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Our client, a multinational pharmaceutical company, wished to evaluate its entire portfolio in order to optimize the prioritization of projects, allocation of resources and management of capacities.
The objective was to fully fund those projects that would create the most value, to identify and fund the critical studies for the second priority projects, and to identify projects that may have to be abandoned or licensed out. Further objectives were to reduce portfolio risk, to gain maximum value for each dollar spent, to gain the maximum value for each unit of risk (as measured by the standard deviation of expected portfolio returns) and to ensure that all capacities were used evenly, preventing bottlenecks as well as overcapacities.
Bioscience Valuation, together with senior management, first defined mid and long-term strategic objectives that served as a guideline for the optimization of the portfolio. The discussion included management's assessment of therapeutic area focus, desired sales growth, return on investment, number of new product launches per year and risk preference. As next step, together with project and portfolio teams, the entire portfolio was evaluated.
The evaluation investigated multiple attributes such as expected project and portfolio NPVs, non-risk adjusted NPVs, expected and non-risk adjusted costs, expected peak sales, expected and maximum use of available capacities as well as portfolio productivity and risk structure. The results were then analyzed and plotted in various dimensions. The analysis of the wealth of information was guided by the strategic objectives that were discussed before the teams assessed individual projects.
As a result a portfolio was created that assigned the necessary unrestrained resources to the most important projects, provided the highest value for the dollar invested (maximum productivity), provided the lowest risk at maximum productivity, allowed for an optimal capacity planning without leaving resources idle, and that identified candidates for out-licensing (projects that did not fit to the value - maximizing portfolio). Furthermore, a pipeline model was set up that allowed management to determine potential cash flow gaps and in-licensing needs in order to assure a continuously productive portfolio.
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