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Excerpted from Chapter 1, Section 2: "Portfolio Management Resources and Support."   Further discussion of portfolio investment allocations follows in the full report…

Portfolio Product Investments
Portfolio managers weigh their commercial and R&D investments based on a set of criteria, risk assessments and market viability. After analyzing survey data, Cutting Edge Information’s research analysts discovered several trends regarding the pharmaceutical industry’s investment patterns and priority levels for certain product types. Cutting Edge Information asked its survey participants to rank these six types of products in order of their portfolio priority:

• In-Licensing
• Out-Licensing
• New Product Development
• Existing Products
• Line Extensions/Follow-On Products
• Co-Promotions/Alliances

Participating companies indicated a strong emphasis on investments for new product development and a much lower priority for co-promotion and out-licensing investments. New product development received the highest average priority for investments among participating companies – 4.1.

On average, existing products received the second highest ranking among the six product categories at 3.8 out of six. Global- and affiliate-level teams ranked existing products second highest as well, with an average 3.7 and 4.0, respectively. Mid-sized companies ranked existing product investments higher than large and small companies at 4.8 out of six. The data show mid-sized companies struggling to determine whether investing in existing product investments are higher priority than new products. By comparison, small companies ranked existing product investments much lower in priority at 2.9. Of course, many small company participants do not have any products on the market.

Excerpted from Chapter 2, Section 2: "Portfolio Management Criteria and Data Analysis."  Further discussion of portfolio management criteria follows in the full report…

Establishing Portfolio Criteria
Measuring a product’s worth can seem both straightforward and daunting for inexperienced portfolio management teams. Pharmaceutical companies typically rely on a similar set of measurements and metrics to assess a product’s portfolio value.

Company M generally relies on forecasting analysis and a product’s net present value (NPV) when comparing its portfolio products. However, the company also has no products currently on the market. Therefore, as a small company, speed to market and speed to revenue are much more important metrics to track. The company is currently focused on efficiency and speed in development to meet product forecasts.

Scientific rationale and validity are both factors that influence Company M’s portfolio investment decisions. Despite the company’s desire to launch product quickly, Company M is not willing to sacrifice a product’s efficacy in favor of speed. Therefore, products that present sound scientific finding have often received better funding based on consistently good data.

Small companies must consider their ability to implement their development strategy. For example, Company M is presently unable to conduct a 5,000-patient clinical trial for a potential mid-sized or blockbuster drug. Therefore, the company currently focuses on niche indications or specialty drugs which do not require as large a patient population for testing.

Company M also assesses a product’s market opportunity, or market viability, though it does not factor into portfolio decisions as much as it would in mid-sized or large pharmaceutical companies. Cost is also another factor that small company portfolio managers must consider. Similar to the company’s ability to implement the development strategy, some necessary activities may be just too expensive.