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Challenge assumptions and reset expectations when it comes to pre-launch SG&A investment to increase the odds of commercial success.
Companies decide how much to spend for launch based on many factors, including their expectations for the product and where it fits in the overall corporate strategy. It is common, though, for companies to wait to increase their spending until the year before launch. This is especially true for emerging companies that tend to be resource-constrained and risk-averse until they are certain that launch is imminent. The problem with this wait-and-see approach is that many clinical-stage companies find themselves either underfunding launches and underperforming in the market, or overfunding launches too late in the launch period in an attempt to catch up, thus incurring costs that do not add incremental value to commercial success.
Syneos Health conducted a survey and executive roundtable of more than 300 industry leaders across biopharma, finance, and advisory executives in small-to-midsized companies to better understand their experiences in launch investment strategy, including launch forecasting; breakeven expectations; timing, levels and drivers of launch and Selling, General & Administrative (SG&A) spend; and key areas of spend. We explored potential reasons why executives tend to underspend, how spend expectations differ by role and experience and how companies can course correct.
We previously published an in-depth analysis of pre-launch/launch-year SG&A spend in a sample of emerging companies launching their first product to understand the threshold of SG&A investment needed to increase the probability of a successful launch. As shown in Figure 1 below, the study found that companies that spent a minimum of 75% of their launch-year forecasted revenue in their pre-launch year (L-1) had higher rates of launch success as defined by achieving analyst consensus forecast.
Not a single company that spent less than 75% of their launch year forecasted revenue in L-1 achieved a successful launch. Excessive overspending didn’t necessarily help either. Less than half (40%) of the companies that spent more than 250% of their launch-year forecasted revenue in L-1 failed to achieve their forecasted revenue potential. The study revealed an L-1 launch spend “sweet spot” in the 75% to 250% range. While companies frequently underspend, investors and advisory professionals who guide biopharma executives on these exact SG&A decisions consider higher levels of spend more appropriate.
This difference may be due to an inclination on the part of biopharmaceutical executives to hedge development risk by tying spending to expected development and financial milestones, such as clinical program progression, fundraising and partnering agreements, and regulatory filing acceptance/ approval. Stage-gating is an industrywide practice, and a high proportion of biopharmaceutical executives in our survey (78%) indicated they have delayed launch spend due to a stage-gating strategy. However, it can be challenging to “catch up” in spending after milestones are met, potentially resulting in an inefficient use of resources and a shorter planning window available around launch. The runway from investment to approval might be as short as six months, leaving little time to sufficiently lay the groundwork and prepare the market for product entry and market access, especially for more innovative or potentially practice-changing therapies.
Executives may have low pre-launch spend expectations for other reasons, too—for example, if they perceive there will be difficulty making the business case for investment; if they experience challenges in their ability to demonstrate cash management abilities to the company’s board and investors; or if they have other priorities given their assessment of product potential or its place in their overall corporate strategy.
We also assessed to what degree biopharmaceutical executives’ pre-launch spend expectations might be influenced by their previous launch experience. As shown in Figure 2 below, we found those who had launched at least three products are not only willing to spend more each year pre-launch than their less experienced counterparts, but also tend to invest more appropriately. Specifically:
Our research suggests that it is wise to challenge assumptions and reset expectations when it comes to pre-launch SG&A investment, both with regard to the timing of certain activities and levels of investment needed to increase the odds of commercial success. Strategies include:
Risk is inherent to the business of drug discovery, and clinical-stage companies launching their first product have an acute awareness of this fact. This, in part, helps explain why many companies either underfund launches while hedging bets on their product’s potential, or attempt to play catch-up too late in the game and end up incurring unnecessary costs that add little incremental value. Keeping the above strategies in mind—which will involve thoughtfully challenging a few assumptions about pre-launch SG&A spend along the way—can help emerging, clinical-stage companies spend more appropriately and strategically, thus increasing their potential for launch success.
Naveen Murthy, Senior Managing Director, Head of Product and Franchise Strategy, Sachin Purwa, Michael Sarshad, Directors, Scott Coons, Launch Manager, all with Commercial Advisory Group, Syneos Health Consulting