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Portfolio Optimisation: Can you really compare Apples to Oranges?

When someone uses the expression "you're comparing apples to oranges" they're really saying "Why are you trying to compare those things? You can't compare apples to oranges; they're just not the same thing. On further analysis, you could say, “They're both round. They're both sweet. They're both fruit. They're both the same. But they're not.”
One's an apple, and one's an orange. Is that all there is to it? One tastes better. No it doesn't. Yes it does. How do you decide which one you prefer over the other? How can you make that decision?

If we were to take this saying and apply it in a Pharmaceutical or Healthcare context, we could potentially be talking about a portfolio of different products or brands which could be at various stages in their lifecycle (i.e. pre-clinical through to in-market) along with varying utility across a breadth of different diseases. With so many differences, the thought of having to balance risk versus return, making trade-offs between internal and external opportunities and potentially ranking them into a priority list for the business, seems to appear a daunting and almost impossible task.

Do we really need to review our portfolio of existing or future offerings?

Along with it not appearing to be a straight forward exercise, many healthcare companies have shied away from putting a rigorous portfolio process in place that enables them to make direct comparisons between assets which they are currently developing and investing significant funds into, in order to bring them to market.  

If there is so much investment money potentially riding on a decision that needs to differentiate these assets based on the same level footing, why haven’t most companies put something in place by now? There are many possible reasons which could be driving this:
·       The fact that they have never been required to do it previously or that it is not considered a strategic imperative for the business
·       There are limited examples in the industry of companies doing this type of a review on a regular basis
·       The perception that a review of future opportunities is not possible based on the complexity of the task and lack of man-power or engagement within the business.
·       Historically companies had ample funds to support all opportunities being pursued by the R & D function.

In a recent survey on portfolio reviews with life science executives, 54% stated that the major reason for narrowing their business portfolio was the lack of sufficient capital and business resources to fund and support all viable opportunities.[1] In this same survey, over half of the total respondents stated that they have held onto assets too long, when they should have divested them.

What are the advantages of a Portfolio Review & Optimisation?

If products were able to be compared on a level playing field, there are significant benefits to be gained by a Healthcare company  doing this type of portfolio optimisation review on a regular basis for future opportunities. First and foremost, it enables a ranking to be done for short and longer term opportunities along with an understanding of timing, return on investment and risk, so that a portfolio of the most attractive opportunities for investment can be built. It also allows different functions across the business not only to be involved in the process and feed valuable information into the decision-making process, but also allows these functions to challenge the priorities and planned focus for the business in a structured and evidence-based fashion. The process is also able to highlight any technical or commercial challenges that the business will need to address, in order to achieve the opportunity, and provide a rich understanding of the current and future competitive environment. One of the critical outputs of this review is a reference document that can be used to inform corporate strategy and underpin transparent decision-making. 

What should the process be?

The process will be very much dependent on the range and number of assets or opportunities that a company will be comparing during the review. Very early portfolios of pre-clinical assets could be performed using a stripped down process, whereas a full clinical development portfolio may require more detail and support from internal teams.

In either event, the goal is to deliver a robust output, and this is likely to follow an interactive process. Most reviews when comparing assets, include commercial aspects of the potential product alongside technical or clinical aspects of the product – the idea being that technical risk can be balanced against commercial viability. For each aspect, a number of attributes can be assigned, products scored or given a value and those attributes given a weighting according to how the portfolio should best be aligned with the needs of the business.

Depending on the asset maturity under consideration, commercial and technical aspects will be weighted differently. For very early portfolios at the pre-clinical stage, the commercial aspects may be as simple as understanding the market landscape in terms of patient numbers or potential price point.
There is significant flexibility in terms of the number and type of attributes that can be used but some straightforward examples would be:
·       Size of the eligible population
·       Competitive intensity/threat
·       Unmet need/clinical utility
·       Potential price point
·       Fit within the healthcare management algorithm
·       Potential size of clinical trial required – R & D costings

More resource intensive metrics would typically include:
·       Net Present Value calculations (NPV) and risk adjusted NPVs
·       Internal rate of return (IRR)
·       Payback year

Once the attributes have been defined, agreed and scored, there needs to be some weighting applied to each of these attributes to make “the oranges into apples”. Of course, anything can be thrown into the mix, but overall, most portfolios are then built based on a balance and ranking against a number of different but equally important metrics aligned with overall corporate strategy and direction.  

What are the outputs achieved?

The benefits of a robust portfolio review process are many. The process itself adds a layer of rigour and structure to an otherwise potentially chaotic work stream. By going through the process and generating the inputs for the portfolio review, much more tends to be known about a product, its potential market, key risks and threats, likelihood of success, R&D costs, timing and contingency for when things don’t go quite as planned. The process itself can also serve to highlight gaps either internally that need to be filled through business development or acquisition for the company to achieve its strategic goal, or to highlight products within the portfolio that should be out-licensed if they no longer fit with the overall company direction.    

Essentially, a solid portfolio and optimisation review process can help to generate an evolving “road-map of the business”, based on inputs collected across business functions (i.e. Marketing, R&D, Supply Chain), which have been agreed by the collective team to deliver strategic focus to the business and clarity on what they are striving to achieve and how to achieve it.

To gain the maximum value from the process, it is important that it is run periodically during the year and just as a “one off” event. Ideally, the portfolio should be reviewed whenever something critical happens or changes within the market or business. This will enable the business to stay ahead of any changes in the market, empower the team to make decisive adjustments quickly and to refocus investment where needed in a timely fashion to deliver the optimal value to the business.

So, whether you are a company with a group of assets in development or with an armamentarium of products already being promoted in the market, or both, the need to prioritise these opportunities and provide timely focus to the business is even more paramount than ever before.  

Black Swan Analysis has proprietary Portfolio Optimisation modelling programmes that are able to accommodate a wide range of assets types, disease areas or type of innovation (i.e. Therapeutic, Diagnostic or Medical Device). Please contact the team at to learn more about how we can either run the process for your company or help you to set up and embed a Portfolio Review process to provide the guidance and insights to ensure that your business stays ahead of the curve.

[1] EY Life Sciences Global Corporate Divestment Study -2016 

4th July 2016



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