Speaker: Josef Bossart, Managing Director, Pharmanumbers LLC Part of the MaRS Future of Medicine™ Series, an informal moderated forum bringing together research professionals and clinicians interested in drug development. For more information, please see: http://www.marsdd.com/events/details.html?uuid=e10b618c-ff88-46f4-a90c-913bcb8f0b13

1. QANTD
(Quick, and Not Too Dirty)
Forecasting
Josef Bossart
Pharmanumbers LLC
MaRS Future of Medicine™ Series
August 24, 2010
Toronto, ON

2. Presentation Objectives
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.
QANTD Forecasting
August 24, 2010, Toronto, ON

3. Why Forecasting?
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
QANTD Forecasting
August 24, 2010, Toronto, ON

4. Forecasting Limitations
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.
QANTD Forecasting
August 24, 2010, Toronto, ON

5. Forecast Audience
CEO and Board
R&D Team
Finance Team
Production Team
Project Management Team
Commercial Team
Investors
Bankers
Patient Advocacy Groups
Others (Internal and External) …..
QANTD Forecasting
August 24, 2010, Toronto, ON

6. And each one of these
groups have their own
needs and expectations
related to your forecast.
QANTD Forecasting
August 24, 2010, Toronto, ON

7. Forecast Deliverables
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
QANTD Forecasting
August 24, 2010, Toronto, ON

8. 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
QANTD Forecasting
August 24, 2010, Toronto, ON

9. Types of Forecasts
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
QANTD Forecasting
August 24, 2010, Toronto, ON

10. What is a Forecast?
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.
QANTD Forecasting
August 24, 2010, Toronto, ON

11. Revenue Forecast Components
Market Size (Units)
Price/Unit
Market Share
(Units)
QANTD Forecasting
August 24, 2010, Toronto, ON

12. Revenue Calculation
Market Market Price
Size
X
Share
X
per Unit
= Revenue
QANTD Forecasting
August 24, 2010, Toronto, ON

13. Forecast Challenges
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
QANTD Forecasting
August 24, 2010, Toronto, ON

14. Quick and Not Too Dirty Means
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.
QANTD Forecasting
August 24, 2010, Toronto, ON

15. Revenue Forecast Challenges
Market Size (Units)
Price/Unit
Market Share
(Units)
QANTD Forecasting
August 24, 2010, Toronto, ON

16. PharmaLadder Forecasting
1. A simple approach to estimating unit
market share(s).
2. Relates unit market share to a product’s
position on a market ladder.
QANTD Forecasting
August 24, 2010, Toronto, ON

17. PharmaLadder Benefits
36%
• Simple estimation of market share 18%
and units by relative ranking of a 15%
product’s market ‘position’.
13%
• Doesn’t demand formal quantitative
9%
market research analysis.
3%
• Identifies key challenges,
opportunities and objectives as a 2%
result of the forced ranking process. 2%
1%
QANTD Forecasting
August 24, 2010, Toronto, ON

18. Hypercholesterolemia Unit Ladder (2008)
Simvastatin 33%
Lipitor 27%
Market share distribution for
Crestor 8%
leading products in the US
Vytorin hypercholesterolemia 8%
Lovastatin
market. 8%
Pravastatin 7%
Zetia 6%
Welchol 1%
Lescol <1%
Note: Products in red are generics.
QANTD Forecasting
August 24, 2010, Toronto, ON

19. Hypercholesterolemia Unit Share Evolution
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
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
QANTD Forecasting
August 24, 2010, Toronto, ON

20. Hypercholesterolemia Rx Evolution
Rx in thousands
200,000
180,000
160,000
Crestor
140,000
120,000
Lipitor
100,000
80,000
60,000
Simvastatin
40,000
20,000
Lovastatin
0
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
QANTD Forecasting
August 24, 2010, Toronto, ON

21. Hypercholesterolemia Market Shares
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2000 2001 2002 2003 2004 2005 2006 2007 2008
9 8 7 6 5 4 3 2 1
QANTD Forecasting
August 24, 2010, Toronto, ON

22. 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.
QANTD Forecasting
August 24, 2010, Toronto, ON

23. Ladder Unit Shares
1
0.9
1
0.8
2
3
0.7
4
5
0.6
6
7
0.5
8
9
0.4
10
0.3 11
12
0.2 13
14
0.1 15
0
5 Products 6/7 Products 8 Products 9 Products 10 Products 11-14 Products 15+ Products
QANTD Forecasting
August 24, 2010, Toronto, ON

24. PharmaLadder Unit Shares by Product Number
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
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%
QANTD Forecasting
August 24, 2010, Toronto, ON

25. Factoring in Generics
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.
QANTD Forecasting
August 24, 2010, Toronto, ON

26. PharmaLadder Models - Pros and Cons
Pros: Cons:
1. Eliminates a finger to the 1. There will be market specific
wind forecast of unit market differences between actual
shares. and projected market shares.
2. Explicitly defines who and 2. Doesn’t offer guidance for
what stand in the way of early uptake market share.
more share and sales. 3. Best applied to pipeline stage
3. Easily adapted as the market products, but can provide
evolves and changes. macro opportunity statement
4. Intuitively communicated to for marketed products.
team members and supports 4. Doesn’t address non-US
what-if discussions. markets.
QANTD Forecasting
August 24, 2010, Toronto, ON

27. Revenue Calculation
Market
Market Price
Size X X = Revenue
(units)
!!
Share per Unit
QANTD Forecasting
August 24, 2010, Toronto, ON

28. Prescriptions – The Units Surrogate
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
QANTD Forecasting
August 24, 2010, Toronto, ON

29. Market Size and Growth – Data Sources
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).
QANTD Forecasting
August 24, 2010, Toronto, ON

30. 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.
QANTD Forecasting
August 24, 2010, Toronto, ON

31. 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).
QANTD Forecasting
August 24, 2010, Toronto, ON

32. Revenue Calculation
Market
Market Price
Size X X = Revenue
(units)
!! !!Share per Unit
QANTD Forecasting
August 24, 2010, Toronto, ON

33. Estimating Prices and Price Increases
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).
QANTD Forecasting
August 24, 2010, Toronto, ON

34. Revenue Calculation
Market
Market Price
Size X X = Revenue
(units)
!! !! !!
Share per Unit
QANTD Forecasting
August 24, 2010, Toronto, ON

35. 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.
QANTD Forecasting
August 24, 2010, Toronto, ON

36. 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.
QANTD Forecasting
August 24, 2010, Toronto, ON

37. 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.
QANTD Forecasting
August 24, 2010, Toronto, ON

38. Data Needs and Resources
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
QANTD Forecasting
August 24, 2010, Toronto, ON

39. Recommended Forecasting Reference Book
QANTD Forecasting
August 24, 2010, Toronto, ON

40. Additional Forecasting Reference Book
Newer edition available.
QANTD Forecasting
August 24, 2010, Toronto, ON

41. Resource for Average Wholesale Prices
QANTD Forecasting
August 24, 2010, Toronto, ON

42. Why Forecasting?
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.
QANTD Forecasting
August 24, 2010, Toronto, ON

43. QANTD Forecasting
August 24, 2010, Toronto, ON

44. 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
jbossart@pharmanumbers.com
Tel: 512/535-3613
www.pharmanumbers.com
www.bionumbers.com