If you’re not on top of your forecasting, you’re not in control of your compounds
Biotech companies and the pharmaceutical industry differs from other industry types, especially within product development stages and getting products onto the market. The timeframe and regulation surrounding drug development, and the complexity surround market exclusivity periods make it extremely costly and difficult to get products to market. With long development periods, these companies can go long periods without revenue, meaning they are heavily reliant on investment. To attract investment and influence key stakeholders, companies not only need to show compounds meeting an unmet need, but also show that they can create a product that will cover its own R&D costs and is worth the risk. The probability of getting to market is also an important factor, with many steps to go through before approval in each region.
This is where forecasting comes in. Providing a robust analysis of a compounds current value and future predicted growth encourages investors to invest in your assets. Forecasts show predicted future cash flow of an asset measuring NPV (Net Present Value) and analysing this against predicted changes in growth, shrinkage, risk, and competitiveness in the market.
What is involved in Prevalence Based Forecasting?
Prevalence based forecasting uses epidemiology and prevalence data to calculate potential patient numbers within disease and sub-disease areas. These populations are filtered down to a “percentage relevant”, based on a company’s compounds. Combining these sub-population figures with: forecasted population growth, disease and competitive environment changes, predicted market shares and treatment prices companies can estimate their returns over the lifecycle of their products.
This is a top-line view of prevalence forecasting, for example, Mirador Analytics Asset Evaluation Tool’s (AET’s) online model alone has over 70 inputs supporting calculations, increasing to over 100 including income statement options.
When do companies use Prevalence Based Forecasting?
Prevalence based forecasting is utilised during the clinical trial phases of drug development. Companies should complete multiple forecasts during the development stages as information is updated and new data becomes available. More accurate numbers mean a more accurate forecast. In the earlier stages of development there will also probably be an increased number of forecast scenarios to provide companies with knowledge of what their most likely outcomes will look like.
The level of detail and complexity of the forecasts will depend on the stage of development, the level of data available, a company’s resources and their knowledge of forecasting. There is no right or wrong time to add certain levels of detail but trying to create a cumbersome forecast in early stages when you don’t have the data to satisfy its inputs can be cost you important time in your development stages.
One thing we do recommend, especially in earlier stages is a range of scenarios and sensitivities. Sensitivities show you the level of impact changes can make to your outcomes and scenarios give you a value range. It is much better to know at an early stage in what areas and scenarios your outcomes look positive and which look negative, so you can direct your development and mitigate against risk.
Why do companies complete Prevalence Based Forecasts?
Companies perform forecasts to assess the value, future value and future cash flow of their assets. The reason for assessing the value and cash flow potential will vary between companies and be dependent on size, strategy and company stage. Companies may use the data when: seeking investment, exploring mergers, partnerships or acquisitions, developing company strategy etc. We go into more detail below.
The term “Investor” may refer to outside investors and buyers, other pharma companies looking to partner, or even internally to your own board or shareholders. Whether it’s: mergers, acquisitions, partnerships, or licensing agreements interested parties will want to see the potential value in your assets. Forecasts are essential in showing that.
Outside investors, i.e. venture capitalists, will also want to see potential value. Forecasts showing them expected cash flow as well as highlighting potential milestones such as peak year sales and peak year market share values.
Forecasting for strategic planning
Company board members and senior management can use forecasts to track objectives and use forecasts to support corporate exercises such as portfolio prioritisation. With multiple forecast scenarios and multiple disease areas for some compounds, companies can use forecasts to support decisions on their company’s investment pathways. Resources can be limited, deciding where to invest takes into consideration numerous factors including risk and potential value, forecasts can help determine the viability of taking assets forward. Additionally, forecasting can benefit company cost and resource planning and help estimate regional market size, which all support strategy development. If an asset is going to become a large revenue generator for the business, it’s important to prepare for it appropriately.
Whether you’re seeking investment for your compound, looking at merger and acquisition options, or planning your corporate strategy, forecasting is essential in modern day drug development. Without it you’re not aiming for a target you’re following an undefined path, which in modern day drug development, companies cannot afford to do.
Forecasting enables robust strategic planning through the development stage, supporting strategic decisions with respect to development choices and the value associated. Good strategy allows you to keep more doors open for longer, mitigating against risk and allowing for ease of direction.
If you’re not on top of your forecasting, you’re not in control of your compounds.
This article was written by Mirador Analytics, we created it to give an overview of a service we offer and help individuals understand the area better as they may need to do their own compound forecasting. This article is by no means exhaustive and we would happy to discuss in more detail, or talk to you about our services offering.