Michael Sassano & Antonio Guedelha: GMP# 17: GMP Market Forecasting and Budget Management

Authored By: Michael Sassano & Antonio Guedelha  The process of forecasting is complex when you want to bring a new medicine to market.  GMP processes are slow and have an intense workload for documentation of new products that depend on the country regulators’ scheduling, further complicating release forecasting for medical products. Even more challenging are the rules for disjointed regulations, as there is a lack of uniformity across countries for new items like pharmaceutical cannabis products.  A survey of senior pharmaceutical managers reported that most pharmaceutical companies had miscalculated demand for new medicines by up to 25% on average and reached 50% errors.  Making accurate demand forecasts is exceptionally challenging for pharmaceutical companies, but your company’s health depends on it. Overestimations in demand generally happen when the market is volatile and if the distribution reach is too optimistic. These inaccuracies can cause companies to raise capital early and create distrust in execution.

7 Types of Forecasts for Pharmaceutical GMP Facilities 

 

Forecasting New Products for Pharmaceutical GMP Companies

In the case of new GMP product forecasting, your company may use various methods to fit your product’s unique needs.  Before launching a new product in the market, companies make forecasts about their drug to know how it will perform in the market. A straightforward forecasting method in the pharmaceutical industry involves targeting the drug’s patient population. The main steps to identify your target population are: 

1. Analyze the population data
2. Analyze the prevalence rate of the disease (percentage of the population with the condition)
3. Analyze the diagnosis rate
4. Analyze treatment rate with the medicine

For example, let’s forecast a cannabis magistral product for chronic pain in Germany.

1. Germany’s population is 84 million, with a regular population increase rate of 1%
2. Germany’s percentage of the population with chronic pain is 17%
3. Germany’s diagnosis rate for chronic pain is 93%
4. We’ll assume a treatment rate with the medicine of 80% for this example

Using this data, we calculated the forecast model attached below. If we consider the treatment rate as one pill per day, the forecast is equal to the values in the last line of the table.  

Forecasting Existing Products for Pharmaceutical GMP Companies

The method for forecasting an existing product in the market is based on that product’s sales data. Using IMS HEALTH data, you can easily analyze how many product units were sold in prior years and see trends and competitors. Suppose you are planning on starting sales of a product already in the market. In that case, you should define a percentage of the market you want to reach and make your forecast. Remember that GMP rules prolong all processes, so plan the time to market accordingly.  

Forecasting Contract Manufacturing for Manufacturing Facilities

Contract manufacturing forecasting is dependent on your client and contract. Normally, you specify a minimum quantity in the contract and ask for a rolling forecast with the first three months fixed with purchased orders to enable proper planning.  

Compiling a Global Pharmaceutical Production Capability Forecast

With the above methods, your team can compile a global forecast. Your company will analyze the total estimates for supply capacity and note if your company needs to buy products from other vendors and/or increase production facility capabilities. This forecast should be converted to the sales value and be based on the sale price.  

Budgeting is Essential for Proper Pharmaceutical GMP Forecasting

Budgeting is challenging and imprecise for startups, so constant attention and re-calibration of budgets are vital for early-stage companies.  The standard procedure is for each company division’s manager to submit proposals for their budgeted departments, including personnel hiring and needs for the following year. Usually, financial planners should prepare forecasts and budgets for the next year by November, giving your company time to analyze and make corrections until the final budget approval. The CFO will then coordinate all the managers’ requests for global support to solidify the corporate budgets for expenses and sales forecasts. Once again, GMP impacts the budget through procedural hurdles inherent to the process, like costs for validations, qualification, audits, calibration, external quality services and other line items.  

Profit and Loss Tables Help GMP Facilities Predict the Future

Create a profit and loss (P&L) table to show what the company will earn next year based on sales value, budget, material costs, services, energy use and other expenses. Most of the time is necessary to adjust the forecast and budget to achieve accurate cash flow results. At times, P&L tables can help leadership make serious decisions that ensure your company’s health.   

Make Your Pharmaceutical Forecasts Function Using an ERP

Incorporate the above forecasts in your facility’s enterprise resource plan (ERP), which your company has in place to connect interdepartmental operations seamlessly. All departments need to prepare their budgets and input data into the ERP. For example, it is necessary to integrate sales team inputs into forecasting and sales prices. The financial division will verify and control all inputs and extrapolate a P&L using the ERP. Then, the finance team will discuss their data and budget items with each manager and prepare the final report to present to your CEO and board.  

Avoid Tomorrow’s Financial Mistakes via Today’s Forecasts

Your company’s financial health depends on the precision with which you forecast and control expenses. Making buffers for receivables and verifying your profit equations are all tactics to keep in mind. Cash flow crunches can be managed and even sidestepped if you prepare.