QANTD
(Quick, and Not Too Dirty)

  Forecasting
                                   Josef Bossart
                         ...
Presentation Objectives

        1.  Reinforce the mission critical nature of
            forecasts and opportunity modeli...
Why Forecasting?

        1.  Consolidates product vision in a
            qualitative and quantitative manner
        2. ...
Forecasting Limitations

        1.  No forecast is ever right
                  •            The future changes beyond an...
Forecast Audience

        CEO and Board
         R&D Team
          Finance Team
           Production Team
             ...
And each one of these
                      groups have their own
                     needs and expectations
            ...
Forecast Deliverables

        Quantitative Components
                1. Sales
                          - Currency and u...
Forecast Deliverables

        Qualitative Components
                1. Timing of key events
                          - ...
Types of Forecasts

        Financial (Mandatory):
                   - Expense and investment forecasts
                 ...
What is a Forecast?


               A statement of the future
         opportunity offered by a defined set
             ...
Revenue Forecast Components




                   Market Size (Units)

                                                  ...
Revenue Calculation




                      Market       Market    Price
                       Size
                   ...
Forecast Challenges

        Revenue forecasts challenges:
                  1.  Modeling the appropriate market(s)
      ...
Quick and Not Too Dirty Means

        1.  Understanding the qualitative nature of the market in
            order to esti...
Revenue Forecast Challenges




                   Market Size (Units)

                                                  ...
PharmaLadder Forecasting

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

        2.  Relat...
PharmaLadder Benefits
                                                       36%

        •  Simple estimation of market s...
Hypercholesterolemia Unit Ladder (2008)
                 Simvastatin                                          33%


      ...
Hypercholesterolemia Unit Share Evolution
         100%

          90%

          80%

          70%

          60%

     ...
Hypercholesterolemia Rx Evolution
    Rx in thousands
         200,000

         180,000

         160,000
               ...
Hypercholesterolemia Market Shares
         100%


          90%


          80%


          70%


          60%


       ...
PharmaLadder Foundations

        1.  In the aggregate Pharma market share distributions are
            more similar than...
Ladder Unit Shares
           1


         0.9

                                                                          ...
PharmaLadder Unit Shares by Product Number
             1
           0.9
           0.8
           0.7
           0.6
    ...
Factoring in Generics

        1.  Generics must be fully integrated into all
            new product forecasts.
        2...
PharmaLadder Models - Pros and Cons

       Pros:                                       Cons:
       1.           Eliminat...
Revenue Calculation



                      Market
                                    Market    Price
                  ...
Prescriptions – The Units Surrogate

        For the purpose of QANTD (quick and not too dirty)
        forecasting prescr...
Market Size and Growth – Data Sources

        1.  Commercial suppliers (expensive, quick and easy).
        2.  Associati...
SEC Info - Data Sample
        Auxilium 2004 10-K Report
        We are a specialty pharmaceutical company that develops a...
Drug Topics – Sample Rx Page
        ‘Similar’ pages for sales and prescriptions, 2000-2009, for Brand and Generic product...
Revenue Calculation



                      Market
                                    Market    Price
                  ...
Estimating Prices and Price Increases

        Current Prices
        1.  Red Book publication (paper – reasonable, online...
Revenue Calculation



                      Market
                                    Market    Price
                  ...
Forecast Red Herrings
        1.          Not properly modeling your target market and the competitors:
                  ...
PharmaLadder Forecasting, 8 Step Program
        1.         Carefully define the market/indication(s) in which you will be...
PharmaLadder - Benefits and Opportunities

        1.  You can answer the question of how you came up with
            you...
Data Needs and Resources

        1.  Total unit market sales (current, past, brand, generic)
                           –...
Recommended Forecasting Reference Book




QANTD Forecasting
August 24, 2010, Toronto, ON
Additional Forecasting Reference Book

                                                  Newer edition available.




QANT...
Resource for Average Wholesale Prices




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

        1.  Consolidates product vision in both a qualitative
            and quantitative manner.
     ...
QANTD Forecasting
August 24, 2010, Toronto, ON
For more information please give us a call. We’d be
 pleased to help you develop your product forecast
        and optimiz...
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QANTD (Quick And Not Too Dirty) Forecasting

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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

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QANTD (Quick And Not Too Dirty) Forecasting

  1. 1. QANTD (Quick, and Not Too Dirty) Forecasting Josef Bossart Pharmanumbers LLC MaRS Future of Medicine™ Series August 24, 2010 Toronto, ON
  2. 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. 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. 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. 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. 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. 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. 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. 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. 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. 11. Revenue Forecast Components Market Size (Units) Price/Unit Market Share (Units) QANTD Forecasting August 24, 2010, Toronto, ON
  12. 12. Revenue Calculation Market Market Price Size X Share X per Unit = Revenue QANTD Forecasting August 24, 2010, Toronto, ON
  13. 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. 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. 15. Revenue Forecast Challenges Market Size (Units) Price/Unit Market Share (Units) QANTD Forecasting August 24, 2010, Toronto, ON
  16. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 27. Revenue Calculation Market Market Price Size X X = Revenue (units) !! Share per Unit QANTD Forecasting August 24, 2010, Toronto, ON
  28. 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. 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. 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. 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. 32. Revenue Calculation Market Market Price Size X X = Revenue (units) !! !!Share per Unit QANTD Forecasting August 24, 2010, Toronto, ON
  33. 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. 34. Revenue Calculation Market Market Price Size X X = Revenue (units) !! !! !! Share per Unit QANTD Forecasting August 24, 2010, Toronto, ON
  35. 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. 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. 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. 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. 39. Recommended Forecasting Reference Book QANTD Forecasting August 24, 2010, Toronto, ON
  40. 40. Additional Forecasting Reference Book Newer edition available. QANTD Forecasting August 24, 2010, Toronto, ON
  41. 41. Resource for Average Wholesale Prices QANTD Forecasting August 24, 2010, Toronto, ON
  42. 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. 43. QANTD Forecasting August 24, 2010, Toronto, ON
  44. 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
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