Long Term Pharmaceutical Forecasting: IMS Health's Experience
Connor, Patrick, Alldus, Carl, Ciapparelli, Carlo, Kirby, Liz, The Journal of Business Forecasting Methods & Systems
In the changing dynamics of the pharmaceutical industry, statistical models alone are not sufficient for long-term forecasting ... rules that regulate a market vary from one country to another ... many unprecedented events occur which are not captured by quantitative techniques.
In a dynamic business environment, the ability to anticipate change and to accurately identify and model market trends is vital in developing a viable and successful strategy for the future. The nature of the pharmaceutical industry provides a particularly challenging environment in which to forecast.
Pharmaceutical markets and products behave in vastly different ways to those in other industries. Demand for these products is based on entirely different consumer motivation. The rules, which regulate a market in one country, can be vastly different in another. Even the way in which drugs are paid for varies from country to country and can be the responsibility of the consumer, the government, insurance companies or some combination of the three. All of these factors must be fully understood before an accurate forecast can be produced.
THE IMS HEALTH APPROACH
IMS Health produces global, longterm forecasts at total market (country) level and therapy level. Historical trends, critical factors of change and likely market developments provide insight into healthcare and pharmaceutical environments worldwide to generate an extensive forecasting portfolio.
This encompasses worldwide top line forecasts as well as detailed forecasts of the top thirty-six countries and more than forty distinct therapy classes. These provide a comprehensive analysis of today's pharmaceutical arena and a long-term forecast of tomorrow's markets.
WHY FORECAST LONG-TERM?
New product development is a time consuming and costly process. As a percentage of sales, very few industries match the research and development spending of the pharmaceutical industry. Patent protection provides products with a finite window of opportunity in which to recoup these costs and generate profit.
Patent protection typically lasts twenty years from discovery (though extensions to this protection may be obtained in certain circumstances). Before launch, a pipeline product must go through rigorous clinical and pharmaceutical development as well as safety and socio-economic evaluation. In addition, such products must meet standards in quality, efficacy and safety before being approved by relevant regulatory authorities. All of these phases within the product lifecycle are time consuming and occur within the patent protection period. A product, which takes twelve years to launch, will have only eight years, in which to recoup R&D and show profit, before it is vulnerable to generic competition.
During this protracted period, the market does not remain static. Markets adapt to meet changing demands, there are legislation changes and novel treatments are launched. A product, which may have performed well twelve years ago, at time of discovery, may not necessarily perform well today. Decision-makers must assess and differentiate the value of R&D investment between pipeline products. With finite resources, which product will yield the greatest return on investment? What revenues can be expected from existing product portfolios? How much will be available to fund this investment? An accurate forecast will give the first clues in answering these questions.
Clearly then, the speed of response to change is directly related to success in any given market place. Long-term forecasts provide indicators as to the likelihood and timing of such change and are therefore invaluable as a source of competitive advantage.
IMS Health utilizes a combination of quantitative and qualitative forecasting processes. Quantitative forecasts use pure statistical methods to forecast future market size while qualitative forecasts are more judgmental, comprising input from experts, opinion leaders and management. …