Saturday, April 14, 2007
Chantix: The making of a quiet blockbuster?
A recent post on BrandwekNrx gave us a preview of some of Pfizer's newer products. One product that seems to be generating some buzz is Chantix, Pfizer's new smoking cessation product. Given the past performance of Zyban and other Nicotine Replacement Theapies (NRT), most analysts had modest sales estimates. Analyst Les Funtleyder of Miller Tabak estimated peak annual sales of $900M.
Now that the product is generating some buzz and given that smoking statistics are easy to come by, Pharmalyst decided to take a look at building a peak sales model. In this post, Pharmalyst presents some US numbers. However global sales will be a big determinant of peak annual sales and will be the subject of a future posting. One interesting aspect of international sales is the pricing of the product. Typically prices are higher in the US than other developed nations such as the UK, Canada, France, Germany etc thanks to the bargaining power of single payer systems. In this instance however, Pharamlyst believes that the price of Chantix (regardless of the reimbursement status) in developed nations will be comparable to the US. The reason being that the pricing is done in reference to the cost of cigarettes and most developed nations tax cigarettes heavily. Regardless of the reimbursement status, most rich nation consumers will be willing to pay high prices given the value relative to the cost of their smoking habit.
Looking at the US, a 2005 CDC survey indicates that there are 45.1 million active smokers in the US (aged over 18). The same CDC survey reports of the 45.1 million smokers, 42.5% (i.e. 19.1 million) had reported giving up smoking for at least 1 day (i.e 19.1 million would like to quit).
How many of these 19.1 million wannabe quitters might be willing to try some sort of a therapy in a given year? This is hard to estimate since many of these smokers will try to quit cold turkey. Some will opt for alternatives like NRT and Zyban (though Pharmalyst believes that most willing to try Zyban will actually switch to trying Chantix first). Given that NRTs haven't been too successful, it is reasonable to assume that the biggest "threat" to Chantix is the cold turkey method. One good set of cold turkey statistics can be found in a CDC survey in 1991. This survey reports that in 1991, there were 40.5 million smokers. Of these 42.1% (17 million) attempted to quit (by reporting that they did not smoke for at least one day). In the same survey, 2.3 million (13.8%) reported not smoking for one full month (assumed to have quit). In 1991, presumably all the cessation attempts were probably done cold turkey. The success rate of this method then appears to be 2.3million/17 million or 13.5% (i.e. 86.5% failed). Applying the same percentages as the 1991 survey to the 2005 data, Pharmalyst believes 86.5% of the 19.1 million wanna be quitters are *potential* candidates for Chantix (most quitters make multiple attempts before succeeding). This works out to 16.5 million smokers. The remaining 2.6 million would have succeeded quitting cold turkey. In coming years too, it appears that there will be 10+ millions of potential candidates for Chantix given that the US has seen very marginal reduction in smoking rates (comparing data for 1991 and 2005 in terms of % of US population).
How many of these *potential* 16.5 million therapy seeking wannabe quitters will be persuaded to try Chantix in a given year? Again, hard to say and will depend on the success of Pfizer's promotional & DTC efforts. As a bold guess, Pharmalyst takes it to be the same as the number of people as those who succeeded using the cold turkey method (2.6 million). The rationale for this assumption is rather thin. It supposes that the 2.6 million who succeeded cold turkey comprised of the most determined bunch. Presumably a bucket of similar size exists for a group that is a notch less motivated than the former and this bucket is most likely to be persuaded to try Chantix (at least it beats pulling a number out of thin air!). Please e-mail me any other suggestions you may have (Pharmalyst@gmail.com).
How much moolah does 2.6 million Chantix customers translate to? The cheapest online prices for the full 3 month course of Chantix appear to be around $330. This being the sole product in its class, the margins claimed by wholesalers and retailers on this product will be the bare minimum. The overall profit margins for wholesalers like Cardinal, McKesson etc range from 3.5% to 11% (gleaned from their quarterly reports). Assuming that there is a markup of 20% total (~10% wholesale & ~10% retail), Pfizer makes about $265 per completed course. However the prescribing information document of Chantix reports that in its pre-approval trials, only 65% of patients enrolled completed the full trial(presumably the rest dropped out due to side effects, cravings etc). Pharmalyst assumes a similar completion percentage in the general population and assumes that customers unable to continue due to side effects etc are entitled to & do claim a full refund (not sure if this is the case).
Based on these (big) assumptions, the US revenues alone work out to (0.65*2.6million*265) or about $447 million on an annual basis! The actual figure could easily be double that (or even more, given the total potential market size) if Pfizer's DTC advertising succeeds in a big way. These figures coupled with the international sales figures (subject of a future post) make it seem to Pharmalyst that Chantix is a blockbuster in the making for Pfizer.
PS: See this to get some thoughts on why Chantix may not have such a rosy outlook.