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In discussions with pharmaceutical industry leaders, it’s clear that regardless of company size, product type, or market, the challenge of demand forecasting is significant. In October 2015, Patheon CEO James Mullen addressed it in “Does Pharma Demand Forecasting Keep You Awake at Night?” for Life Science Leader magazine. The problem, he wrote, is that to estimate future needs, “Pharma companies develop forecasts, and often quite sophisticated ones, too. But, by definition, forecasts are never 100 percent right. And it’s especially difficult to predict sales in markets that are likely to see the introduction of numerous competing products.”
Mullen’s article resonated, and led to a number of discussions with our clients about how to address the challenge. To understand the prevalence of demand forecast inaccuracy – and the struggle to bring new products to market – Patheon commissioned ORC International to conduct in-depth interviews with 50 pharma industry executives with experience creating or implementing demand forecasts for commercial launches.
The study confirms Mullen’s assessment. Every respondent said their forecasts either over- or under-estimated demand – indeed, future demand, they said, was the most difficult variable to predict. The majority of respondents said they over- or under-estimated demand by up to 25%, with some indicating that they were off by 26%-50% or even 100%. Nearly all respondents said that demand forecasting influences manufacturing decisions “a great deal.” They also noted that the consequences of inaccurate demand forecasting can be reputational damage, market share loss, lost days of production, destruction of inventory, and layoffs.
A large majority of survey respondents said they plan to invest in improving their forecasting tools; almost all said they will be honing their inputs and assumptions over the next few years. And as long as there’s a satisfactory rate of return on investment, pharmaceutical companies should continue to try to improve the accuracy of their forecasts.
But that’s not all they should be doing.
The roots of forecast inaccuracy
Demand forecasts are often wrong because they are developed to inform manufacturing commitments as many as four to five years before product launch. Naturally, between the forecast, and when the drug goes into production, variables and market conditions change. Several years out, it’s impossible to say what competing products may enter the market. The regions and populations for which the drug will be approved cannot be known for certain, and any constraints that will be imposed by payers can only be guessed at.
As contractual relationships with CMOs are driven by forecasts – especially critical elements like pricing, capacity availability, and financial agreements such as take-or-pay contracts – inaccurate forecasts can “result in unfavorable pricing, financial penalties, and inappropriate capacity,” according to Jim Miller, President of PharmSource, a pharmaceutical industry contract manufacturing intelligence firm.
Everyone in the industry is trying to improve their forecasts, but there is a limit to how good they can get. As long as they have to be developed several years before launch, they will never be 100% right. Nearly all respondents noted that the absolute most unpredictable variable in the demand forecast is the estimate of market demand. When you’re trying to project market behavior three years in advance, even the most sophisticated forecasting models will suffer some level of variability.
This is why Mullen wrote, “Instead of forever seeking more-certain forecasts, I believe we should be talking about how to provide flexible, scalable capacity that can accommodate the uncertainty. With sufficient flexibility, the need to accurately forecast demand for a product that does not yet exist is relaxed.”
The results of the ORC International’s research validate the changes Patheon has made to our commercial contract manufacturing services. Our new suite of outsourcing services, which are unique in the pharmaceutical CMO sector, provide flexible and scalable capacity – what Patheon calls “adaptable capacity.”
Many pharma companies – including virtually all of the top 25 global players – have more than one product launching within the 18-month planning window. Some products are global, others regional; there are a hundred variables that determine the optimal manufacturing solution. Based on the client’s needs, Patheon now offers a variety of adaptable manufacturing arrangements for the industry:
DEDICATED CAPACITY. Companies that have multiple products in similar formats (vial, capsule or tablet) launching within 18 months need a dedicated facility, or line, so they can modify their manufacturing schedule until they can understand the exact market demand for each product. Within the dedicated capacity, a customer can determine how much is used for each product, and can transfer technology in and out of the line without additional fees.
FRACTIONAL CAPACITY. For companies that don’t have the budget (or the volume) for a dedicated facility or manufacturing line, Patheon builds a single CMO facility or line for two or three clients, providing flexible capacity for each. This model is less expensive than the dedicated line, but still provides flexibility and scalability.
FLEXIBLE NETWORK ACCESS. For regulatory purposes, global companies often need manufacturing capabilities in North America and Europe. Or they simply may want on-demand access to capacity without preference for location. This model assures the client anytime access to a specific type of capacity within Patheon’s global network within a specified period. Clients can adjust the product mix with the assurance they will have the right type of capacity when they need it.
CONDOMINIUM CAPACITY. A fully customized solution for a company introducing a new product with unique characteristics (e.g., complex formulations or delivery systems) that cannot be manufactured on a conventional manufacturing line. Patheon provides design services, works with equipment suppliers, validates the process, builds the line, and manages operations on behalf of the client. Overhead is shared, and the line can operate as needed to meet demand.
ENTERPRISE. A solution for companies that own facilities in need of operational improvements. Some facilities may need to repurpose existing equipment; some should be closed. Patheon can manage these facilities to accomplish those goals while allowing companies to focus on their core competencies.
These five scenarios are points on a spectrum. Patheon also can customize solutions to match specific client needs.
ORC International’s research reflects some of the uncertainty pharmaceutical companies face today. In response, Patheon offers a range of models that accept the reality of uncertainty, and provides flexible and scalable approaches. Our solutions can’t eliminate risk, but they will help mitigate it.
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