By Marc Goemans
When pharmaceutical companies introduce a new drug to market, they invest enormous amounts of capital, and assume equally enormous amounts of risk. As it usually takes three-to-four years to prepare manufacturing capacity for the large scale production of a new product, the decision as to how much volume a company will need often must be made before Phase Ill trials are completed. At that point, it is difficult for developers to forecast demand. Therefore, deciding how much manufacturing capacity they will need is problematic, to say the least. Underestimating or overestimating demand can have a devastating impact on the bottom line. If companies set their estimate of the demand for a new product too low, they will under-produce, and miss out on never-to-be replaced revenue. If they set it too high, they will invest in too much production capacity, and drastically cut into profits.