We performed a market analysis for a prospective cocaine medication from a pharmaceutical company's perspective. The purpose of this market analysis was to estimate how costs and revenues would be accrued over time in the development and commercialization of a prospective cocaine medication.
We first focused on estimating the market size for substance abuse treatment, and, more specifically, for cocaine treatment. Also, we described both the revenue potential and potential sources of payment for cocaine treatment.
As such, we compiled data on the following:
- the prevalence and incidence of opiate and cocaine addiction (including available demographic information such as age, sex, and income of addicted individuals)
- current rates of treatment for opiate and cocaine dependence
- existing patterns of service delivery and financing for drug treatment
We relied primarily on data in the public domain. Data sources, grouped according to the type of information contained in the data set, are shown in Figure 1 (below).
In addition, we conducted a limited but targeted literature search of the gray literature (e.g., MEDLARS, Dialog, National Newspaper Index, other published studies and commissioned reports, and product packaging and marketing materials) to look for existing market size estimates of the anti-depressant drug market that we could compare to our opiate and cocaine addiction market size estimates.
Market Analysis Model
Drug development decisions of pharmaceutical companies are primarily based on business and economic factors--essentially whether a particular potential medication might be sufficiently profitable if it is successfully developed. Expected profitability of a particular product is determined by a combination of such factors as:
- development cost
- sales of the product
- cost of manufacturing, distributing and marketing the product
- duration of the development and product/sales life.
In order to analyze and better explain the development decisions of pharmaceutical companies, we developed a market analysis model that incorporates these factors. This model allows simulation of the economics driving a particular development decision and assessment of the sensitivity to various market and policy scenarios. The potential commercial attractiveness of a cocaine medication is assessed using this model, and selected values are believed to be plausible. In addition, the model is used to examine the sensitivity of conclusions to variation in particular factors The model was built on a spreadsheet, and has a user-friendly interface to enable determining how modification of inputs affects the two main output variables, PAR and NPV. Details about the model are given in the appendix.
For purposes of designing this model, it was assumed that a pharmaceutical company's assessment of the attractiveness of a potential medication/product can be based largely on certain financial indicators, e.g., product net present value (NPV) and peak annual revenue (PAR) of the product. Using information from other aspects of the project, various potential market conditions were translated into financial and other parameters that were fed into the model to generate NPV and PAR calculations. The input variables used in the model are shown in Figure 2.
A listing of terminology relevant to this report is provided below in Figure 3.