Abstract
Product prioritisation at a tactical level, that is identifying the most desirable and attractive products in a companies R&D pipeline, remains a primary focus of portfolio management. This, in combination with the desire to maximise return on investment, acts as a strong driver for pharmaceutical companies to perform portfolio management.
There are many different approaches that can be taken regarding how to manage a portfolio and will depend on whether the decision making process revolves around prioritisation of portfolio products (bottom up approach) or around the companyfs strategic direction, isolating the preferred product in terms of key properties (top-down approach). Popular financial models include net present value, decision trees and option models. Non-financial based models, which tend to be used to a lesser extent, include standard strategic models, and scoring models.
Major challenges facing companies in portfolio management include the huge uncertainties inherent in product development, which creates problem in comparing and prioritising projects. Declining productivity, rising R&D costs and smaller margins has contributed to market consolidation, which is rife at present. This recent spate of mergers and acquisitions (M&A) has been a key reason for companies to adopt portfolio management. Portfolio reorganisation, a natural fall out from M&As, is necessitating a more structured approach to portfolio management.
Improvements in data management, decision analysis, and integration of strategies are essential for portfolio management to have a bright future. Despite such potentially encouraging developments, navigating fundamental challenges implies a tough road ahead. The implementation of portfolio management continues to be beset by structural challenges. Problems such as integrating information from marketing and R&D persist, making it difficult to select the most promising projects for later development.
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