Market Barriers to the Development of Pharmacotherapies for the Treatment of Cocaine Abuse and Addiction: Final Report. Modeling Financial Return

09/12/1997

The level of interest on the part of industry in developing a new drug abuse medication depends primarily on financial criteria. Factors that may not appear to have direct financial import, such as social stigma associated with a product, inclination of caregivers to consider pharmacological as opposed to behavioral interventions, or corporate commitment to further the greater societal good, do have financial implications that are considered by companies. The financial impacts of such factors can be estimated and incorporated as such into decisions about pursuing projects.

Companies often have summary financial targets or hurdles that drive investment decisions. Two that are often used in industry and which are used in this report are net present value (NPV) and peak annual revenue (PAR). These and other related terms are defined in Figure 3 (earlier in the Methods section).

In principle, companies pursue projects that have positive NPVs. In addition, larger companies are less likely to be interested in a new drug for which projected PAR is less than $200 to 300 million. Of course, alternative projects that offer higher NPVs and/or PARs tend to be more attractive to companies.

Gauging whether a medication might generate a given level of annual revenue to a company is relatively straightforward, as it depends primarily on the number of patients taking a given amount of medication per day and the wholesale price (i.e., paid to the company) per day of the medication. Figure 17 (below) presents this fundamental relationship.


Figure 17: Peak Annual Revenue by Peak Daily Patients, at 3 Wholesale Prices

Figure 17: Peak Annual Revenue by Peak Daily Patients, at 3 Wholesale Prices

Source: Analysis by The Lewin Group


As shown in Figure 17, a new cocaine medication could achieve $200 million in revenue with 150,000 daily patients (i.e., who are on a prescription on any given day) and a wholesale medication price of $4.00 per day, or with 250,000 daily patients and a wholesale price of about $2.00 per day. In order to achieve $200 million at a wholesale price of $0.50 per day, there would have to be more than 1 million daily patients. The graph can be interpolated or extrapolated to estimate the number of patients that would be required at other prices in order to achieve an annual revenue of $200 million.