Biotechnology companies use live organisms to produce medicines, vaccines, and other products. On the other hand, pharmacology deals with chemical-based medicines and vaccines. BioPharma is a company that produces both pharma and biotech products. Whether you plan to engage in one or do both will depend on your capability and available resources. Some top biopharma companies are Johnson & Johnson, Ely Lilly, and Pfizer.
You have to factor in various considerations when projecting for pharma/biotech sales because of its complex nature. Taking into account all these factors will help you better project your sales accurately. It is also important to note that we are considering a startup company with no sales data available here.
1. Projecting Sales
a. Sales Channels
Sales for pharma biotech may come from many channels, such as product sales, licensing, and milestone payments.
- Product Sales – Distributing your products mean higher return. But you also have to consider the costs involved, such as the promotions, staffing, and distribution logistics.
- Licensing – For licensing, your partner companies will do the distribution for you. You then receive a licensing fee. You may incur no costs at all.
- Milestone payments – It comes from the payment of third-party buyers wherein they pay you a certain percentage upon signing the contract, and then the next payment will be on the final delivery.
b. Market Size Estimation
Based on your research and market analysis, you can identify the Total Addressable Market (TAM). TAM is computed by multiplying the number of customers by the average spend per customer. Out of the Total Addressable Market, you can estimate a certain percentage for Serviceable Available Market (SAM). SAM is further narrowed down into Serviceable Obtainable Market (SOM). SOM is the basis in computing for sales.
c. Patent Years
Patent medicines command higher prices since you have the exclusive rights to produce specific products. Sales should account for the patent period and adjust post-patent. After the patent expires, it is expected that products’ prices will decrease.
d. Success Probability
Developing new products is risky. There is no assurance that it will be a success. It takes years to develop a product that will go through different phases and approvals before it is out in the market. Also, if a new product is controversial and is not accepted by the medical community and society, you are out of luck.
Accounting for a success probability of a product will only account for the percentage you allocate per product. Let say that for early-stage product development, the probability is 20%. So, you only account for 20% of the total expected sales of that product.
Presented above are crucial factors in projecting sales of your pharma/biotech company. eFinancialModels offers financial model templates for pharma biotech with well-thought structures and includes all critical metrics in projecting sales and assessing the overall viability of your pharma/biotech company. You can choose from these financial models for your financial planning to save you time and resources compared to starting from scratch or hiring a consultant to do it for you.
About the Author
Lellith Garcia is the Marketing Manager of eFinancialModels.com, which provides a rich inventory of industry-specific financial model templates in Excel spreadsheets. Lellith has been involved in preparing various financial model templates, which are loved by entrepreneurs, consultants, investors, and financial analysts looking for assistance to speed up their financial modeling tasks.