How Crucial Is Portfolio Management For Biopharmaceutical Companies?
Portfolio management (PfM) is a dynamic decision procedure requiring regular updates on active new products. New products undergo evaluation and prioritization to select the most potential ones. The process of PfM also modifies the portfolio’s existing projects; it might accelerate, deprioritize, or even shut down some of the services or products. There is plenty of uncertainty and constant modifications in information flow through production stages and analysis of data collected during the entire portfolio decision-making process. All these mindful decisions help to achieve strategic objectives.
The portfolio analysis is mainly conducted in terms of:
- Therapeutic area of choice
- Effectiveness of mechanism of action
- Primary technology used
- Levels of transaction occurrence
- Size and number of transactions
- Frequency of transaction and types of asset
According to Project Management Institute (PMI), PfM effectively validates if companies can influence their product selection and overall execution success. Well-structured and effective PfM can substantially improve the business value by optimizing projects’ arrangement to correspond to a company’s strategic direction, resulting in inefficient resource utilization (R&D costs for pharmaceutical organizations) and enhanced synergies among the tasks in a portfolio. This is considered the primary reason for PfM to be a critical component and a vital challenge for senior management.
The portfolio management process requires multiple decision-making stages to predict if a product or service will yield commercial success or not. A general approach towards a particular task within a portfolio divides it into several levels through decision-tree configuration. Probabilities, outcomes, and expected consequences are illustrated for each stage.
There are four principal objectives at a macro level associated with PfM. These will affect choosing the most effective portfolio method. These objectives are:
i) To maximize the total value: Optimizing the value of a company’s portfolio is achieved by making an appropriate investment in available resources. This feat can be accomplished using various financial and scoring models. Some of the most prominently applied models are listed below. Based on desired objectives’ requirements, the projects within the portfolio are ranked and prioritized accordingly.
(ii) To make decisions about the correct number of projects: Pharmaceutical companies undertake various tasks in most cases. Most of these projects have limited resources, leading to a pipeline gridlock. This leads to projects requiring longer to reach the market; all this delays the launch of potential drugs and causes a reduction in potential profitability.
(iii) To achieve a balance: This goal is to secure the development of a balanced portfolio for a company, specifically for projects concerning long-term and short-term, and also high risk compared to low risk.
(iv) To devise the strategic direction: The portfolio should be aligned with the pharmaceutical company’s product strategy and keeps targets and objectives in view.
Management of R&D Portfolio Management
R&D sectors in pharmaceutical or biotechnology companies are regarded as the leading users of utilizing Portfolio Management. It is critical in making productive R&D investments and achieving the set objectives. The conduction of PfM into the R&D operations in these companies is complicated, and the need is to select an appropriate model for an effective and efficient portfolio.
To marginally increase the overall value of R&D projects, the concerned management of the project within an R&D portfolio follows
the four strategic paths:
- Probability-weighted NPV
- Balancing the long-term and short-term projects in terms of risk, strategic vision, and requirement of the company
- In-depth study of local v/s global business requirement
- Proper analysis of R&D capabilities, organizational capabilities, research expertise, and resources of a company
Drug development is a long, expensive, and challenging process for all biotechnology and pharmaceutical companies. All these companies deal with heightening R&D expenses, including direct research expenses and the risk of the low probability of market acceptance of the product. All these challenges are managed effectively through constructive and objective-focussed R&D portfolio management.
The financial approach leads to the poorest portfolio
The portfolio manager should be a value creator, able to inform in-depth the decision-making process on a continuous basis while accepting and embracing uncertainty. He promotes critical thinking and stimulates ideas about what the numbers actually mean. At the same time he needs to maintain a balance between many different factors and sometimes discriminate between the corporate strategy and drug development strategy.
To better inform and optimise drug development activities, the PM must be able to understand the development process, capture the big picture and question it. Are there biases we should eliminate? Are we able to leverage the right data into actionable insights? Portfolio management is a multiple variable equation that behaves in concert and includes:
To maximise this factor it is important to consider all the potential indications, regulatory pathways and reimbursement scenarios. Then again don’t get hypnotised by the commercial potential. Ask the team; What are the probability of the commercial assumptions and the potential dangers? What is the real value proposition to us?
Probability of success
Depends on the accessibility of technical skills, people and facility and the complexity of the project. For example, without recruiting the right number of patients for the clinical trials it is impossible to meet the programme goals.
Breakthrough techniques in drug discovery are giving rise to an unprecedented number of therapeutic opportunities that compete against each other. Sometimes it is very alarming how the management just want to ignore the competition obstinately. Knowing that the durability in the therapeutic arsenal of the drug is directly impacted.
Strength of the science
For example, if you have an established mechanism of action, a deep understanding of how your drug works. You can determine whether there are signs that the mechanism it targets is present in a particular patient and then enrol only those patients in clinical trials. That allows for significantly smaller, less expensive trials – and a higher chance of success. Sustainable portfolio management requires investments in the fundamental science work that drives innovation.
Pharmaceutical companies are facing pressure from ballooning R&D costs and shrinking healthcare budgets at the same time. However, solutions exist; for example using predictive biomarkers may improve efficacy signals while reducing drug development costs and timelines.
Novo Nordisk, headquartered in Denmark, is a renowned multinational pharmaceutical company, which is well recognized as a principal producer of insulin used to treat diabetics and is responsible for 40% of its global production. Moreover, it is an R&D-oriented firm; all these activities constitute approximately 16.3% of turnover. Being a successful company, Novo Nordisk recognizes the importance of competent PfM and has further emphasized attaining the world leader in diabetes care through their most comprehensive diabetes portfolio in the healthcare industry. Novo Nordisk entirely focuses on transforming the unmet clinical needs of innovative cogitations for therapeutic solutions and developing new biological medicines. From the provided data, it was possible to analyze the therapeutic areas of particular interest.