Yahoo Finance AbbVie, Roche, Glaxo Are Experts at Product Launches
- By Barry Cohen
Investors considering pharmaceutical and biotechnology companies might want to factor in one important piece of data into their analysis: A high percentage of new products fail to reach sales forecasts made by industry analysts. This is according to a report from global management consulting firm L.E.K.
The report stated that about half of all products launched over the past 15 years have underperformed pre-launch consensus forecasts by more than 20%. While performance issues affected all disease areas, the biggest shortfall in Wall Street expectations was in infectious disease, immunology and cardiovascular diseases. And size does matter. On average, large pharma companies' product launches have average peak revenues 50% higher than those of smaller companies.
Pharma Intelligence adds that nearly half of product launches over the past eight years have underperformed and 25% don't even get halfway to their sales target.
At the same time, when it comes to innovation, small biopharmas outperform their bigger brethren, accounting for more than half of the first- or best-in-class drugs. History has shown that small biopharmas are better equipped than their larger peers to innovate and develop first- or best-in-class products, originating more than 50% of innovative products. The difference is Big Pharma has the size and resources to better commercialize their products.
The report, which covered product launches during the past 15 years, noted that blockbuster drugs are rare. It noted, "While the average peak U.S. revenue of products launched over the study period is just $800 million, only one in five of these products reached U.S. sales of $1 billion." And that doesn't include the many products that failed in clinical testing.
The inability to get out of the starting gate quickly often causes new treatments to fall far behind the competition, and that ground is hard to make up. On average, products will reach half of their peak sales by year three, and these early sales are good indicators about when a drug will hit peak revenue. Some areas like oncology have faster uptake, achieving 50% of peak sales by the end of year two, making a successful early launch even more critical.
The report noted that most industry followers think analysts often miss the mark badly on their sales forecasts for medications, especially when the products are still being developed and information about their efficacy is somewhat sketchy. The report emphasized that as a result, "any gap between Street expectation and actual performance is likely driven in part by lack of precision in these analyst forecasts."
L.E.K. suggests that biopharma companies need do a better job of managing expectations for new products lest their share prices suffer when overly optimistic sales forecasts fall short:
"Small overstatement of the addressable patient population, misjudgment of market access levels or mischaracterization of emerging competitive dynamics can throw off a forecast considerably and misalign market expectations as well as launch planning efforts."
To achieve true value, companies need to execute product launches with no hiccups. However, too often they fail due to such things as inadequate market access, a poor handle on market needs and underselling competitors.
Companies and investors may want to study the most successful product launches since 2017, as compiled by FiercePharma. Among them are AbbVie Inc.'s (NYSE:ABBV) Mavyret; Gilead Sciences Inc.'s (NASDAQ:GILD) Biktarvy; Roche's (RHHBY) Ocrevus; GlaxoSmithKline's (NYSE:GSK) Shingrix; and Biogen Inc. (NASDAQ:BIIB) and Ionis Pharmaceuticals Inc.'s (NASDAQ:IONS) Spinraza.
Disclosure: The author has positions in AbbVie and Gilead Sciences.
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This article first appeared on GuruFocus.
