Market Barriers to the Development of Pharmacotherapies for the Treatment of Cocaine Abuse and Addiction: Final Report. Basic Relationships of Price, Market Size, and Revenues

09/12/1997

As described above, on any given day there are 250,000 cocaine patients enrolled in treatment, out of an estimated 2 million cocaine addicts in the U.S. If a new medication were used by every current patient in treatment, the medication would have to sell at just over $2.00 per daily dose wholesale ($2.20 to 4.00 per day retail) in order to generate $200 million in annual revenue, as shown in Figure 14 below. If the peak market penetration is only 50 percent of current patients, the wholesale price will have to be over $4.00 per daily dose. On the other hand, if the number of cocaine patients in treatment can be doubled, the necessary wholesale price would only be about $1.10 per daily dose. In light of the importance of achieving significant market penetration, it is important to note that for the drugs LAAM and naltrexone, market penetration in the first several years has not reached 5 percent (see Case Study section).

Decision makers in industry must consider:

  • how many patients would use a cocaine medication (as modulated/governed by their providers)
  • how sensitive demand will be to price
  • how much payment will be forthcoming for the added cost of medications.

If PAR is substantially below $200 million, or some other acceptable industry threshold, there may still be commercial interest if there is reason to expect a sufficient NPV. This will depend primarily on costs of development and production relative to the expected lifecycle of revenue. In order to elicit significant pharmaceutical company development interest at revenue levels below $200 million, the expected costs of development probably would have to be lower than for a "typical" medication. According to 1994 estimates by the former congressional Office of Technology Assessment (OTA), it cost an average of about $150 million in cash outlays, and a capitalized cost in excess of $350 million over 12 to 15 years to develop a successful new medication, including the costs associated with development of drugs that never reached the market. The cash outlays for any given drug that did reach the market, not including the burden of cash outlays for drugs that did not ultimately reach the market, were generally less than $50 million per successful drug in the OTA report.

Figure 14: Wholesale Price of Daily Medication Needed to Yield $200 Million in Annual Revenue, by Number of Daily Clients

Figure 14: Wholesale Price of Daily Medication Needed to Yield $200 Million in Annual Revenue, by Number of Daily Clients