Managing a Portfolio of Drug Development Projects: How to Find More Certainty in an Uncertain World

The drug development business is fraught with uncertainty.  Unpredictability in discovering and testing new molecular compounds or biologics – ranging from the scientific, operational, financial, regulatory, and organizational – are inherent parts of the process.

This article is not about forever-eliminating uncertainty in the drug development process; that will never happen. But any organization can, and should, take deliberate steps to address it.

I will focus on one of these steps: the governance of the R&D portfolio management process.  If thoughtfully constituted and conducted, an R&D Portfolio Review Committee can enable R&D innovation by allocating resources in a logical and objective manner. Moreover, it can instill an atmosphere of fairness to a process usually viewed as opaque or arbitrary.

The committee should be clear about what questions it needs to answer. For example:

  • Should we invest in this project and develop it internally or should we out-license the compound?
  • Do we have the expertise and resources on hand to successfully execute the project?
  • What is the expected return on investment? What is the variance of the expected return and what are the drivers of that variance?
  • How does this project fit, and/or correlate, with other projects in our portfolio?
  • What is the overall level of risk that we are seeking in our portfolio and does this project increase or reduce its composite risk?
  • Is this project consistent with the strategic goals of our firm?

Answers to the above questions will require different data inputs and need leaders from various functions of the firm to weigh in.

A roadmap for creating an R&D Portfolio Review Committee follows.

  1. People first. You need the right people at the table, but not having too many people is critical.  Keep the group as small as possible, but make sure the important business and scientific issues are addressed.  The R&D Portfolio Review Committee will typically be comprised of the following members: CEO, CFO, and Heads of R&D, Marketing, Regulatory, Technical Operations, and Information Technology.  Selected direct reports of these members may be considered for participation in the meeting on an as-needed basis.
  2. Set the criteria. Senior management may set thresholds and other guidelines to determine whether a project must seek Committee approval to proceed. For example, different thresholds can be established for feasibility studies (e.g., $1 million) vs. a full-scale Phase II or Phase III program (e.g., $10 million). In addition, one could envision a different set of material for the meeting to discuss the commencement of a new clinical study vs. a clinical team seeking approval from the Committee to incur an additional $5 million in expenses than initially projected. Adhering to an objective set of criteria with which to evaluate R&D projects will also allow committee members to minimize the level of emotion involved in the decision making process. Also remember to simplify communication of portfolio decisions to various internal stakeholders within the organization.
  3. Align the story. The analysis conducted for the committee meeting should be consistent for each R&D project to allow for an “apples-to-apples” comparison.  It will also help presentations keep a uniform look and feel where senior members of the committee will know what will be reviewed for each project and when they will see it. The chapters of the story may be the same, but the content and conclusions will be different depending upon the project.  The analysis will include the following: A) An overview of the current and expected competitive landscape for therapeutic area in which the project is expected to reside, B) NPV analysis for the project life, highlighting key assumptions, risks, peak year of sales, year in which NPV turns positive, and primary drivers of value (e.g., price, volume, first-in-class, best-in-class, dosing regimen, etc.); C) Sensitivity analysis on sales, operating expenses, number of patients under treatment; D) Scientific merits of the study, including objective opinions from key opinion leaders, if required; E) Data and timing for essential Regulatory and Compliance filings; F) Demonstrated alignment with the company’s strategy.
  4. Get the word out. The Committee’s decisions must always be communicated on a timely and need to know basisto all relevant parties. This will ensure confidentiality of sensitive R&D pipeline information.   In addition, the documentation of decisions will alleviate misunderstanding relative to the outcomes of the meetings, as well as help the various functions of the firm align their priorities in support of R&D projects.  As the company has finite resources, it needs to allocate people, operating expenses, and capital expenditures wisely so that these resources are used most effectively to maximize the value of the R&D project portfolio.  For smaller biotech firms, there will likely be time and cost pressure due a limited “runway” of available funding as well as intense pressure to monitor the “burn rate” of spend.  Make sure the R&D function is pursuing only those projects consistent with the company’s strategic goals. This is one way to eliminate extraneous projects and bring sharper focus to the allocation of the firm’s resources.

Finally, be disciplined and take an objective look in the rear-view mirror.  A “post-mortem” analysis for major projects can yield huge benefits in helping to determine inputs required for similar projects in the future. What types of analysis are needed? Where can the R&D Portfolio Review Committee improve its decision-making process to yield better outcomes in the future?

The opportunity costs for not making tough decisions on which R&D projects to undertake, as well as the efficient execution of studies the company does choose to pursue, can have significant ramifications for the company. Not the least of which: impact to overall firm value and funding for other R&D projects.

 

Contributed by:  Dan Patrick | Principal | TayganPoint Consulting Group | dpatrick@tayganpoint.com

Also released via Fierce Pharma


Hungry to learn more?

Let’s connect at Cambridge Healthtech’s upcoming conference in Philly.

November 6-8  |  Loews Philadelphia Hotel

TayganPoint’s Dan Patrick will be speaking on the topic along with colleagues, Greg Bayer of Bristol-Myers Squibb, and Matthew Pazdenik of Merck.

We hope to see you there!

Click here for more information or to register.

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