Assessing the Economics of Biogenerics

Abstract

Investment in the development of biogenerics is frequently seen as a means to escape the intense price competition that characterises the generics market. As the costs of goods sold are much higher for biopharmaceuticals than for synthetic, small molecule drugs, however, and successful market penetration may be more difficult to achieve, economic profitability is not guaranteed. One way to avoid unpleasant surprises is to invest early in the development of economic models that allow decision makers to understand the risks, rewards and sensitivities of the biogenerics business before significant investments are committed. As pricing will be decisive for commercial success or failure, careful pricing studies, such as conjoint analyses, are suggested.

Keywords

biogeneric economic model valuation costs of goods sold conjoint analysis development and commercial risk

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11.

This case is highly simplified. For example, manufacturing risk and risk of no approval are not considered here. A real NPV analysis would be more detailed and elaborate.

12.

A conjoint analysis suggests ‘preference’ share instead of market share. It is, however, possible to convert preference share to estimated market share.

13.

For biopharmaceuticals COGS are usually less than 40 per cent of sales. When biogenerics are offered at a discount, however, COGS can be considerably higher.

14.

In the real world, a $1m negative or positive result is not decisive. Due to the uncertainties concerning the values of the input parameters, managers would look for a clearer indication of value creation or destruction.