About half of pharma launches underperform versus targets

18 January 2021 Consulting.us 4 min. read

Over the last 15 years, half of all biopharmaceutical products have fallen at least 20% short of the revenue targets set before launching. A new L.E.K. Consulting report provides the details.

The secret lies in the launch strategy, which appears to hold more weight than the product itself at times. L.E.K. Consulting analyzed more than 450 drug launches between 2004 and 2019 – for a detailed picture of revenue performance across pharma segments, product types, and company size, with notes on market factors, pricing and competition.

Data was drawn from EvaluatePharma, and the key metric is consensus forecasts – revenue expectations that consider input from product labels and management. These expectations were used to weigh performance, although less reliable predictions from Wall Street and analysts were also considered.

Many biopharma products fall short of revenue expectations

Around 40% of the time, drug revenue performance fell short of consensus forecasts by at least 20%. The shortfall is most stark when it comes to certain therapeutic areas – cardiovascular disease, immunology and infectious disease – where around 50% of products fell at least 20% short of revenue targets. 

That being said, underperformance is spread across a biopharma sector in flux, with areas such as oncology, central nervous system, and metabolic products also falling short around 35% of the time. “This is especially true in the first few years after launch, when meeting unrealistic Street expectations can be challenging,” said Peter Rosenorn, L.E.K. Consulting managing director and partner.

According to Rosenorn, time is a crucial factor in measuring revenue targets. The average peak revenue for biopharma products in the last 15 years is just over $800 million, with around 20% of these products crossing the $1 billion mark. Indeed, reaching these peak levels is often a matter of years.

Achieving revenue peaks takes several years

“On average, products will reach 50% of their peak sales by year three, and these early-year sales are strongly predictive of ultimate peak sales. Some areas like oncology ramp even faster, reaching 50% of peak sales by the end of year two, further underscoring the importance of early launch performance,” noted Rosenorn. 

These timelines explain the wide shortfall from analyst and Wall Street forecasts – which often use one- or two-year timelines after the launch. “Analysis of the past 15 years shows that more than 90% of products have U.S. revenue less than $250 million in year one and more than 70% have revenue less than $250 million in year two.”

Of note here is that large companies – Big Pharma – appear to have a higher success rate from a revenue standpoint than smaller players, despite the latter having more innovative output. Working in favor of large companies is their bigger budgets, which can afford an aggressive commercialization strategy.

Big companies perform better than smaller players

For the researchers, the central learning here is that launch and commercial strategies hold tremendous weight for performance, in many cases more than the product quality itself. A key finding of L.E.K Consulting’s research is that around 50% of all products launched over the last 15 years failed to ever reach the $250 million revenue mark – all of which were approved by the Food & Drug Administration (FDA).

“An FDA approval is no guarantee of success; it is just the beginning. To drive real value, it is critical that biopharma companies execute the launch process flawlessly. As history shows, many companies fail in this process, due to a combination of factors such as limited market access, poor understanding of market needs or misjudgment of competitive threats,” explained Pierre Jacquet, managing director and vice chairman of L.E.K. Consulting’s healthcare practice

Per the report, planning a launch early, monitoring its progress, realistically considering challenges, being open to potential collaboration opportunities and managing investor expectations are all hallmarks of a strong launch strategy.