It takes real skill to market a drug or medical device properly, and sales can greatly suffer if a company doesn't do it right. A marketing miscue can turn even the best drug or medical device into a flop.
In this clip from The Motley Fool's Industry Focus: Healthcare, analyst Kristine Harjes is joined by healthcare contributor Brian Feroldi to discuss why they think that Acadia Pharmaceuticals (NASDAQ:ACAD), Portola Pharmaceuticals (NASDAQ:PTLA), and Ophthotech (NASDAQ:OPHT) should see huge demand for their products right our of the gate. Plus, the team offers three questions that all investors should ask that can clue them in to a company's chance at market success.
A transcript follows the video.
This podcast was recorded on Jul. 13, 2016.
Kristine Harjes: Pivoting the conversation a little bit to how investors can use this information, what does this all mean to an investor looking at a company and trying to decide whether or not they have a solid marketing effort and team?
Brian Feroldi: Right. I learned firsthand that just because you launch a drug or a medical device -- it could be great, it could be wonderful, but that doesn't mean it's going to sell well. There's truly a skill to marketing a device. It's something that's not always something that a company can get correct. I have three guide points that I look at when I'm investing to try to figure out ahead of time: OK, if this gets approved, what kind of chances does it have of seeing market success?
First question I ask is: Does the company that's launching the product have presence in the disease state already? Or, a partner that is in the disease state? For example, if Novo Nordisk, who is kind of the big dog in diabetes, if they launched a new diabetes drug, they would have, in my mind, no problem getting the word out and getting to doctors because they already have those relationships in place. But if you have a new company, or an established company that's trying to switch over to a brand-new disease state, that can be tricky. That's something that they might not get right the first time.
Harjes: This is [the case] a lot of the times that you see you company partnering with another company on their marketing efforts. If you know going into it, "I don't have any diabetes doctor relationships," then you can have a partnership where you'll forgo, maybe, a royalty on the sales for somebody else to take over for you and use their existing relationships and their marketing power.
Feroldi: Yeah, that's absolutely true. That's especially true for smaller companies. Employing sales reps is very expensive, and it makes a whole lot more sense to bring in a big partner with relationships already in place to help get the word out faster.
Harjes: Absolutely. What is the second thing you look for?
Feroldi: Sure. The second thing is: Is there an unmet medical need? Is this a disease state where there's no other approved drugs? One area that I look at are orphan drug makers, which can charge huge premiums, and you can bet that their patients are watching the FDA decision and biting their fingers to see if it's going to go their way. That's automatic built-in demand.
Another company I have my eye on recently is called Acadia Pharmaceuticals. They just launched a drug called Nuplazid, which is going to be used to treat Parkinson's disease psychosis. This is a disease that there's really no great treatment options for currently. Acadia chose to launch the drug themselves, and I don't see any competition, so I think they'll have quite an easy time marketing it.
Harjes: Acadia is a really interesting story. This is a pretty huge indication. Parkinson's disease psychosis occurs in about 20% of Parkinson's disease patients. So a lowball estimate would peg that at around 200,000 Americans currently suffering. Meanwhile, this is a drug with a $23,000 annual price tag. You multiply that out, and you get some really big numbers, but realistically you might be looking at around $4 billion annual peak sales. And they're not really up against any competition. Even though they are a pretty new company, a pretty small company, they should be able to very quickly build these relationships that we've talked so much about.
Feroldi: Yeah, that's the theory, right?
Harjes: Yep. We've got No. 1, for what investors should look for, is: Does the company have a presence in the market already? No. 2: Is it meeting an unmet medical need, or are there no other approved drugs? What is the third?
Feroldi: This is the best-case scenario of all. This is when another company is going to do all the work for you for free. These are what I refer to as off-balance-sheet sales forces.
Harjes: That does not sound like it should be a real thing. (laughs)
Feroldi: These are very, very rare. When a company like this comes along, I definitely put it on my watch list. This is a case where a drug comes out, and it works either in combination with some other existing drug, it makes that drug work better. I know you and Todd have talked a lot on the show about Portola Pharmaceuticals, and their factor Xa inhibitor antidote. You can bet that if that does hit the market, Johnson & Johnson, Pfizer, Bristol-Myers, they will be screaming from the rooftops about the drugs approval. Portola won't have to do anything.
Harjes: You know I love Portola Pharmaceuticals. I'll also add to that -- we've talked about them a ton, so I won't go too in the weeds here -- but these companies, the big guys, have already been handing Portola money to develop this factor Xa inhibitor antidote. You would think they're also going to be more than willing to hand out more money to get this drug off the ground.
Feroldi: Absolutely. Another one I think you talked about on the show is Ophthotech. Their drug Fovista works in combination with other drugs that are already on the market. Novartis' Lucentis, Avastin. It really makes those drugs work better, so same story. If Ophthotech can get approval for Fovista, you can bet those big boys will be pushing it.
Harjes: For sure. Brian, is there anything else you wanted to get out there for listeners before we close the show? Maybe an example of what could go wrong in the marketing of a drug?
Feroldi: Sure. Doing this the right way is really tough. We've seen a couple of cases where companies tried to launch on their own, and they didn't have the relationships and place. It can be exceptionally hard to be a small company and try and take on an established market. One recent example is Keryx Biopharmaceuticals. Their drug is called Auryxia, which is used to increase serum phosphate levels in patients with chronic kidney disease. This drug was launched in 2014. It was going up directly against Sanofi's Renvela. Doctors really were shy about prescribing it. And there really wasn't much Keryx could do to raise awareness for it. We just heard recently that they were going to be increasing their sales force by 50% in order to get the word out.
Harjes: That's definitely not a cheap decision.
Feroldi: Not at all.
Brian Feroldi has no position in any stocks mentioned. Kristine Harjes owns shares of Johnson and Johnson, Ophthotech, and Portola Pharmaceuticals. The Motley Fool owns shares of and recommends Johnson and Johnson. The Motley Fool recommends Novo Nordisk. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.