In the increasingly complex world of biopharmaceutical commercialization, executives at emerging companies are often faced with the need to understand what levels of spend are appropriate for successfully launching a product. And while every company is different, and every launch is different, all face the same question: What is the optimal level of commercial spend needed to maximize the probability of a successful product launch?
Syneos Health has attempted to answer this question through an in-depth analysis of pre-launch and launch selling, general, and administrative spend (SG&A) in a sample of 19 emerging companies launching their first product. Key findings include:
Companies spent a total of $187M, on average, across the three years prior to and including the launch year. In addition, Syneos Health found that every company that spent less than 75 percent of their launch year forecasted revenue in the year prior to launch was unsuccessful, as indicated by missing their forecast.
Spending more does not necessarily correlate with higher rates of launch success. In fact, 40 percent of companies that spent above 250 percent of the launch year forecasted revenue did not achieve a successful launch.
Successful launches were associated with significantly higher pre-launch and launch SG&A spend than unsuccessful launches. Specifically, the median SG&A spend of successful companies was ~120 percent of their launch year forecasted revenue in L-3 and L-2, ~210 percent in L-1, and ~330 percent in the launch year. In contrast, the median SG&A spend for unsuccessful companies was less than 40 percent of their launch year forecasted revenue in each of the years preceding launch, and only 60 percent in the launch year.
What factors typically influence SG&A spend?
There are a variety of internal and external factors that affect a company’s pre-launch spend decision. The most influential internal factors are usually a company’s financial situation (e.g., limited budgets may require stage-gating of spend), level of development risk (e.g., developing unproven classes of drugs/MOAs or launching in therapeutic areas with limited regulatory precedents), and corporate strategy (e.g., partner, out-license, or go it alone?).
On the other hand, the largest external factors affecting level of spend typically relate to customer base characteristics (e.g., may require direct-to-consumer (DTC) campaign or a robust disease awareness program) and the competitive landscape for the product indication (e.g., need to differentiate against competitors or demonstrate product value).
The final word? Emerging companies should be cognizant of their level of spend. A strategic analysis of influential factors, such as level of development risk, corporate strategy, customer base characteristics, and competitive landscape can help emerging companies determine whether to spend more or less, earlier or later in the process as they bring their first product to market.
This is the first in the Syneos Health “To spend or not to spend” series – read the full article here. Part two will dive deeper into how biopharma executives decide on when to invest, how much to invest, and what factors influence those decisions along the way.