Pharmaceutical Portfolio Management (PH162)

Portfolio Management Excerpts

The following excerpt is taken from Chapter 1, “Portfolio Management Group Structure, Resources and Focus Areas.” This section explores the portfolio management team’s role in aligning goals with corporate strategy and in collaborating with other teams to execute that strategy.

Groups Supporting the Portfolio Management Team

Figure 1.4 [chart shown in full report] shows the groups responsible for ensuring that the investment, clinical advancement and marketing tactics pursued align with the company’s long-term corporate strategy. Aside from senior executives, portfolio managers are the leaders most responsible for aligning corporate strategy with compound-based tactics. In some companies, portfolio management groups will provide support for both developmental and marketed compounds, but at many companies, these groups serve only developmental compounds.

At companies with marketed compounds, marketing executives are often involved in aligning brand tactics with corporate strategy. In many cases, marketing departments will have lifecycle management groups that recommend tactics based on financial analyses and market research, much like portfolio management groups do in the R&D phase. At companies without extensive portfolios, however, individual brand managers may each be assigned a budget by senior management and research and select tactics independently.

Also heavily involved in strategy alignment are business development teams. Once a company has developed an expertise in specific therapeutic areas, business development executives will scour the environment for compounds that can supplement the portfolio. This serves two purposes. To begin with, it is more efficient to spread capabilities over multiple compounds. Additionally, a larger portfolio ensures that the company will still have compounds to advance if lead candidates fail during clinical trials.
Business development teams are also responsible for partnerships and divestitures. At larger companies, these may be peripheral activities. At companies focused primarily on development, however, the revenues from sales and the royalties from partnerships are the lifeblood of the company and provide the revenue necessary to continue growing. In these companies, the business development groups are a core element of portfolio management. In many cases, they even perform the company’s portfolio management activities.

Senior management, including C-level executives, is responsible for setting the broad-based strategies a company will use to grow. These may include therapeutic areas of focus, regional expansion plans, and the preferred means to acquire the resources to operate and leverage existing cash.

Portfolio management teams are responsible for pinpointing how to meet these goals. These recommendations may include, for instance, advancing one compound over another, increasing a clinical budget to advance a compound, or acquiring the rights to specific developmental compounds. These plans are often submitted to C-level staff, who determine whether the portfolio management team’s approach will be implemented.

The following excerpt is taken from Chapter 2, “Portfolio Management Strategy.” The full chapter provides a step-by-step process for establishing and maintaining a portfolio management strategy for early-stage compounds. This excerpt focuses on the first step: assessing the portfolio. Because optimizing portfolios often requires acquiring and divesting compounds, the full chapter also discusses in-licensing and out-licensing goals and details the elements of a successful deal.

Analyzing the Current Portfolio

For successful strategic portfolio planning, companies must establish criteria that also align with corporate strategy. Meeting portfolio management team goals depends on these criteria. For many companies, the main factor is to determine how developing compounds will fit within its existing therapeutic areas. Because it takes considerable investment to enter a new therapeutic area, companies value opportunities in existing therapeutic areas more so than compounds found to be effective for new diseases. Maintaining a consistent therapeutic area development allows companies to leverage existing skill sets, commercial team experience, clinical team experience and sales force expertise.

Often the second criterion for assessing a product’s value to the portfolio is commercial opportunity. In essence, what is the long-term benefit of the current investment in one compound over another? The critical questions to address include the following:

• What is the disease prevalence and incidence?
• How does this compare to the number of patients on therapy?
• How many competitors are on the market or close to the market?
• If there is competition, how can this compound be differentiated from the others?
• Is the reimbursement environment favorable toward this indication?

Greater attention and resources will then be given to products with favorable answers to these questions.

For inexperienced portfolio management teams, measuring a product’s worth can seem both straightforward and daunting. Thankfully, pharmaceutical companies use similar metrics to assess a product’s value in the portfolio. Typically, a company relies on a forecasting analysis and a product’s net present value (NPV) when comparing its portfolio products. In addition, other metrics such as speed to market and speed to revenue can be much more important to track, especially for smaller companies with mainly developmental compounds.

Scientific rationale and validity can also influence portfolio investment decisions. Despite a company’s desire to have a product on the market quickly, it will not sacrifice a product’s efficacy in favor or speed. Therefore, products that present sound scientific findings often receive better funding based on consistently good data.

Small companies must consider their ability to implement their development strategy. One interviewed executive says that his company is currently unable to conduct a 5,000 patient clinical trial for a mid-sized or blockbuster-potential drug. As such, the company focuses on niche indications or specialty drugs that do not require as large a patient population. His team also assesses a product’s market opportunity, or its market viability, though it does not factor into portfolio decisions as much as it would in larger pharmaceutical companies.

In the end, perhaps the most important criterion when companies determine portfolio investments is risk. Companies must understand each product’s clinical risk to determine whether continued investments are worthwhile. When a product’s perceived risk outweighs the potential returns, portfolio management teams are likely to recommend either ceasing investment in the product or finding an out-licensing partner to which it can sell the product’s rights.