from product to

product in the same class in terms of days of treatment •  Translating product units (or revenues) to treatment units is tedious

and subject to errors •  Prescriptions reliably refer to a defined “unit of treatment”, that can

be compared between products in a class that share a common delivery mode and can define days of treatment

•  1,000 prescriptions of Lipitor probably provide the same number of days of therapy as 1,000 prescriptions of Lescol, but 1,000 tablets of Lipitor (qd) probably don’t provide the same number of days of therapy as 1,000 tablets of Lescol (bid/tid)

•  Care must be taken in some cases where certain prescription treatment units are for delivery forms that exceed one-month, i.e., injectable anti-androgens

Prescriptions – The Units Surrogate


1.  Commercial suppliers (expensive, quick and easy). 2.  Association and government data for epidemiological data –

prevalence and incidence (cheap, needs interpretation). 3.  Literature data (cheap, often a rehash of association and

government data, rarely from commercial suppliers). 4.  Article data (cheap, spotty coverage, sometimes from

commercial suppliers, can provide high value data). 5.  SEC filings and company presentations (cheap, spotty

coverage, often of very high value and quality). 6.  Analyst reports (focused coverage, generally high quality

data, good analysis). 7.  Subscription databases (not focused on unit market, can be

expensive).

Market Size and Growth – Data Sources


SEC Info - Data Sample

Auxilium 2004 10-K Report

We are a specialty pharmaceutical company that develops and markets products for urology and sexual health. We currently market one product with a sales organization of more than 100 people and have three products in development. Our marketed product, Testim®, is a proprietary, topical 1% testosterone gel indicated for the treatment of hypogonadism. According to a 2001 article published in The Journal of Clinical Endocrinology & Metabolism, hypogonadism is a disorder that affects approximately 20% of the U.S. male population over age 50. We estimate there is a similar percentage of affected men in Europe. Hypogonadal men exhibit lower than normal levels of testosterone. Testosterone replacement therapy, or TRT, is the standard treatment for hypogonadism. According to IMS Health Inc., or IMS, a pharmaceutical market research firm, in 2004, U.S. TRT dollar sales grew by 15.2% to $459 million as compared to 2003, while total prescriptions grew by 6.1% to over 2.3 million as compared to 2003. U.S. TRT gel prescriptions grew at a greater rate, by 11.8% from 2003, according to IMS. According to the FDA, hypogonadism is often under diagnosed and under treated. We estimate about 5% of hypogonadal men currently receive TRT. Therefore, we believe the TRT market is poised to experience further growth due to increasing diagnosis and improving physician and patient awareness.

Testosterone gels constitute a substantial portion of the TRT market, representing 74.0% of dollar sales and 64.6% of total prescriptions in 2004, according to IMS. IMS reports that we have increased Testim’s share of monthly total testosterone gel prescriptions to 11.5% in December 2004. Since we launched Testim in the first quarter of 2003, total monthly Testim prescription units dispensed have increased from approximately 1,000 in March 2003 to approximately 19,800 in December 2004, according to IMS. Currently, there are two marketed testosterone gels, including Testim, and other TRT products include pills, injections, transdermal patches and a buccal tablet.


Drug Topics – Sample Rx Page ‘Similar’ pages for sales and prescriptions, 2000-2009, for Brand and Generic products (www.drugtopics.com (Resources, Pharmacy Facts and Figures).


Revenue Calculation

Market Size



!!!!


Current Prices 1.  Red Book publication (paper – reasonable, online – expensive). 2.  Epocrates (free – Smartphone application). 3.  Online pharmacies (ugh!, hard to get consistent data). 4.  Online price lists (spotty coverage, good consistency). 5.  SEC reports, analyst reports (inconsistent reporting). 6.  Data providers (expensive, takes time to acquire).

Price Trends and Historical Prices 1.  Red Book collection (inexpensive). 2.  Data providers (expensive, takes time to access). 3.  SEC reports, analyst reports (spotty coverage).

Estimating Prices and Price Increases


Revenue Calculation

Market Size



!!!! !!


Forecast Red Herrings

1.  Not properly modeling your target market and the competitors: –  Example: Antidepressants are used for multiple indications

ranging from depression (varying types) to anxiety to neuropathic pain. What are their respective contributions? What indications will you have?

2.  Overestimating what a ‘smaller’ company can do. The importance of promotional investment (marketing and medical).

3.  Underestimating the strength of market leaders and the first mover effect.

4.  Underestimating the impact of benefit managers and generics on redefining the market and directly impacting your potential.

5.  Pricing and the spread between AWP and your ex-factory net price.


PharmaLadder Forecasting, 8 Step Program

1.  Carefully define the market/indication(s) in which you will be competing. 2.  Collect the necessary qualitative and quantitative information related to the

targeted applications for the past 5-10 years. Look for analyst and journalist projections of markets and competitors. Define competitors, units, market shares/ranking, pricing, etc.

3.  Prepare a Ladder for the market(s) starting as far back as practical and project ladder positions for all competitors as far forward as you expect your forecast to cover. Project unit and price growth for the same period.

4.  Assign your product to a rung on the Ladder, dropping down the bumped competitors.

5.  Decide on the most appropriate PharmaLadder market share distribution and read off your market share year by year.

6.  Multiply your share by the total unit market to estimate product unit sales. Multiply unit sales by estimated pricing for annual sales.

7.  Transfer the sales line to the Revenue Forecast. As appropriate, use the unit sales data to generate cost of goods data.

8.  Add in other revenues and costs to generate your product P&L.


PharmaLadder - Benefits and Opportunities

1.  You can answer the question of how you came up with your forecast and explain the critical elements that determine therapeutic and commercial success.

–  Market size and growth –  Key competitors and competitive position –  Pricing –  Qualitative factors impacting market share and sales

2.  You are in a position to suggest ways to improve the product’s prospects (how to climb to higher rungs).

3.  You are able to easily reflect the impact of significant market changes in your forecast (new competitors, pricing changes, development delays) by adjusting shares, market sizes and pricing.


1.  Total unit market sales (current, past, brand, generic) –  Drug Topics (USA), SEC filings, IMS/others, Analyst reports

2.  Competitive environment (current, past, history) –  Internet, SEC filings, Databases (PharmaCircle/others), Analyst reports

3.  Product unit sales (current, past, brand, generic) –  Drug Topics (USA), SEC filings, IMS/others, Analyst reports

4.  Market pricing (current, past, brand, generic) –  Red Book, SEC Filings, IMS/others, internet pharmacies, Analyst reports

5.  New product pipeline –  Internet, SEC filings, Databases (PharmaCircle/others), Analyst reports

6.  Proforma unit market shares (PharmaLadder) –  Pharmanumbers, internally calculated shares

Data Needs and Resources


Recommended Forecasting Reference Book


Additional Forecasting Reference Book

Newer edition available.


Resource for Average Wholesale Prices


1.  Consolidates product vision in both a qualitative and quantitative manner.

2.  Quantifies product opportunity –  Supports/challenges investment hypothesis –  Permits evaluation of product and pipeline options.

3.  Identifies key opportunities and threats. 4.  Defines product valuation(s) and potential deal

terms.

Why Forecasting?

For more information please give us a call. We’d be pleased to help you develop your product forecast

and optimize your pipeline strategy.

Josef Bossart Pharmanumbers LLC

Austin, TX Parry Sound, ON

[email protected] Tel: 512/535-3613

www.pharmanumbers.com www.bionumbers.com

QANTD (Quick And Not Too Dirty) Forecasting

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