Contents:

Executive summary The portfolio management challenge Portfolio management processes Project evaluations Portfolio management in practice Project management in practice Portfolio management in context Chapter 1 The portfolio management challenge Summary Introduction Pharmaceutical business environment The rising cost of drug development R&D productivity shortfall Key drug patent expirations Intensive regulatory processes Healthcare cost containment Investor confidence in the pharmaceutical sector reduced Portfolio management - driving growth and shareholder value Defining portfolio management Key drivers of portfolio management Corporate strategy and portfolio management A dynamic feedback process Portfolio management, corporate strategy and shareholder expectations Portfolio management as a growth vehicle Managing shareholder expectations through portfolio management Enhancing corporate communications Chapter 2 Portfolio management processes Summary Introduction Integrated portfolio management The R&D portfolio The marketed portfolio The portfolio management system Organizational processes Periodic portfolio reviews Milestone reviews Reactionary reviews Combined review processes Project evaluations Analysis and decision-making Efficiency measures A balanced portfolio Aligning portfolios and strategy Top-down model Bottom-up model Top-down and bottom-up Budgeting and resource management Portfolio management best practices Chapter 3 Project evaluations Summary Introduction The project management discipline The project evaluation process Project identification Project evaluation Scoring methods Project value and risk profile Measuring value Risk assessments Financial evaluation techniques Net present value NPV – a worked example Decision tree analysis Expected NPV – a worked example Monte Carlo simulations Real options Real options valuation Portfolio evaluation best practices Establishing a 'level playing field' for project evaluations Improving risk assessment Increasing the sophistication of financial evaluations Chapter 4 Portfolio management in practice Summary Introduction Case study: Portfolio management-led growth at Novartis Case study: Prioritization in portfolio development at Genentech Case study: Portfolio and resource management at Bristol-Myers Squibb Case study: Small company portfolio management at PowderJect Case study: Portfolio planning, strategy and risk management at Aventis Chapter 5 Project management in practice Summary Introduction Case study: Integrated project planning and budgeting at Roche Case study: The mid-tier company approach to project management at Schering AG Case study: Project management in new product development at GlaxoSmithKline Case study: Project management support at AstraZeneca Case study: Project manager development at Amgen Chapter 6 Portfolio management in context Summary Introduction Managing a portfolio of external assets Portfolio management through licensing contracts Globalizing the portfolio management process Post-merger integration of portfolio management approaches Industry best practice: An interview with Richard Bayney, Vice President, Portfolio Planning, J&J Pharmaceutical Research & Development Interview transcript Aligning the portfolio with top-level strategy Project versus portfolio management Sophisticated portfolio evaluation tools Strategic versus financial evaluations Adapting portfolio management to industry trends Integrating internal and external portfolio management Critical success factors Chapter 7 Appendix Glossary Sources List of Figures Figure 1.1: R&D expenditure for PhRMA members, 1980-2004 Figure 1.2: Increasing cost of drug development, 1975-2000 Figure 1.3: R&D productivity trends, 1990-2004 Figure 1.4: US patent expirations for top-10 leading drugs, 2004 Figure 1.5: Portfolio management enables both the implementation and development of corporate strategy Figure 1.6: Portfolio management as a driver of shareholder value Figure 2.7: A "portfolio of portfolios" – integrated portfolio management Figure 2.8: Integrated internal and external portfolio management Figure 2.9: Milestone review process Figure 2.10: The portfolio management process Figure 2.11: Project utilization based on efficiency measures Figure 2.12: Portfolio optimization over time Figure 2.13: Portfolio balance – risk versus return Figure 2.14: Top-down approach to resource allocation Figure 2.15: Managing resources over time Figure 3.16: Project rankings by attractiveness scores Figure 3.17: Risk assessments – a distribution of potential outcomes Figure 3.18: Risk assessment in project evaluations Figure 3.19: Risk assessment in practice Figure 3.20: Net present value of an R&D project Figure 3.21: Decision tree analysis for pharmaceutical projects Figure 3.22: Expected NPV of an R&D project Figure 3.23: Expected NPV versus Monte Carlo simulation Figure 3.24: Decision tree analysis and Monte Carlo simulations Figure 3.25: Monte Carlo simulation outcomes Figure 3.26: Expected NPV of an R&D project incorporating an abandonment option Figure 4.27: An example of the decision-making process found at Novartis Figure 4.28: An example of the cross-option comparison charts used at Genentech Figure 4.29: An example of the multi-value measure rankings used at Genentech Figure 4.30: An example of the aggregate demand charts used at BMS Figure 4.31: An example of the R&D portfolio management process employed at PowderJect Figure 4.32: An example of the management of risk with respect to near-term value at Aventis Figure 5.33: An example of the decision-making structure at Schering AG Figure 5.34: An example of project management commissioning at Schering AG Figure 5.35: An example of key project management objectives at GlaxoSmithKline Figure 5.36: An example of the initial PMSO organization at AstraZeneca Figure 5.37: An example of project organization in a large biotechnology company such as Amgen Figure 6.38: Clinical survival rates for internally developed and licensed compounds Figure 6.39: The value of option 1 in GSK's Theravance agreement Figure 6.40: The value of option 2 in GSK's Theravance agreement Figure 6.41: A global development study for Iressa Figure 6.42: J&J's sales and earnings, 1994-2004 Figure 6.43: J&J's portfolio of potential new filings, 2005-2011 Figure 6.44: J&J's portfolio of potential new filings, 2005-2011 (cont'd) List of Tables Table 2.1: Investment efficiency Table 3.2: Project scoring model Table 3.3: Expected NPV of an R&D project

Summary:

Key Findings of the Report - The critical success factors in portfolio management are identified through a unique interview with Richard Bayney, Vice President, Portfolio Planning, J&J Pharmaceutical Research & Development. - The use of financial tools in evaluations has to be balanced by additional analytical approaches that are capable of capturing the complexity of projects and decision-making in order to achieve optimal portfolio management. - External licensing projects must be integrated into internal portfolio management processes. For small biotechnology companies, this often involves an integration of licensing and portfolio management policies. - Portfolio balance will become increasingly important in the management process as analytical approaches combining project specific data are used to provide more accurate representations of the entire portfolio to decision makers. - At Aventis a great deal of importance is placed on risk management in the portfolio management process. Taking a 5-year, near-term value analysis helps the company to identify key risks in their portfolio and create appropriate prioritization groupings of potential development projects.

Companies Mentioned

- Novartis - Genentech - Bristol-Myers Squibb - PowderJect - Aventis - Roche - Schering AG - GlaxoSmithKline - AstraZeneca - Amgen