The simplest part of pharmaceutical revenues to model are the revenues from drugs that have been marketed (approved and available) for long enough to have established their level of sales. However even these, although comparatively reliable, are subject to various fluctuations:
- trends in demand, which are usually long term and gradual,
- the entry of new competing drugs, which usually has a limited negative effect,
- the emergence of new data on safety or effectiveness, which can drastically damage sales,
- expiries of patents and exclusivity periods.
Of these, the emergence of new data is completely unpredictable, and there is little investors can do about it other than following this type of news as closely as possible.
Trends in demand are unimportant for many drugs, however there also many cases where there are significant changes in demand, for example:
- as a result of demographic changes such as the ageing population,
- as a result of changes in medical practice and diagnosis, for example, ADHD has become far more commonly (if controversially) diagnosed over the years.
The analysis of trends is not greatly different from any other industry. The same is true of the entry of new products: although it is worth noting that the position of established products is quite strong.
Patent expiry, and similar loses of monopoly positions granted by regulators, are of great importance because of the rapidity with which generics are now adopted.