Every year many
analysts and magazines publish their forecasts for the new drugs that have been
approved by the US FDA the previous year. Every thing looks glorious and sales
are projected in billions. An extremely rosy picture is painted. However, I
have not found a “fact check recap” of the projected numbers three or five
years after the sales projections have been made. In today’s new political lingo
no one has presented “alternate facts”. Real numbers come from how many
patients are benefitting from the new drugs and that is a missing piece of the reality.
It seems that the
sales projections are always Up Up and Away (1),
a wishful thinking. Even the yearly total global pharma sales are projected to
grow about 5-7% per year ending around $1.3 -$1.5 trillion dollars by 2020-2022
(2,3). I have serious doubts about these numbers and wonder have
these projections been questioned in a public forum. Most likely no one cares,
at least that is my conjecture. Since businesses design their plants based on projected
sales, I am comfortable in saying that we will consistently have “mega over
capacity” at plants. In simple terms overspent capital, under-utilized assets
and inefficient plants. This sentiment was recently echoed (4). I am
afraid poor patients pay for this largesse through higher drug prices.
Trying to
understand these forecasts, a recent article (4) was brought to my
attention. Excerpts from the article enlightened me and reconfirmed my
apprehensions. It seems to be telling us things many of the forecast pundits most
likely do not want to know.
“First, most consensus forecasts
were wrong, often substantially.”
“Furthermore, a significant number of
consensus forecasts were overly optimistic by more than 160% of the actual peak
revenues of the product.”
“Although the conclusion that most forecasts are poor is
not surprising in our view, the magnitude and extent of the error in
forecasting is striking and troubling as it suggests a large-scale and systemic misallocation of
capital and destruction of value in the industry. It also suggests that there
is a substantial opportunity for companies and investors who develop a
competitive advantage in forecasting.”
“The ‘consensus’ consists of well-compensated,
focused professionals who have many years of experience, and we have shown that
the consensus is often wrong.”
A
recent analysis of the projected global pharmaceutical sales (5)
shows their irrationality, at least to me.
If
the world knows that these forecasts are “often wrong”, the question is what is
the rationality and value of publishing such numbers year after year. Who
benefits? Why are these supposedly “ostrichian” numbers published? Are these
numbers just exuberance based or are telling us that the companies are doing
great things when the reality is otherwise or is this a way to impress
investors or much ado about nothing? Shouldn’t we be associating new therapies
with people rather than dollars when we know these therapies have a very limited
patient base?
The
most important fact or a reality, which matters the most is never published or
for that matter known to anyone and that is how many patients (+/-10%) are
benefiting from the drugs or using it. Forecast numbers per drug can be checked,
published and compared against forecast using various company Annual Reports.
I
believe that number of patients would be an excellent indicator of each drug’s
efficacy and ability to treat patients. Increasing numbers will tell us that
drug’s mode of action is of value and could be modified to create better
treatments for larger population. Future treatments could be based on this
learning. If any new drug is just marginally better than an existing drug, lack
of its sales will also be a deterrent for R&D investment in such therapies.
As
I have not seen reality checks against forecasts and it begs the question “are
we afraid to ask or know the reality?” My conjecture is that reality checks
will allow the companies to have better R&D, manufacturing processes and
offer us an opportunity for efficient asset utilization, a small step for
making drugs affordable. In addition, these numbers will also be of value to
the investors to discern and direct value of their investments.
Girish
Malhotra, PE
President
EPCOT
International
- The 5th Fifth Dimension, Up Up and Away, Accessed February 8, 2017
- World Preview 2016, Outlook to 2022; Accessed February 8, 2017
- Global Medicines Use in 2020: Outlook and Implications, Accessed February 8, 2017
- Cha, Myoung, Rifai, Bassel and Sarraf, Pasha, McKinsey & Co.: Pharmaceutical forecasting: throwing darts? Nature Reviews, Drug Discovery: Volume 12, October 2013, 737-738, Accessed February 7, 2017
- Malhotra, Girish: Manufacturing technologies and their part, Chemica Oggi Chemistry-Today, September/October 2015 Vol. 33(5) pg. 28-31
