Pharmaceuticals & Biotech

Pharma, don’t abandon the blockbuster drug model just yet

By Joshua Hattem, RJ Rovner, Ana Elhom, and Lyle Wistar

Jan. 5, 2024 | Article | 9-minute read

Pharma, don’t abandon the blockbuster drug model just yet

There is a belief in the zeitgeist that the pharma blockbuster model is in decline—it’s the end of an era. Make no mistake: If true, this would spell catastrophe for the industry. The average large-cap pharma company enjoys more than 80% of its gross revenue from blockbusters, a number that would be even higher if you included free cash flow. If you were to replace future blockbusters (which we define as products with greater than $1 billion in global sales potential) with the average $500 million to $1 billion product, annual new product approvals would need to quadruple to keep pace with industry growth expectations. This is an implausible goal in the next decade (or two). If blockbusters disappeared, after the initial wave of consolidation, much of the capital flow we see today from big pharma to development-stage companies would vanish, and the narrower opportunity for a high-return exit would push early-stage capital out of the industry. The substrate would dry up.


We sought to determine whether this threat is real. Like an asteroid hurtling through space, there is some chance it will connect with earth and end life as we know it…eventually. But make no mistake, there is no imminent risk of decline in the blockbuster model. In fact, it is thriving and acting as a salve for the industry against other pressures.

The myth of the disappearing blockbuster drug

To assess whether blockbusters are becoming less common, we looked at risk-adjusted consensus forecasts provided by Evaluate Pharma for the next three years of new product launches. This risk adjustment is critical as there is significant uncertainty in which late-stage products will make it to market, so using risk-adjusted asset forecasts helps account for clinical and regulatory failure across the cohort of launches. With adjustments derived from historical forecast attainment, we developed a model to use these consensus forecasts to predict the fate of future launches. Assuming a flat number of new drug approvals and an underlying distribution of product-level revenue that’s in line with historical norms, we project nearly a quarter of 2023-2025 launches will become blockbusters. This will be the highest number of blockbusters of any launch cohort in the past two decades.


We investigated historical forecast accuracy by pulling comprehensive consensus forecasts for products anticipated to launch from 2014-2016 (December 2013 archive data) and 2017-2019 (December 2016 archive data) and comparing them to actual outcomes for products launched in those years. In aggregate, the sum of risk-adjusted consensus forecasts for each of these three-year launch cohorts was within ~20% of actuals, although there were significant issues beneath the surface. While analyst forecasts are appropriately used across our industry for a range of critical business analyses, they are not perfect. There are a few points our analysis uncovered that should be kept in mind when looking at consensus forecasts for future launches:

  • Around 75% of products anticipated to launch between 2017 and 2019, based on consensus forecasts, didn’t launch in that window. Risk-adjusted forecasts for these products were on average around one third the size of those that did launch. One could argue this represents effective assessment of technical and regulatory failure risk by analysts. It could also reflect more general pessimism about these assets.
  • A third of the drugs that came to market from 2017-2019 did not have consensus forecasts as of December 2016. Revenue generation for these products in the first four years on market was half of that for products that did have consensus forecasts, on average. Many of these products may not have received forecasts from enough of the analyst community to establish consensus because they were not driving company valuations.
  • For products that launched from 2017-2019 and had consensus forecasts, we observed a systematic bias in the forecasts toward a presumed mean. Most products with global revenue below $250 million at peak underperformed even their risk-adjusted revenue forecast. Most blockbusters overperformed their risk-adjusted forecasts, and this overperformance was most pronounced and well beyond reasonable risk-adjustment for the strongest revenue performers (e.g., Biktarvy revenue in 2021 was around four times its consensus forecast).

FIGURE 1: Sales performance by launch class

The opportunities for blockbuster drug success

This positive trajectory in generating new blockbuster drugs is good news for the industry but will require even greater vigilance and capabilities in finding and developing future blockbusters to maintain growth. The good news is that the industry is nowhere near the point of optimizing portfolio planning, which could increase blockbuster hit rate while containing ballooning R&D costs. Some companies are better than others at picking future blockbusters while pruning low potential assets. Of the top 15 large-cap pharma companies, the five with the highest blockbuster hit rates launched an average of 15 new drugs in the last decade, half of which were blockbusters; the rest launched an average of 18 new drugs, only five of which were blockbusters. There is no relationship between the percent of revenue a company spent on R&D and its blockbuster hit rate (see Figure 2). Smarter spending, not more spending, yields more blockbusters.

FIGURE 2: R&D spend vs. blockbuster hit rate

This judicious use of resources with a focus on blockbusters links directly to value creation for shareholders. ZS research shows a strong correlation (r2 = 0.5) between the proportion of a big pharma company’s gross revenue from blockbusters and the total shareholder return (TSR) generated over the last decade. There is an equally strong negative correlation between revenue from products with less than $500 million in global sales and TSR. Turning down clinically promising assets with more-limited commercial value can be just as challenging as picking future blockbusters from the pipeline. Both are critical.


Many pharma companies struggle to ground decisions on early-stage and preclinical assets in data-driven approaches to estimating risk and commercial opportunity. Too often, we see companies with multiple disjointed portfolio strategies rather than a single unified vision across research, development and commercial. This can lead to disagreements about whether to make further investment into a project after years of investment have already been made.


Organizations that succeed with blockbuster focus proactively develop disease area strategies that guide R&D investment, sometimes prior to even having an asset in the clinic. These strategies need to look forward at least five to 10 years, take a position on the commercial value of theoretical future innovation and give explicit guidance on product concepts that are investment worthy. Successful companies will also develop clear criteria for what constitutes minimally viable clinical outcomes for future products before those outcomes are known and hold pipeline assets to these standards. Even for the best, there is still considerable untapped potential for harnessing advanced analytics in commercial potential and technical and regulatory risk assessment.

3 headwinds to new blockbuster drug success

Of course, the industry still faces big challenges despite its success finding new blockbusters year after year. We see three key headwinds putting pressure on large-cap pharma’s ability to maximize the value of the blockbuster model:


Indication expansion. The Inflation Reduction Act (IRA) has created pressure on pharma’s ability to maximize value from indication expansion with blockbusters. Around half of blockbuster revenue for the average large-cap pharma company comes from products indicated for multiple disease areas, and for 40% of these blockbusters, the most commercially valuable disease area is not first to market. As the window of opportunity before IRA price negotiation shrinks to nine years for small molecules and 13 for biologics, pharma stands to lose significant value from these follow-on indications. The impact will be felt most for small molecules in oncology, where initial launch is frequently needed in later lines of therapy that are less commercially attractive, and clinical trials for early line indications, which can take many years to complete. It will be critical for companies to initiate robust life cycle planning before the lead indication is selected for promising new assets with multi disease potential.

FIGURE 3: Blockbuster sales by number of diseases allocations

Net price erosion. There is a well-documented trend that net prices are in decline and discounts off gross prices could be 50% or more for a large-cap pharma company. Even a 1% annual decline in net prices can be detrimental to a company seeking 5% annual growth in net revenue, as they need to find an additional 20% growth in sales from their product portfolio to compensate. As the IRA comes into effect, required rebates for list price increases above inflation will further impair the ability of pharma companies to protect against net price erosion through list price increases. However, net pricing pressure is not uniform across disease areas, so there is opportunity to be proactive by incorporating market access and pricing pressure as key considerations in portfolio strategy and skewing the search for future blockbusters toward more erosion-resistant areas.


Stronger footing of small-cap pharma. This is not a challenge for the blockbuster model but affects the distribution of its value across the industry. Development-stage biotech companies are in a stronger position today to bring blockbusters to market as they skew toward indications with fewer addressable patients and higher price points, where capital requirements for registrational trials and commercialization are lower. As of May 17, 2023, we estimated approximately 60% of the blockbusters that will launch in the next three years are owned by small- or mid-cap pharma. Of course, many of these will have large-cap pharma partnerships, which will accrue a percentage of the product’s value. As late-stage deals become more expensive per dollar of future revenue, large-cap pharma will need to transact more and earlier to preserve its share of value from future blockbusters.

The bottom line for blockbuster drugs

  1. Don’t abandon the blockbuster model. It is not only feasible to focus on pursuit of blockbusters, but necessary to sustain the existing business model. Doing so requires a thoughtful strategy for identifying and developing these future value drivers.
  2. Do a better job picking future blockbusters and pruning low-value assets by incorporating data-driven commercial thinking into early pipeline prioritization decisions and disease area strategies that align research and development investments with a single vision.
  3. Make the most of the blockbusters you find by carefully planning indication sequencing to maximize lifetime value, ensuring the portfolio includes anchors that are more resistant to net price erosion and putting skin in the game early with promising external assets to capture more downstream value.

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