Assessing Potential Market Share for a New Drug: Part 14 of Valuation and Other Biotech Mysteries
October 12, 2011
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[Ed. This is the fourteenth part in Wayne’s series. You can access the whole thing by clicking here. Please leave comments or questions on the blog and Wayne will address them in future posts in this series.]
In the previous post, we looked at epidemiology and pricing to estimate the market size for a new drug. As we continue to look at the potential rewards from successful drug development, we need to consider market share.
A new drug product which is being assessed will probably share its market with:
- currently approved drugs;
- some drugs currently at the same or later stage of development; and
- some drugs which are at an earlier stage of development.
An assessment of market share is not static and should be continuously updated as new information becomes available. Until all of the Phase 3 data is available on a new drug, market share assessments are really guesstimates. Phase 3 data from two new drugs which were compared to either a placebo or an older standard of care, but not to each other, might not be sufficient to allow a winner to be selected. A major pharma licensing deal with a product that is two years behind might change your ranking of that drug.
A good starting point would be the preparation of a list of these competitor drugs, which are placed in a table along with the following information for each drug. If you are assessing a drug in Phase 1 or 2 clinical development and do not know the exact medical condition for which approval will likely be sought, look at a broader medical condition when preparing this initial drug list.
- Marketing partner
- Stage of development (marketed through preclinical)
- Approval date
- Annual sales (if approved)
- Any differences in clinical indication and method of use
- Any measure of clinical efficacy on which drugs can be compared
- Mechanism of action/target
This information can be obtained the easy and costly way by buying it (see Part 13 of this series for some sources) or the easy and cheap way by trying to get relevant stock analyst reports. Otherwise, we have mentioned potential sources of this information in other parts of this blog series. Once you have all or a good portion of this information, then the following questions will be useful.
- For what specific medical condition will the new drug be initially approved? For example, drugs approved for second line therapy are not competition for drugs used only in first-line therapy. Make sure that you identify the direct competition.
- For what other medical conditions might approval be sought in the future? Small biotech companies face difficult decisions when developing drugs with multiple potential indications, especially in the cancer space.
- First-line monotherapy would probably be the largest market and avoids potential drug-drug interactions, but it would be also have a high clinical efficacy hurdle and very costly clinical program.
- First-line cotherapy could also be a good market depending upon what is the current standard of care. The new drug product could be added to the current standard of care, which could be a cheap generic drug, an expensive NCE or a combination therapy. The new drug could also attempt to replace a drug in the current combination standard of care.
- The same options could exist in second-line therapy.
With all of this information, you might approach the analysis in the following manner.
- What is the current standard of care and what is its market share?
- Create a list of the next drugs which will have pivotal data which could lead to a change in the standard of care and when will that pivotal data most likely be available.
- Monitor corporate news releases for release of that pivotal data.
- Whenever new pivotal data is released, modify the current standard of care (if necessary) and adjust market share for the approved drugs.
- Repeat the process every time new pivotal data is released.
- Account for other events which might alter market share, such as the entry of generic products or major partnering agreements for drugs in the pipeline.
Assuming that a new product has positive clinical data which might lead to an approval and a share of a market for a specific medical condition, how does a company turn that into value for its shareholders? Stay tuned for the next post.