The Nasdaq Biotechnology Index has risen more than 600% in the last 15 years, reflecting investor enthusiasm for a flood of novel drugs that Wall Street analysts pegged as likely blockbusters.
But just how many of those drugs lived up to the Street’s high expectations?
Not nearly as many as investors—or biopharma companies—would hope. About half the drugs launched in the last 15 years underperformed analysts’ sales estimates by more than 20%, according to a recent report from L.E.K. Consulting. In fact, only one-fifth of new meds reached $1 billion in U.S. sales, and more than half failed to hit even $250 million.
Granted, the accuracy of analysts’ forecasts is likely to be “spotty,” L.E.K. said, because they put dollar estimates on products still in clinical development and therefore unproven. “However, even when looking at consensus forecasts just prior to launch—forecasts that are heavily informed by expected product labels and management expectations—40% of products underperform Street forecasts by more than 20%,” the firm wrote in an online summary.
L.E.K. found underperformers across many therapeutic areas, but a few stood out for producing the most duds. Half of new cardiovascular drugs fell short of expectations in their first three years, as did half of immunology meds. About 48% of new products to treat infectious diseases also failed to hit their marks.
No doubt the cardiovascular field has seen its fair share of high-profile—but ultimately disappointing—launches in recent years. Take PCSK9 inhibitors Repatha and Praluent, for example. The cholesterol-lowering drugs, from Amgen and Sanofi and Regeneron, respectively, were pegged as all-but-certain blockbusters when they hit the market in 2015, but neither has come close. Instead, they've been hampered by multiple factors, including massive price cutting.
Cancer drug launches performed slightly better than others, with only 38% failing to live up to the hopes pinned on them. Innovation helped. In fact, the oncology field produced 82 of the 450 new molecular entities L.E.K. tracked.
L.E.K.’s research uncovered another significant trend: Bigger companies are way better equipped than small biotechs are to successfully commercialize new products. The firm discovered that average peak sales for new products is 50% higher in Big Pharma than it is among smaller players.
Size and scale are often considered barriers to innovation, but when it comes to commercialization, “they become key enablers,” L.E.K. said.
Small companies launching drugs in the cardiovascular, infectious disease and immunology fields face particularly high hurdles, because they have to pitch those products to general practitioners as well as specialists. And small companies tend to underestimate “the challenge of educating and changing the prescribing behavior of a large and disparate group of physicians,” L.E.K. said.
The bottom line, the L.E.K. concluded, is that biopharma companies should rethink their strategies for providing pre-launch estimates to Wall Street analysts. “Since the negative impact of missing a forecast can be severe, particularly for a small biotech launching a first product,” the firm said, “companies must be cautious when providing revenue guidance and managing expectations from the Street.”