How Much Do Analysts Hype Drug Launches?

File this under ‘you get what you pay for.’ Everyone loves to forecast. After all, a lot is riding on predictions, whether right or wrong. But how often is the crystal ball gazing generated by Wall Street analysts about prescription drug sales actually accurate? Well, it turns out, not so often, at least according to a new analysis by Nature Reviews Drug Discovery.

For instance, more than 60 percent of consensus analyst forecasts for more than 260 drugs that were launched between 2002 and 2010 missed by more than 40 percent of actual peak revenues. Some were under and some were over. And a significant number were overly optimistic by more than 160 percent of the actual peak sales. Meanwhile, the variance in peak estimates was 45 percent compared with actual peak sales six years after launch.

There are also notable differences in estimates for medicines launched by big drugmakers and smaller counterparts. Why? The journal posits the difference can be traced to higher quality and more analyst coverage, known as the ‘sell side’ on Wall Street. In any event, the average bias among estimates for big pharma drugs is low, but forecasts for drugs from smaller companies tend to overestimate peak sales by more than 30 percent, Nature writes.

The journal also found that sales for cardiovascular and central nervous system drugs were most often overestimated, while oncology treatments were generally underestimated. It appears, the journal writes, that forecasts overlooked the full potential of additional indications that were later approved after the initial launch (here is the complete analysis).

“Perhaps surprisingly, analyst forecasts for ‘follow on’ therapies are no more accurate than predecessor ‘first-in-class’ therapies, despite a greater understanding of the disease pathway, market adoption (and) usage patterns,” the journal suggests.

(YCharts addeddum: the Pharma companies themselves guess wildly wrong on the prospects for new drugs, as shown by this shocking article on the true costs of drug R&D. AstraZeneca (AZN) fared worst in this analysis, with GlaxoSmithKline (GSK) and Sanofi (SNY) also slow footed in the lab. Amgen (AMGN), Novartis (NVS) and Birstol Myers-Squibb (BMY) did better.)

AZN R&D Expense TTM Chart

AZN R&D Expense TTM data by YCharts

AMGN R&D Expense TTM Chart

AMGN R&D Expense TTM data by YCharts

(Further YCharts addendum: Of course, it’s not just how much a drug cost to develop that matters, but also its eventual sales levels. Pfizer’s (PFE) many R&D failures were made up for by its acquisition of Lipitor: lifetime $131 billion-plus in sales. And some companies, such as Roche (RHHBY), appear to have turned around formerly lackluster R&D operations.)

To read the remainder of this article, go to Pharmalot.

Ed Silverman, a contributing editor of YCharts, is the founder and editor of Pharmalot. He previously reported on the pharmaceutical industry and other business topics for the Star-Ledger of New Jersey, New York Newsday and Investor’s Business Daily. He can be reached at editor@ycharts.com. Read the RIABiz profile of YCharts. You can also request a demonstration of YCharts Platinum.

Read more articles about: Company Analysis  pharma stocks   

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