Portfolio Management in Pharmaceutical Industry

Report of Moustafaev Case Study
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Table of Content
Executive Summary………………………...………………………………………………..…..3
Pharmaceutical Industry…………………………………..……………………...…………..…4
Introduction of Company B……………………………………………………….…........….…4
Portfolio Composition of Company B…………………..….……..…...………..………...…….5
Optimize the scoring matrix……………………………………………………………...……..7
Re-balancing the bubble chart………………………………………………….………...……..8
New strategic alignment…………………………………………….……….…………………..9
Conclusion……………….…………………………………………………….….……..…..….10
References…………………………………………………………………………...…...…...…11
Appendix…………………………………………………………………………...…...…….…12
Executive Summary
The pharmaceutical industry is the leading sector in R&D spending. For instance, portfolio management is challenging when developing a new drug due to the high probability of failure and long cycles. There are also a lot of challenges that accompany resource allocation to pharmaceutical projects to achieve maximum profits in the industry. It weighs on company executives in deciding how to evaluate the risk and value of each project, how to decide what project to prioritize or kill in the portfolio, how to choose new projects for short-term and long-term cash flow and development, and how to design drug incentive schemes and development units to maximize success. The growing trends in the global pharmaceutical industry include the need for more innovation, stringent regulations, shifting markets, and downward pressure on revenue.
European pharmaceutical company B is one of the largest firms that has invested in diagnostics and pharmaceuticals. It includes certain variables in its portfolio to strengthen its financial position, including competitive analysis and innovativeness, to exploit its core competencies and innovation. Scoring models incorporate factors such as the direct impact on innovation (which acts as a competitive advantage), risk, technical feasibility, and financial impact. The R&D portfolio management determines the projects that need funding and eradication. In optimizing the scoring matrix, company B should cancel several criteria because they are dragging the entity, leading to a slow economy. Additionally, in rebalancing the bubble chart of Company B, the executives use the probability of success vs. total cost and the probability of success vs. remaining cost to balance their portfolio. The new strategic alignment for company B is to focus more on new product lines to get rid of the current situation of slow revenue growth, especially during the Corona Virus pandemic.
Pharmaceutical Industry
The pharmaceutical industry is up-and-coming because the spending of the pharmaceutical market is very large, much higher than that of aviation, defense, and other industries. There are still no effective cures for some diseases, such as cancer, AIDS, etc. Many companies in the pharmaceutical industry are still investing vast sums of money in the development of specific medicines. Today, the world pharmaceutical market trend is gradually shifting from developed to developing countries with large populations, such as China and India. Another new trend is that the scrutiny and tracking of the pharmaceutical industry have become more stringent, resulting in fewer new drugs entering the market in recent years. Due to the overall aging of the world's population, unhealthy eating habits have led to increased diseases such as cancer. These changes have brought new challenges to companies in the pharmaceutical industry, and they need new changes to deal with new markets.
Introduction of Company B
Company B is one of the largest companies in the pharmaceutical industry. However, past success is not indicative of the present, this company has experienced prolonged revenue growth in recent years (4%-8% per year), and the company is worried that they have fallen behind other companies. Other pharmaceutical companies will gradually overtake it. Company B has four strategies: 1. not to sell "over-the-counter" products. They only sell prescription drugs because they think prescription drugs have higher profit margins 2. Five core research areas: cardiology, cancer, infectious diseases, diabetes, and neuroscience. 3. Focus on personal healthcare, especially for those disabled that cannot take care of themselves. 4. Personalized drugs, making exclusive medicines according to the patient's needs.
Portfolio Composition of Company B
European company B is a significant player in the world market. The firm comprises a couple of significant dimensions, which are diagnostics and pharmaceuticals. As of 2012, the company's income and assets were valued at billions of dollars. Drug development is a lengthy, burdensome, and costly endeavor for pharmaceutical entities. In this regard, constructive R&D portfolio management regulates research costs and low probability of market approval. There are specific criteria that company B uses to evaluate a project for portfolio selection. They include innovativeness, market size, and technical and market risk. Others comprise cannibalization, effectiveness, strategic fit, finances, competitors, and core competencies. Portfolio management is about an enterprise selecting what projects need funding, how to fund them, and which one needs eradicating. The goal is to decide on the projects that best fit the company's goals and those that can potentially boost its profitability.
Several central goals at a macro level associated with company B affect the choice of portfolio method, including the company's strategic direction to reflect its targets or objectives as outlined by executives. Another central goal is value maximization achieved through the appropriate allocation of available resources using a variety of scoring and financial models. In this case, executives should apply scoring models when projects fulfill several criteria, such as market attractiveness, reward vs. risk, technical feasibility, strategic alignment, and product advantage. Other than scoring models, the company can achieve value maximization through net present value. In...