Why is portfolio management so successful in the pharmaceutical industry? Research and development (R&D) into new drug therapies requires a tremendous investment of time and resources. R&D portfolio management helps pharmaceutical companies maximize the value of these investments while mitigating the risks inherent to product development.
The pharmaceutical industry poses a unique set of challenges for R&D. Costs can stretch into hundreds of millions of dollars, primarily driven by extensive clinical trials. Development timelines can stretch across years and even decades — but unlike most prolonged product development processes, the risk of failure isn’t ameliorated by time, as a drug could fail in the final stages of clinical trials or not meet the thresholds required for regulatory approval. And finally, once a product is successfully developed, it will require a significant investment in manufacturing, sales, and distribution systems.
Other industries are also faced with some combination of high investment, long development cycles, and high risk, but pharmaceutical R&D often encompasses all three at their most extreme. For instance, the electronics industry can develop multiple products simultaneously, with less money upfront, and get products to market more quickly. Granted, some of these products might be expensive or high-risk. Still, shorter R&D timelines and lower investment allow them to rapidly pivot away from failures with little negative impact, with a broader portfolio of products to absorb the penalties of launching a few duds.
Challenges in the pharmaceutical industry, on the other hand, are structural and thus cannot be avoided. Clinical trials are long—and expensive—due to regulatory requirements, and the science involved is highly complex. And this is where pharmaceutical portfolio management comes in.
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In such a high-stakes environment, having the information necessary to make the right decisions — at the right time — can have an enormous impact on a firm’s bottom line for years to come.
Benefits of Pharmaceutical Portfolio Management for Pharmaceutical R&D Organizations
The benefits of pharmaceutical portfolio management can be transformative for R&D decision-makers and development leaders in pharmaceutical organizations, from long-term profitability gains to safeguarding company longevity. Here are just a few of the most significant upsides:
- Promote winners and stop losers. The data collected and analyzed by pharmaceutical portfolio management software can illuminate which products in a portfolio are succeeding and — even more critically — which ones are draining resources with little hope of return. Cutting losses on stalled or “zombie” products will free up more resources to fund better alternatives and empower R&D to move forward with more promising developments.
- Ensure balance and strategic alignment. Silos are inevitable in any sizeable pharmaceutical enterprise, with some product managers laser-focused on furthering their teams in isolation. With a more comprehensive view of a pharmaceutical portfolio, stakeholders across R&D can gain a broader perspective of the pipeline, identifying areas that may not align with strategy. Additionally, enhanced visibility across teams ensures that products can be funded and developed to fill gaps in the release pipeline or to address therapeutic market potential.
- Provide transparency into development and marketing plans. Effective pharmaceutical portfolio management requires comparable project valuations, with data gathered regularly and consistently across teams. When products are evaluated on an “apples-to-apples” basis, decision-makers can confidently aggregate and trade-off investments across the portfolio.
Getting Started with Pharmaceutical Portfolio Management in an Organization
Building a pharmaceutical portfolio management strategy isn’t a one-and-done achievement — it’s an ongoing process that will adapt and evolve with the organization. The most successful approach is to start with a relatively simple framework and enhance it as needed.
Here’s a basic set of steps to lay a broad foundation for change.
- Establish a baseline. Before deciding where you’re going, figure out where you are. Compile a thorough assessment of current and potential projects in the pharmaceutical R&D portfolio, including:
- Funding status
- Pipeline stage
- Forecasts for internal and external development costs
Even this initial information can begin to tell the story of your R&D portfolio.
- What areas are receiving the most funding, and what areas are potentially under-invested?
- How does the projected portfolio cost over the next several years compare to the budget, especially if fewer products fail than expected?
These insights will whet the appetite of decision-makers for more and better information about the portfolio and can help create a compelling case for a more holistic approach.
- Determine the strategic goals of the organization. Even if this isn’t explicitly written down and circulated, you can deduce what executives aim to accomplish by looking at where they concentrate their money and attention. That might include:
- Breaking new ground in a specific therapeutic area
- Addressing a short-term funding gap
- Fostering long-term stability and growth
- A combination of smaller goals
Then, consider how well—or poorly—the current R&D portfolio performs against those objectives. Which objectives are being met, and which have the most significant gaps? Are some objectives more critical to the organization than others?
- Make improvements to individual products. Using the strategic objectives as a guide, are there ways to alter individual products to meet those objectives better? For example, if the budget is tight this year but less so next year, could certain activities be delayed, defraying their costs? If there is the perception that the overall portfolio risk is too high, are there less risky development paths that can be considered for any products?
Use these insights to create alternative development or market scenarios for applicable products. The goal of these scenarios is to provide flexibility in making portfolio-level decisions that help the organization better achieve its strategic objectives.
- Conduct a portfolio review. Portfolio reviews inherently require tough decisions on what to salvage and where to cut your losses. But making the call is much easier when you have adequate information to guide those decisions.
Before reviewing a product portfolio, create several alternatives to the current portfolio that improve performance on the objectives outlined in step two. Alternatives can also be designed to reveal opportunities to sacrifice performance on well-met objectives in favor of those with larger gaps. Factors to consider when creating alternatives include:
- Are there products that should be canceled or licensing opportunities that should be added?
- Could some products be accelerated to increase short-term revenue or delayed to free up bottlenecked resources?
Once the alternatives have been created, look across them to sort products into three buckets:
- Those that are included in every scenario
- Those included in some but not every scenario
- Those that are not included in any scenario
Focusing the discussion on the products included in some—but not all—scenarios will enable decision-makers to have frank conversations about which objectives the organization should pursue more aggressively and which should be second order. The result of the discussion should be the selection of one of the portfolio alternatives or the creation of a new alternative—a combination of products and scenarios.
- Repeat. As organizations change over time, so will their strategic goals. Portfolio management in the pharmaceutical industry is an ongoing and evolving process. Stakeholders will have to adapt their framework to accommodate market fluctuations, changes in regulatory environments, funding pitfalls, and more. But with a solid portfolio management foundation, pharmaceutical R&D can adapt to these challenges.
Pharmaceutical Portfolio Management in Action
Consider the case of a mid-sized pharmaceutical firm that had developed a blockbuster drug therapy after two decades of slow but steady growth. Once their new product hit the market, they experienced six years of rapid growth, during which they radically changed their manufacturing and sales processes to accommodate increased demand.
The problem is that investors and analysts expected the same growth rate to continue.
The organization managed this expectation by leveraging its pharmaceutical portfolio management solution to create data layers that combined research and marketed products with its current R&D portfolio to offer a comprehensive picture of future sales and expenses.
Comprehensive pharmaceutical portfolio management provides viable alternatives and mitigates risk
With a more extensive sales base, sustaining the growth rate would demand more from the R&D organization. Looking at the firm’s R&D portfolio holistically, the company’s portfolio team realized that line extensions on existing products and the new products expected from the research team were insufficient to bridge the gap.
The team devised alternative portfolios which focused on the following:
- Boosting R&D spending
- Acquiring external technology platforms and product lines
- Risks on new technology platforms in early-stage research
As they ran forecasts on their options, the portfolio team worked with the executive team to determine what balance of funding should be invested in each activity to meet the revenue targets.
Pharmaceutical product portfolios tell a story that inspires action
This approach to pharmaceutical portfolio management provided a storytelling context, allowing executives to see the larger narrative of the R&D portfolio and take decisive action.
Once the portfolio was established, the next step was communicating the resulting actions across the company.
- The PMO altered product development strategies
- The business development function was given therapeutic areas and sizes of assets to target
- The finance organization was tasked with working the increased R&D budget into the forecast
Pharmaceutical portfolio management keeps an eye to long-term growth
With the help of a pharmaceutical portfolio management solution, this firm was able to build a sustainable portfolio around its blockbuster product. The guiding strategic objective was hitting a specific probability of achieving the long-term revenue target. Using this as a signpost, executives successfully leveraged the annual planning process to balance risk, value, and expenses to ensure steady growth.
Pharmaceutical Portfolio Management: A Journey, Not a Destination
For pharmaceutical firms, portfolio management isn’t just about reaching one goal. Instead, it’s an evolving series of initiatives and achievements that will lead the business to profitability and stability for years. It’s the art of balancing short-term gains with lasting wins based on usable data and empowered decision-making.
Pharmaceutical portfolio management is vital for R&D-driven organizations. Investors and analysts expect continued growth from established players and explosive gains from scrappy startups.
With the help of a sophisticated portfolio management solution, pharmaceutical firms can ensure they’re maximizing returns on investment by identifying the winners and losers in their product portfolio and allocating funding accordingly. Portfolio management best practices are increasingly considered a competitive advantage and are integral to strategic planning and management.
Additionally, evergreen portfolio management processes are growing more popular, as they can inform decisions beyond annual planning cycles. Ensuring decision-makers have access to real-time dashboards allows instant access to essential information needed to react to events such as product failures and partnership opportunities.
Finally, linkages between portfolio management software and other planning and reporting tools are becoming more important — an all-in-one integrated solution can radically transform how pharmaceutical companies develop products and achieve strategic growth.
Gain Confidence in Your Pharmaceutical R&D
Due to the unique nature of drug development, the pharmaceutical industry stands to benefit from R&D portfolio management more than any other. The extreme risks and rewards, in conjunction with extremely long development lifecycles, offer myriad opportunities for portfolio management to help organizations maximize the value of their investments.
Planview’s product portfolio management solution empowers R&D and product leaders to make the best moves for their organizations with minimal inefficiencies and disruptions.
Watch our demo on Making Uncertainty a Competitive Advantage to see how Planview can help your organization accelerate growth with greater confidence.