Sizing the market with TAM, SAM and SOM in biotech

# Sizing the market with TAMTAMTotal Addressable Market: the total revenue opportunity if you captured 100% of potential customers in your target market.View full definition →, SAMSAMServiceable Addressable Market: the slice of TAM you can realistically reach given your current business model, geography, and distribution channels.View full definition → and SOMSOMServiceable Obtainable Market: the share of your SAM you can realistically capture given current resources, channels, and competitive position.View full definition → in biotech

A single GLP-1 franchise (the diabetes and obesity drug class that includes semaglutide, sold as Ozempic and Wegovy) generated tens of billions of dollars in annual sales for Novo Nordisk and Eli Lilly by the mid-2020s. When an analyst first modeled that opportunity, they did not start with a spreadsheet of revenue. They started with a question: how many people actually have this disease, and how many could realistically take our pill?

That is market sizing. In biotech, you build it from epidemiology (the study of how diseases are distributed in a population) up to peak sales. Let's do it for a hypothetical oral GLP-1 launching in the US and Europe.

The three layers: TAMTAMTotal Addressable Market: the total revenue opportunity if you captured 100% of potential customers in your target market.View full definition →, SAMSAMServiceable Addressable Market: the slice of TAM you can realistically reach given your current business model, geography, and distribution channels.View full definition →, SOMSOMServiceable Obtainable Market: the share of your SAM you can realistically capture given current resources, channels, and competitive position.View full definition →

These terms come from general strategy but they behave very specifically in drug commercial models.

• TAM (Total Addressable Market): every patient with the condition, ignoring access, competition or eligibility. The theoretical ceiling.
• SAM (Serviceable Addressable Market): the slice your drug can actually reachreachThe number of unique people exposed to your message in a given period. Unlike impressions, reach counts each person once, no matter how often they see it.View full definition → given its label (the approved use), diagnosis rates, and treatment patterns.
• SOM (Serviceable Obtainable Market): what you realistically capture given competition, payer coverage, and launch ramp. This is your revenue forecast.

Think of it as a funnelfunnelThe customer journey from awareness to purchase, typically Awareness, Interest, Consideration, Decision, Action, with prospects narrowing at each stage.View full definition →. Each layer strips out patients you cannot serve.

Prevalence vs incidence: get this right first

Two epidemiology terms drive everything:

• Prevalence: the total number of people living with a condition at a point in time. Use this for chronic diseases (obesity, type 2 diabetes, rheumatoid arthritis).
• Incidence: the number of new cases per year. Use this for acute or one-time-treatment situations (a cancer diagnosis, an infection).

Pick the wrong one and your model is off by an order of magnitude. GLP-1s for obesity are chronic therapy, so we use prevalence.

Worked example: sizing an oral GLP-1

Let's build the funnelfunnelThe customer journey from awareness to purchase, typically Awareness, Interest, Consideration, Decision, Action, with prospects narrowing at each stage.View full definition → for the US. All population and prevalence figures below are rounded public estimates flagged as such; always source your own from primary data for a real model.

Step 1: Start population (TAM anchor).

US adult population is roughly 260 million (US Census Bureau estimate, mid-2020s).

Adult obesity prevalence in the US is roughly 40 percent (CDC estimate; CDC obesity data).

TAMTAMTotal Addressable Market: the total revenue opportunity if you captured 100% of potential customers in your target market.View full definition → (adults with obesity):

260,000,000 x 0.40 = 104,000,000 people

That is the theoretical ceiling. No drug ever gets close.

Step 2: Narrow to the label (toward SAM).

Assume our label covers adults with a BMI (Body Mass Index) of 30 or higher, or 27 or higher with a weight-related condition. Roughly, assume that captures the 104 million, but now apply real-world filters.

• Diagnosed and seeking treatment: many people with obesity are never clinically treated for it. Assume 35 percent are diagnosed and actively engaged with a physician for weight (estimate for illustration).

104,000,000 x 0.35 = 36,400,000

• Medically eligible and appropriate for pharmacotherapy: not everyone in that group is a drug candidate (contraindications, preference for lifestyle-only, other conditions). Assume 60 percent.

36,400,000 x 0.60 = 21,840,000 (SAM)

So the serviceable market is roughly 22 million patients, not 104 million.

Step 3: Apply competition and access (SOM).

Our oral GLP-1 launches into a market with entrenched injectables and other oral entrants.

• Peak market share: assume we capture 8 percent of treated patients at peak (a defensible mid-tier share for a differentiated but non-first entrant).

21,840,000 x 0.08 = 1,747,200 patients

• Persistence / compliance adjustment: GLP-1s have well-documented discontinuation. Assume only 55 percent of started patients are still on therapy in an average year (studies suggest high first-year dropout; treat as an estimate).

1,747,200 x 0.55 = 961,000 patients on therapy (steady state)

Step 4: Convert patients to peak sales.

This is where finance takes over. You need net revenue per patient per year, not list price.

• Assume a list (WAC, Wholesale Acquisition CostAcquisition CostCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.View full definition →) of about 12,000 US dollars per year (illustrative, in the range of current branded GLP-1 list prices).
• Apply a gross-to-net deduction. In US pharma, rebates to PBMs (Pharmacy Benefit Managers, the intermediaries who negotiate drug coverage) and payers commonly cut 40 to 70 percent off list for competitive categories. Assume 55 percent for a crowded class.

Net price = 12,000 x (1, 0.55) = 5,400 US dollars per patient per year

Peak US net sales:

961,000 x 5,400 = roughly 5.2 billion US dollars

That is your SOMSOMServiceable Obtainable Market: the share of your SAM you can realistically capture given current resources, channels, and competitive position.View full definition → expressed as revenue. Notice how far it sits below the 104 million TAMTAMTotal Addressable Market: the total revenue opportunity if you captured 100% of potential customers in your target market.View full definition →: the funnelfunnelThe customer journey from awareness to purchase, typically Awareness, Interest, Consideration, Decision, Action, with prospects narrowing at each stage.View full definition → did its job.

Adding Europe: why you cannot just copy-paste

Europe changes three variables materially.

• Population and prevalence: the EU adult population is larger than the US, but adult obesity prevalence is generally lower, commonly cited in the 20 to 25 percent range across member states (WHO Europe estimates; varies widely by country).
• Pricing: European net prices for the same molecule are typically well below US net prices, because national payers negotiate directly. In Germany, IQWiG and the G-BA assess added benefit before price talks; in England, NICE runs cost-effectiveness reviews that can restrict reimbursement.
• Access speed: launch sequencing is slower and country by country.

Practical rule: model the EU5 (Germany, France, Italy, Spain, UK) separately, each with its own prevalence, price and access assumptions. A common analyst shorthand is that a European peak-sales figure for a chronic drug often lands well below the US figure for the same asset, driven mostly by price, not patient count.

🎬 [VIDEO: "How Pharma Market Sizing Works" - https://www.youtube.com/results?search_query=pharma+market+sizing+TAMTAMTotal Addressable Market: the total revenue opportunity if you captured 100% of potential customers in your target market.View full definition →+SAMSAMServiceable Addressable Market: the slice of TAM you can realistically reach given your current business model, geography, and distribution channels.View full definition → - walkthrough of epidemiology-based forecasting for a drug launch]

Pressure-testing the model

Analysts do not trust a single point estimate. They stress the assumptions.

• Sensitivity table: flex peak share (5 / 8 / 12 percent) and gross-to-net (45 / 55 / 65 percent). Your peak sales might swing from about 3 billion to 8 billion US dollars. Report the range, not one number.
• Sanity check against analogs: compare your per-patient net price and share assumptions to a real launched comparator. If your assumed share beats the market leader in year two, that is a red flag.
• Watch double counting: a patient counted in obesity should not be re-counted in your diabetes indication line unless the label and prescribing genuinely overlap.

Common mistakes that blow up a forecast

Using list price instead of net. The single biggest error for non-specialists. A 12,000 dollar list price with a 55 percent rebate is a 5,400 dollar revenue line. Get gross-to-net wrong and your model is off by billions.

Ignoring persistence. Chronic therapies with poor adherence (GLP-1s are a textbook case) do not bill the full year for most patients. The steady-state on-therapy count matters more than the number ever prescribed.

Confusing prevalence and incidence. For a curative one-time oncology therapy, using prevalence instead of incidence inflates the recurring revenue base enormously.

Assuming instant peak. Real launches ramp over 4 to 7 years. Your SOMSOMServiceable Obtainable Market: the share of your SAM you can realistically capture given current resources, channels, and competitive position.View full definition → is the peak; the near-term forecast is a fraction of it. Discounting those future cash flows (using an NPVNPVNet Present Value is the sum of an investment's future cash flows discounted to today, minus the initial outlay. A positive NPV signals value creation., , calculation) is a separate step built on top of this sizing.