Effectively Integrating Competitor Analysis into New Product Planning to Maximize Biopharma Asset Value
In the biopharmaceutical industry, the predominant focus of New Product Planning (NPP) initiatives often revolves around individual assets. These endeavors are aimed at successfully ushering a single compound or emerging brand into the market. However, it’s crucial to recognize that NPP activities are significantly influenced by various market factors and dynamics, encompassing political, legislative, economic, and competitive factors, among others. While the impact of the Inflation Reduction Act (IRA) on NPP activities is likely to be well assessed by now, this article delves into the integration of market dynamics driven by competitors, shedding light on how competitor analysis can shape and influence NPP strategy.
Goal of New Product Planning
Different companies and decision-makers might have different goals for their NPP functions but fundamentally, the universal goal is to maximize the value accruing from the new product. In principle, this entails maximizing the overall portfolio value, considering individual assets’ interdependencies as one asset might cannibalize or synergize other assets or future opportunities in the portfolio. For simplicity, let’s focus on this goal which is the prevalent practice: everyone aims to maximize the value of the asset they are managing.
What is the Value in the Context of NPP?
The term “value” is often used broadly, typically denoting some form of benefit, often without precise quantification. In this context, we are concerned about the value captured by the Net Present Value (NPV), or more precisely, the Probability of Success-Adjusted Net Present Value, also known as the Risk-Adjusted Net Present Value (rNPV).
But why emphasize this value?
- Alignment with Stakeholders: NPV aligns with the interests of all stakeholders, ranging from shareholders to company decision-makers. This alignment mitigates the challenges associated with the “principal-agent” theory, signifying an obligation to act in the best interests of those whose capital the company utilizes, typically shareholders.
- Market-Aligned Approach: As the capital market assesses a company using the rNPV method, employing a sum-of-the-parts approach, the value of the asset under consideration in NPP is incrementally added to the company’s overall valuation. Therefore, adopting a market-aligned method is a pragmatic choice for NPP practitioners.
By focusing on these aspects of value, companies can make more informed and strategically sound decisions in their NPP activities.
Determinants of Value in New Product Planning
Generally in biopharmaceutical organizations, forecasting the sales of an asset for New Product Planning (NPP) typically follows a ‘bottom-up’ approach, supplemented by a range of complementary methodologies. However, when dealing with assets competing in crowded market segments, a ‘top-down’ approach is commonly adopted. In such instances, the metric for assessing value often shifts from Risk-Adjusted Net Present Value (rNPV) to Net Present Value (NPV).
There exist two primary categories of variables that exert substantial influence on the asset value in NPP:
- Corporate Parameters: The first set of factors falls within the corporate domain of pharma and biotech companies. These encompass variables such as the cost of capital, leverage, beta, profit margins, working capital, taxation, and more. Typically, these parameters remain relatively stable when assuming ‘business as usual’ operations in the pharmaceutical or biotech sector i.e., the company does not diversify or venture into unrelated sectors, such as oil, gas, utilities, or others, thereby, significantly altering the risk-return profile of the core business.
- Asset-Specific Projections: The second class of factors that influences value pertains directly to the asset itself. These factors encompass peak sales estimates, the trajectory of sales growth, expected expenses, and the likelihood of various events leading to successful outcomes (POS).
While NPP professionals should predominantly concentrate on asset-specific variables for their pipeline products, an awareness of corporate parameters proves beneficial as well, given that NPP is inherently a multifaceted discipline. For instance, scenarios where the Fed increases the base interest rate or when a company’s bond rating experiences a decline warrant evaluation of their impact on the value of the asset. Conversely, envision a scenario where the bond rating of a competitor escalates — what ramifications might this hold for your asset?
Incorporating Competitor Analysis in New Product Planning
The duration of NPP activity from asset development to handover or transitioning into the launch team, can span several years. During this journey, rival products and companies continue their progression toward market entry. Consequently, it becomes imperative to incorporate these market developments, particularly the activities of competitors, into the NPP strategy. The following are some of the real-life examples and they should be read on a ceteris paribus basis, i.e., other variables being held constant.
| Event | Description | Impact |
|---|---|---|
| Slow recruitment in competitor’s trial | The sales curve shifts toward the late side of the timeline, leading to a decrease in value | Positive impact on you, but are you likely to experience a similar situation? |
| A competitor gets an FDA voucher | The sales curve shifts toward the early side of the timeline, resulting in an increase in value | Negative impact on you. |
| Interim trial data yield unimpressive results | The probability of success shrinks, causing a decrease in value | Positive impact on you. Are there any lessons to be learned from competitor data and results? |
| Interim results are so good that the company will be filing | The sales curve shifts toward the early side of the timeline, with savings from planned costs and an increase in the probability of success, leading to an increase in value | Negative impact on you. Will they capture most of the market, or is there a first-mover advantage or a winner-takes-all scenario? |
| Regulators ask for another sub-study | The sales curve shifts toward the late side of the timeline, accompanied by an increase in expenses, resulting in a decrease in value | Positive impact on you. |
| Exclusive deals with price regulators | The listed price becomes less relevant, leading to an increase in the peak sales estimate through volume, but a decrease in margin, resulting in an overall increase in value | Negative impact on you. Will it create pricing pressure and make premium pricing difficult? |
| A disruptive player enters the market | A decrease in the peak sales estimate, coupled with the sales curve shifting toward the late side of the timeline, results in a decrease in value | Negative impact on you. |
| Slow recruitment of competitor specialty sales reps | The ramp-up time to peak sales increases, leading to a decrease in value | Positive impact on you. Are you likely to face a similar issue? Alternatively, might you benefit from the supply of such reps when your asset reaches the market? |
| Regulators delay their decision on a competitor | The sales curve shifts toward the late side of the timeline, causing a decrease in value | Positive impact on you. |
| Standard of care becomes generic | The novel treatment in development is shifted to a later-line of treatment, resulting in a decrease in the peak sales estimate and the sales curve shifting toward the late side of the timeline, leading to a decrease in value | Negative impact on you and making the incremental cost-effective ratio hurdle higher for future entry-seeking novel drugs. |
Key Takeaways
- Numerous market factors significantly impact new product planning in the biopharmaceutical industry, with competitors being among the most critical.
- Given the considerable time required to launch a new asset, it is prudent to conduct regular competitive analysis and continually update the understanding of your NPP asset.
- You may collaborate with competitive intelligence teams, however, they primarily report events. It might fall on you to assess the events in the context of new product planning. Even if they do perform implication assessment, you may still need to verify, understand, and refine further.
- Mastering the concept of value, key drivers, and the practice of biopharma asset and company valuation is valuable.
- It’s important to be mindful of sensitivities – actively assessing how changes in competing assets, competitors, or their activities can enhance or diminish the value of your asset.
BiopharmaVantage is a specialty healthcare consulting firm that provides premium-quality new product planning support services to pharmaceutical and biotech companies. If you’d like to explore how we can assist you, please contact us.