Forecasting strategies and success factors - cbinet.com · WHO, IMS, DRI, BLS, Symphony Health, CDC, ISR, Cohen, US Census Bureau, National Health Surveys Salesforce intelligence

Forecastingstrategies andsuccess factorsMarch 21, 2017

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Speakers Chris ReinholzSenior Manager, Transaction Advisory ServicesErnst & Young LLP

George CareyExecutive Director, Transaction Advisory ServicesErnst & Young LLP

Troy NorrisExecutive Director, Life Sciences Strategy and TransactionsParthenon-EYErnst & Young LLP

Today’s presenters

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Forecasting strategies and success factors► What is strategic forecasting?► Forecasting markets and revenue► Modeling value and risk► Commercial due diligence

Agenda

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Planning purpose Time frame Key outcomes

Forecasting for strategic planning

► Long-term strategic plan:► Market evolution► New products► New competitors► New business

development

► 5- to 10-year annual forecast► Typically generated

annually► May be updated off-cycle in

the event of a major changein market or company

► Product decision-making

► Portfolio plan► Pipeline optimization► Licensing and

acquisition

Forecasting for business planning

► Short-term tactical plan:► Budget planning and

revisions► Manufacturing and

demand planning► Developing sales targets

► 1- to 2-year monthly forecast► Typically generated annually► Updated periodically

throughout the year

► Budget and revisions► Operational plan► Salesforce plan► Reporting against plan

Annual forecast model

Monthly forecast model

Tracking/analytics

Strategic forecastingWhat is strategic forecasting?

Clinical programs

Pre-launch planning

Post-launch

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Strategic forecastingKey inputs and analyses for clinical program forecasting

Secondary research

Primary research

► Historical market trends► Epidemiology► Current treatments► Competitive launches► Treatment path and settings► Analogous markets and products► Pricing of comparable products► Reimbursement restrictions

► Patient flow and referral patterns► Multi-stakeholder unmet needs► Switching behavior► Pricing, reimbursement, co-pays► Evidence thresholds► Product perceptions► Willingness to pay► Expected adoption

Market analysis► Segmentation► Market size► Growth► Competitive

intensity

Forecasting Model Developed for In-Licensing C o

Product Share and Life Cycle for New ProductConfidential

Life Cycle Events

C urve N ame New Indication Save Current Settings to Curve

Launch D ate 1 /1/2008 Retrive CurvePeak Share D ate 1 /1/2013

Peak Share 56.0%

Event One ActiveEvent Name New Indication

Date 3/16/2014Floor Percent 68%

Ra te Percent to Floor 100%Share Chang e Type Drift

Event Two ActiveEvent Name New Product Entrant



Event Three ActiveEvent Name Patent Expiration


Ra te Percent to Floor 15%Share Chang e Type Drop

Event Four Inacti veEvent Name Fo urth



Set D ates for Chart Display

Start 2/13/2008End 5/5/2021

C V_25: N ew Indica tion

C V_12: My New C urve

0%

10%

20%

30%

40%

50%

60%

70%

80%

2/13/2008

6/27/2009

11/9/2010

3/23/2012

8/5/2013

12/18/2014

5/1/2016

9/13/2017

1/26/2019

6/9/2020

Calendar Year

Mar

ketS

hare

Product Lifecycle Curve for New Product

Revenue modelAdoption analysis► Adoption rate► Therapy duration► Adherence► Relative share► Price sensitivity

Market model

Scenario analysis► Market► Competition► Clinical results► Reimbursement

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Pre-launch forecastingWide range of inputs and analyses for launch planning

Market analysis Belief and behavioralmodeling and segmentation Forecasting

Referral patterns

Treatment paths

Rejection ratessubstitution

Fill rates

Co-paysPre-authorization,

step edits

Physician Patient

Payer Pharmacy

Patientflow

Unmet needsBuying process

Adoption attitudesUptake velocity

Unmet needsSocioeconomics

Payer mixAttitudes and beliefs

Secondary research

Claims/EMR analysis

Primary research

► Historical market trends► Competitive intelligence► Analogous markets

► Epidemiology► Treatment settings

► Patient flow► Switching behavior

► Qualitative PMR► Quantitative PMR

Product revenue

Financials

► Competition► Market share► Source of business

(physicians, patients, payers,channels, competitors)

► Pricing

► Profit and loss► Cash flows► Valuation► Scenarios

Operational plans► Manufacturing► Distribution and stocking► Salesforce plan► Financing

ContractingBundling

Health economicsDisease-management

protocols

Pricing/marginsPatient economics

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Forecasting to drive decision-makingOptimally positioning to maximize value of newly launched products

Market analysis Forecasting

► Secondary research► Claims/EMR analysis► Primary research

► Product revenue► Financials► Operational plans

Beliefs and behaviors Tracking

► Positioning and messaging► Segment uptake► Competitor response► Sales metrics

Natural market position Base product value

► Positioning and messaging► Pricing, reimbursement, contracting► Regulatory and REMS strategy► Distribution channel strategy► Stocking and sampling strategy► Medical communications plan► Salesforce sizing and structure

► Alternatives► Investment (e.g., price, promotion)► Impact (e.g., share by segment share,

price by channel)► Incremental ROI► Collective ROI

Target market position Optimized product value

Productstrategy

Decision

analysis

Inform Optimize

Physician Patient

Payer Pharmacy

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Agenda

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► Quality of assumptions

► Quality of analytic framework

► Organizational alignment

► Governance and accountability

► Continuous feedback

Product forecast success factors

Analytics

Alignment

Governance

Feedback

Assumptions

Forecastsuccess

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Key forecasting success factors:

► Determine the level of driver detail

► Understand interdependent variables

► Leverage diversified information sources

► Think like the competition

► Think like the payer

► Leverage data analytics

Quality of assumptions

Market modeling:

► Addressable market

► Patients

► Degree of segmentation

► Competitive landscape

Revenue forecasting:

► Market access

► Adoption

► Pricing

Value assessment:

► COGS

► Marketing and sales

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Quality of assumptionsLevel of driver detail

Key forecast drivers

Age

Gender

RaceDiseaseseverity

Physicianspecialty

Treatmentsite

Class oftherapy

Country

Indication

Population

Epidemiology Incidence or prevalence for a given disease state

Symptomatic rate Percentage of patients with a given disease statethat are symptomatic

Diagnosis rate Percentage of symptomatic patients who arecorrectly diagnosed

Access rate Percentage of diagnosed patients who have accessto health care and pharmaceuticals

Drug treatment rate Percentage of diagnosed patients with access whoare treated with the indicated drug

Drug-treated patients

X

X

X

X

X

=

Number ofcompetitors

Understand market position of each competitor, order ofentry and objectives

Launch date Understand how timing of launch date can impact peakshare and uptakeNeed to understand the time required to launch,contemplating government regulations and payer reviewand negotiation processes

Order of entry What is the organization’s entry order relative tocompetition?

Peak market share Maximum volume expected

Uptake curve More science than artDifferent across markets, therapeutic areas, products

Long-term sharedecline

Estimate of post-peak share decline

Market segmentation Uptake curve

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► Pricing >>> Peak market share► Pricing >>> Uptake curve► Pricing >>> Reimbursement► Pricing >>> Cannibalization► Pricing >>> Compliance► Pricing >>> Persistence

► Reimbursement >>> Peak market share► Reimbursement >>> Uptake curve

► Marketing >>> Peak market share► Marketing >>> Uptake curve

► Competition >>> Peak market share► Competition >>> Uptake curve► Competition >>> Pricing

► Time to market >>> Peak market share► Time to market >>> Uptake curve► Time to market >>> Pricing

Quality of assumptionsUnderstand interdependent business drivers

Scenarios

Simulations

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► Internal empirical data and experience► Proprietary market research► Third-party market research

► WHO, IMS, DRI, BLS, Symphony Health, CDC, ISR, Cohen, US Census Bureau, National Health Surveys

► Salesforce intelligence► Health economics and outcomes research (HEOR) team► Managed care team► PBM research► Peer-to-peer networks► Life sciences data hubs► Key opinion leaders (KOLs)► Social media► Experience (“gut”)

Quality of assumptionsLeverage diversified information sources

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Quality of assumptionsLeverage diversified information sources: example

0%

10%

20%

30%

40%

0

5

10

15

20

25

30

Year 1 Year 2 Year 3 Year 4 Year 50%

10%

20%

30%

40%

0

5

10

15

20

25

30

Year 1 Year 2 Year 3 Year 4 Year 50%

10%

20%

30%

40%

0

5

10

15

20

25

30

Year 1 Year 2 Year 3 Year 4 Year 5

Real-world adoption curve archetypesSuccessful asset Typical asset Transformational asset

2016 example assumptions► Acceptable SOC but better

outcomes desired (e.g., IBD)

► Solid proof, but modestdifferentiation from SOC

► Proof of clear safetydifferentiation from SOC

► Modest pricing premiumallowable as a second- orthird-line therapy

► Real-world evidence essentialfor access

► SOC is established (e.g.,HTN – Entresto)

► Proof of efficacy advantage isquestionable to SOC

► Similar to modest safetydifferentiation from SOC

► Pricing premium notsupported and associatedwith payer restrictions

► Real-world evidence essentialfor access

► Significant unmet need exists(e.g., Hep C – Sovaldi)

► Proof of efficacy is convincingvs. SOC

► Similar to superior safetydifferentiation from SOC

► Pricing premium criticized butaccepted

► Real-world evidencenecessary to defend share

Unmet need

Efficacydifferentiation

SafetydifferentiationPricing vs.unmet need

Real-worldevidence needs

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► Competitive formulary position► Competitive technology position► Competitive market access position► Pricing► Marketing spend► Strategic direction

Quality of assumptionsThink like the competition

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► What criteria are important to the payer for formularies (i.e., how does a drugget on the payer’s formulary list?)

► What is the economic value of the formulary► What outcomes will actually be achieved for the patient population?► What outcomes have already been achieved?► What is the rationale for a product’s price point?► Which product attributes justify a premium price?► What is the patient’s ability to pay? Willingness to pay?► What is the product value both at the launch and throughout a product’s life cycle via an

integrated value story?

► What type of customer is the payer focused on (Medicare, Medicaid, other)► What line of business is the payer focused on (pharmacy benefits

management, specialty pharma, other)?► What is the financial condition of the payer?► What does the negotiation process for the payer look like?

Quality of assumptionsThink like a payer

Payers now have a very large and direct influence on what drugs are included onformulary lists and the reimbursement rates for those drugs

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Pre-launch forecastingWide range of inputs and analyses for launch planning

Market analysis Belief and behavioralmodeling and segmentation Forecasting

Referral patterns

Treatment paths

Rejection ratessubstitution

Fill rates

Co-paysPre-authorization,

step edits

Physician Patient

Payer Pharmacy

Patientflow

Unmet needsBuying process

Adoption attitudesUptake velocity

Unmet needsSocioeconomics

Payer mixAttitudes and beliefs

Secondary research

Claims/EMR analysis

Primary research

► Historical market trends► Competitive intelligence► Analogous markets

► Epidemiology► Treatment settings

► Patient flow► Switching behavior

► Qualitative PMR► Quantitative PMR

Product revenue

Financials

► Competition► Market share► Source of business

(physicians, patients, payers,channels, competitors)

► Pricing

► Profit and loss► Cash flows► Valuation► Scenarios

Operational plans► Manufacturing► Distribution and stocking► Salesforce plan► Financing

ContractingBundling

Health economicsDisease-management

protocols

Pricing/marginsPatient economics

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Quality of assumptionsLeverage data analytics

Business intelligence Basic statistics Intermediate statisticsand analytics Advanced analytics

Data acquisition Data profiling Data mining Descriptivestatistics

Inferentialstatistics

Predictive modeling /optimization

Analytics spectrum

Analysis Examples

Extraction,transport and load

Aggregation andcategorization

Pattern andoutlier detection

Central tendency,correlation

Regression,advanced

visualization

Predictivemodeling

Simulation Optimization

Pulling historicaldata from disparatesystems, sources,formats anddiffering levels ofdetail. This type ofanalysis provides acommondenominator fordata points to makea relatedcomparison.

Profiling like datainto meaningfulgroups,categories,relationships,behaviors andtrends.

Based onhistorical trends,data is identifiedby commoncharacteristics,outliers andpatterns.

Basic statisticalreference gives anunderstandingpredictability,stability, uncertaintyand influenceproviding a baselinefor developingdecision models.

Based onhistorical trends,data is identifiedby commoncharacteristics,outliers andpatterns.

The visualexploration oflarge, complexdata sets focusedon the discoveryof trends,relationships andoutliers.

Statisticalmodelsbased onhistoricaldata that canpredict futureoutcomesbased onpast trends.

Simulates arange ofoutcomes(scenarios)byincorporatinga range ofdistributionaround keymodel inputs

Identifies theoptimalcourse ofaction usingmathematicaloptimizationtechniquescoupled withinput andoutputconstraints

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► Transparency► Clear audit trail► Powerful but clear formulae► Built-in visual error checking► Inputs clearly separated from outputs and calculations► Modular construction

► Flexibility► Driver-based inputs► Selectors to facilitate higher- or lower level analysis as needed► Sensitivities and “what-if” Analysis► Scenarios

► Robustness► Interactive management dashboard► Interactive risk dashboard► Interactive scenario dashboard► Integrated financial statements► Value bridges► Data visualization► Management reports

AccessExcel SharePoint SQL server Power BI

Quality of analytic frameworkEmploys best practices in design

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Agenda

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-60%-40%-20%

0%20%40%60%80%

100%

Q1 2015 Q3 2015 Q1 2016 Q3 2016 Q1 2017 Q3 2017 Q1 2018 Q3 2018

Gross Margin EBITDA Margin Net Income Margin

Margin trends

1,602

975 915

120

250

17081 125

80 25 75

600

800

1,000

1,200

1,400

1,600

1,800

Change in estimated enterpise value (DCF method @ 20% discount rate)

Enter

prise

Value

($00

0s

Economic valueand

value to the organization

Measuring and visualizing valueAnalytical frameworks

► Measures of value► Profitability/profitability growth► Revenue/revenue growth► NPV, ENPV► IRR, EIRR► Return on equity► Return on capital employed► Return on invested capital► Accretion/dilution

► Visualization of value► Value walk► Trend charts

* EBITDA = Earnings before interest taxes depreciation & amortization

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Understanding and visualizing riskAnalytical frameworks

► Tools for understanding risk► Scenarios► Sensitivities► ENPV► EIRR► Discount rate

► Visualization of risk► Risk/return dashboard► Scenario dashboard► Value walk comparative► Scenario comparative► Tornado chart

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Understanding and visualizing riskThe three S’s of risk assessment

Risk assessment Pros When to useCons

Scenario ► Enables you to captureinterrelationshipbetween variables

► May overstatedownside risk andupside potential

► To reflect outcomes for a combination ofvariables

► Useful for modeling demand variability

Sensitivity ► Can focus attention onhigh-risk variables

► May fail to capture keyinterrelationshipsbetween variables

► Searching for high-impact variables (costof capital, peak adoption)

► Conducting break-even analysis focusedon individual variables

Simulation ► Reflects the full rangeof outcomes andrelated probabilities

► Is only as good as theunderlyingassumptions, includingdistribution of variables

► Useful for selecting a few high-impactvariables with significant interrelationships

► Requires basis in history or expectations

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Quality of analytic frameworkHelps the organization understand risk



NPV Probability ENPV

High 500 X 20% = 100Expected 400 X 50% = 200Low 300 X 30% = 90

100% 390

Expected NPV

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Discount rate considerations► A formulary’s cost of capital depends on the riskiness of the project, and not the firm’s overall hurdle rate► Assets should be evaluated with an appropriate cost of capital for each individual formulary, based on its particular

risk characteristics

Risk

WAC

C(%

)

Hurdle rate

rf

Project-specific WACC

riskfirm

Incorrectlyrejected,positive NPVproducts

Incorrectly accepted,negative NPV products

Correctly rejected,negative NPV products:risk > return

Correctly accepted,positive NPV products:return > risk


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1 Risk dashboard

Pugh Matrix Rating Pugh Matrix Heat Map

Strategic Fit: Row score

Strategic Fit:Value Creation:Feasibility/Risk: Allows for continued operations 45.0

107.0 53.0 47.0 Improves customer satisfaction 5.0

Moderate Enables a higher capacity utilization to drive cost reduction 24.0

Allows for customer expansion 18.0

Qualitative Risk Rating Aligns with our footprint strategy 15.0

Value Creation:

21.0 / 35.0 Delivers Economic Profit 3.0

Rating from 1 (low) to 5 (high) Short payback period 30.0

Select: Has positive cash flow 20.0

Procurement risk? 2.0

Commercial risk? 2.0 Feasibility/Risk:

Engineering risk? 2.0 Assumptions are predictable and reliable 16.0

Strategic risk? 3.0 Reduces a significant business risk 27.0

Legal risk? na Ease of implementation; ability to execute 4.0

Financial risk? 3.0

Regulatory risk? 4.0 Total score 207.0

Production risk? 5.0

207.0

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+/- 5% change in key variables

5% decrease

5% increase

35

18

(15)

20

11

(10)

9

5

0

(25)

(20)

15

(10)

(11)

10

(9)

(5)

0

-35.0 -25.0 -15.0 -5.0 5.0 15.0 25.0 35.0

Price

Time to launch

Access rate

Reimbursement rate

Persistence

Marketing spend

Gross to net adjustments

Supply cost

Other

Enterprise value ('000s)

Change in enterprise value ($000s)

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Agenda

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Forecasting for deal diligenceProactive “pre-diligence” on markets and companies

Product and companytransaction diligence

Proactive pre-transactionmarket and target assessment

Proactive market assessment► Identify attractive adjacent disease areas► Evaluate competition, pricing, promotional synergies► Understand treatment paths, unmet needs and

threshold performance requirements► Evaluate disruptive technologies, products, patents► Develop informed perspectives on clinical feasibility

and outcomes

► Forecast growth potential of marketed andpipeline competitors by therapeutic class

Preliminary target assessment► Identify and evaluate potential licensing or

acquisition candidates in targeted disease areas► Profile and prioritize products and companies

Commercial due diligence► Perform secondary and primary research on targets► Test product profile with physicians, payers, patients► Assess competitive landscape and likely adoption► Evaluate product economics, likely reimbursement and

market access plan► Define optimal product positioning► Validate clinical/regulatory path► Identify key risks and mitigation strategies

► Forecast revenues under alternative market andproduct scenarios

Asset value and deal model► Model asset value (risk-adjusted NPV of free cash flows)► Analyze and benchmark analogous deals► Model transaction economics and alternative structures► Evaluate deal terms under different scenarios

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Forecasting for deal due diligenceAcquisitions require perspective on full portfolio and expansion options

Non-coreindications

Life cycleextensions

Core assets inCore indications

Ø Competitive landscapeand differentiation

Ø Customer stakeholderfeedback

Ø Product economics,pricing and access

Ø Product positioning andadoption by segment

Core commercialpotential

Discovery Preclinical Early clinical Late clinical Commercial

Non-core assets

Additional inorganic franchiseexpansion options

Platformtechnologypotential

Preclinicalpipelinepotential

Ø Technology disruptivepotential

Ø Technical and clinicalKOL insights

Ø Clinical andcommercial potential

Ø Translationalmedicine optionality

Platform andpipeline potential

Ø New productformulations

Ø Clinicalindications

Ø Geographicexpansion

Ø Follow-onL&A options

Franchiseexpansion

Sources ofstrategic value

of a target

Critical valuedrivers for

due diligence

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Forecasting for deal diligenceTight timetables require focus on high-impact value drivers

Week 1 Week 2 Week 3 Week 4 Week 5 Week 6

Focused,issues-based

diligence

Full scale strategic and commercial diligence► Target has a large, complex portfolio of commercial and pipeline assets including new markets for acquirer► Ongoing deal process allows multiple weeks of effort prior to finalizing bid

Limited strategic and commercial diligence► Target has a limited portfolio with a select number of assets driving deal value► Evaluate selected assets via primary research and sensitivity analysis

Targeted due diligence► Thorough diligence on one or two

lead assets► Typical private equity diligence

► Targeted research on biggest risks to deal value► In-depth interviews with KOLs, payers or other experts► Secondary research, literature reviews or other secondary data analysis

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Forecasting for deal due diligenceStructuring transactions to mitigate and share risks

► Sharing developmental and commercial risks and costs► Share increase use of options in alliances and M&A

► Option-based product licensing deals► Equity options on early-stage companies

► Evaluate contingent consideration tied to milestones► Milestones in alliances ranging from regulatory to reimbursement and revenue► Structured deals with contingent payouts, whether contractual or contingent value

rights (CVRs)► Consider corporate venture capital (VC) and/or VC co-investment in early-stage

assets

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Forecasting strategies and success factors - cbinet.com · WHO, IMS, DRI, BLS, Symphony Health, CDC, ISR, Cohen, US Census Bureau, National Health Surveys Salesforce intelligence