The term portfolio analysis is used to describe an examination of a group of compounds and/or drugs using medical, scientific, commercial, financial, and/or other parameters. Drugs that are evaluated may be (a) investigational, (b) marketed, (c) a combination, or (d) focus on any subset of those groups (e.g., the ten most important projects in terms of commercial value or staff effort). The analysis of any parameter may vary from a subjective appraisal to a precise quantitative evaluation using standard financial or other methods.

A portfolio analysis may be conducted as a special one-time exercise or as part of an annual or other periodic review. If the analysis is conducted as a special one-time exercise, there is a greater likelihood that it will be performed (in whole or in part) by outside consultants rather than by internal company staff.

The analysis may be limited to assessing medical and commercial values, or it may include other aspects as well. Although there is substantial information to be obtained from analyzing the previous year or half-year, the most important information usually comes from comparing results with those obtained on several past occasions. This allows trends to be identified and may raise issues that should be addressed. An analysis will have value if (a) the information used is valid, (b) the information used is current, (c) appropriate methods are used to conduct the analysis, and (d) a sufficient effort is expended on the exercise.

The purpose(s) of the portfolio analysis must be defined in advance of the exercise. A portfolio analysis may be used to provide characteristics of the therapeutic areas and even an understanding of the businesses the company is in. A company may thus evaluate whether the characteristics of the therapeutic areas being researched and targeted with new projects match its expectations. The analysis may also be used to demonstrate whether the company is actively engaged in businesses that provide long-term growth opportunities. Another purpose may be to identify potential gaps in the portfolio over various periods of time when new products are not expected to be launched.

A portfolio analysis may also be used to decide which projects should be retained and which should be pruned. If the analysis is not limited to looking at each project as an overall entity, but examines each of the indications, dosage forms, and routes of administration separately, then it is possible to evaluate which of those aspects should be retained and which should be pruned. Projects may be pruned or temporarily allotted minimal resources to reallocate finite resources to higher priority projects.

Pruning projects from a portfolio does not necessarily mean that the projects clipped are to be terminated. Another possibility is that pruned projects may be licensed-out or used as trading material (as a quid pro quo) for cross-licensing with another company. If drug discovery becomes less fruitful for a company, it will have a much stronger motivation to increase licensing-out of its pruned projects or even pruned dosage forms. An intermediate step is to diminish resources allocated to a project so that it barely remains alive or progresses at a minimal pace.

The principal focus of thinking about a portfolio is in terms of the individual project. It is, nonetheless, insufficient to focus solely on projects as the lowest common denominator in analyzing a portfolio. Each indication, dosage form, route of administration, and dosing regimen studied should be evaluated independently in terms of its medical and commercial importance. Resources applied to their development should be appropriate, both in terms of quantity and also in terms of timing. For example, it may be appropriate to ask if development of some indications of a drug should be delayed. Each of several indications pursued in a large project may utilize the same quantity of resources allocated to the sum of five (or even more) small projects. Only through a thorough analysis of a project’s individual parts can the value of the overall project be adequately ascertained.

When discussing secondary indications of a drug, it is relevant to consider whether they are spin-offs and closely related to the primary indication or whether they are in different therapeutic areas. An indication that was originally secondary in importance may become the primary one for a drug in medical and/or commercial terms. As the number of indications being evaluated increases, it is essential to determine whether a fixed quantity of resources is being divided into smaller pieces or whether there is an incremental growth in resources. The answer to this question should have a significant impact on the strategy developed for each project.

In conceptualizing the portfolio exercise, it is useful to think in terms of levels of projects. This is shown in Fig. 52.1. as four levels: (a) individual projects, (b) projects in a disease area, (c) projects in a therapeutic area, and (d) all projects. The various issues, questions, and problems associated with the portfolio can then be associated with the appropriate project level. For example, when individual data are being collected and reviewed for a single project within a given therapeutic area in the portfolio, it usually is premature to question whether the entire therapeutic area should be eliminated (or resourced at a greater level). The four levels of conceptualizing projects also provide a basis on which to organize the first steps of the portfolio analysis.

Numerous types of gaps may exist in a portfolio. For these to be adequately addressed, they must first be identified by type (see below). Each of these gaps is based on the company not achieving its goals. Goals must be identified prior to determining that a gap is actually present or is projected to occur sometime in the future.

Portfolio gaps resulting from lack of new products could also be viewed in terms of potential financial shortfalls over a specific number of future years. If short-term gaps are identified (i.e., within a four- or five-year period), an attempt may be made to fill them through (a) acquisition of new products, (b) acquisition of another company, (c) corporate merger, (d) licensing-in of marketed and/or investigational drugs, or (e) rapid development of line extensions. Long-term gaps (e.g., greater than a five-year period) could be addressed through changes in basic research, proactive licensing, joint ventures, or acquisition of other companies.

The group conducting a portfolio evaluation may be based in research, marketing, finance, or another section of a company. Their approach, methodologies, and orientation will undoubtedly be affected by their training and the purposes of the review. Any of these groups could conduct the entire portfolio exercise without soliciting help from other groups. This means that the medical value may be assessed by marketing personnel and the financial value by research personnel, but this approach would generally yield data that would be less believable to most reviewers and corporate officers than if the analyses are conducted by those who are most expert in that field. If asking help from other groups creates a problem (e.g., too much time required), then a team appointed by the Chief Executive Officer or a nonpartisan person or group may be chosen to conduct and direct the entire exercise. This may require the services of an outside consultant who has the requisite capability and credibility. Another alternative is to have internal staff generate the report and to have either staff at a separate company site or a consulting group audit and review the results.

An important part of the perspective used in approaching portfolio analysis includes consideration of (a) which pharmaceutical businesses (e.g., prescription, over-the-counter drugs, generics, and biotechnology) will be considered; (b) the scope of projects, drugs, and/or research compounds to be considered; (c) which geographical area is being considered (e.g., single country, single development site, single company, or worldwide operations); (d) who is to conduct the analysis; and (e) who will make decisions about questions that arise. Separate portfolio analyses could be conducted on marketed drugs, investigational drugs, and research compounds. Other types of portfolios are described in the next section.

Multinational pharmaceutical companies often conduct research and develop drugs in two or more countries simultaneously. Each of the major sites for these activities may have relative autonomy and independence, although their efforts are coordinated to some degree with the other sites. In this situation, the portfolio of one country’s projects will undoubtedly overlap with that of other sites. In addition to the portfolios of the individual sites, the portfolio of the company as a whole should be analyzed. Comparisons may be made between these site-specific portfolios as well as comparing portfolios with industry averages. Managing directors within each country where a company’s drugs are sold may also conduct portfolio analyses.

Even if portfolios of two separate sites developing drugs for the same company contained the exact same projects, the commercial value of each portfolio would probably be completely different. Imagine that one site was developing drugs for the American market and the other site was developing the same drugs for the rest of the world. The commercial value of drugs being developed to treat tropical diseases would clearly differ between the two sites. The value of drugs for many other diseases would also differ markedly between sites because of other factors. These factors include (a) the status of existing and projected competition, (b) the way that medicine is practiced in different countries (e.g., whether certain types of drugs are or are not commonly used), (c) the size of the pharmaceutical market(s), (d) the ability of each site to sell the drug, and (e) numerous other factors.

There may be occasions in reviewing the company portfolio, evaluating the portfolio of another company, or planning in which direction to develop a company’s portfolio when it is important to consider what the ideal drug portfolio would look like.

A portfolio of prescription drugs under development may be viewed as consisting of three separate types of investigational drugs: (a) innovative NCE drugs, (b) “me-too” NCE drugs, and
(c) line extensions. The ideal portfolio, according to the director of research, may differ from that defined by the director of marketing or the director of production. Therefore, there is no single concept of an ideal portfolio, except possibly in the most general terms.

Factors that must be considered in choosing new compounds or drugs to include in a portfolio are as follows:

There is an overlap between the parameters used to assess the scientific and medical value of a portfolio. Medical value refers to the actual ability of the new drug to address the Medical need (i.e., Public Health need) for a new treatment and includes consideration of the direct benefits it will provide to patients and the indirect benefits it will provide to healthcare providers. Scientific value relates to the interest in a new drug from an academic and research perspective. This includes consideration of the drug’s scientific novelty and mechanism of action. Drugs with high scientific and low medical value are described in Chapter 49 as “sexy drugs.” Few new drugs have high medical and low scientific interest because the mechanism of how an important new drug works would usually be of great interest to academic scientists, if not practicing physicians. Nonetheless, one possible example of a drug that has high medical and low scientific value was the discovery that mannitol was an important new treatment for brain edema through its production of an osmotic diuresis. The mechanism of this effect was believed to be known, and there was relatively little scientific interest generated by this important medical discovery. “Me-too” drugs are in a different category because they have little scientific and little medical value but may achieve significant commercial success.

The scientific value of individual drugs may best be gauged on a relative scale from low to high. Determining where a drug fits on this scale is usually straightforward and noncontroversial. As a drug’s medical value changes, there is often, but not always, a concomitant change in its scientific value. The scientific value is based to a large degree on the scientific novelty of a drug’s mechanism of action and the chemical novelty of its structure. Drugs that are unique in the way they act have a high scientific value, but unless they have desirable clinical properties, their medical value may be low. A drug that is found to be toxic and is withdrawn from the market (i.e., loses its medical value) may retain its scientific value and interest if it is the only known drug to stimulate or inhibit a receptor or target of interest or has another property of interest.

Drugs with high scientific value may be marketed in part on that basis. Marketing claims may state that Drug X is the first of a new type of drug to treat disease D, that Drug X is the only commercially available drug to inhibit the Y receptor, or that Drug X is the first drug to stimulate enzyme Z. Whether the latter two
claims are accompanied by desirable clinical effects or remain merely pharmacological activities must be assessed by the physicians who read these or related claims.

The medical value in terms of the benefit to patients and the practice of medicine may be most easily described for each project in the portfolio according to one or more simple scales. Examples of such scales include the following.

Almost all of these scales assess a drug’s medical value relative to existing drug and nondrug therapy. Only Scale 4 can be rated independently of existing therapy.

Another method of determining the medical value of a drug is to compare the therapeutic ratio of a drug with those of existing drugs. The therapeutic ratio equals the dose that causes adverse events divided by the dose that causes a beneficial effect. The larger the number is, the safer the drug is. This approach would only be practical for drugs that have completed Phase 2. Prior to that point, it would be impossible to assess a drug’s therapeutic ratio. The therapeutic ratio of some drugs entering Phase 3 studies is still difficult (or impossible) to determine accurately.

The therapeutic utility of a new drug depends on the perspective of the group that is asking the question as follows:

There is no doubt that the commercial value is usually the most important parameter at pharmaceutical companies for judging individual projects, as well as the overall portfolio. The commercial value of a particular investigational drug project (or the overall portfolio) may be expressed in many ways but is always based to some degree on numerous unknown factors. It may be expressed as a forecast of:

The above forecast may be based on whether the drug achieves an optimistic profile, expected profile, or minimally acceptable profile. Alternatively, multiple forecasts may be given for each drug.

It is essential that all project forecasts in a portfolio be made using the same approach for all projects. This can usually be best accomplished by a single person or group that evaluates all projects. Any of the forecasts listed may be compared with opportunity costs of using the money invested in research and development in other ways.

New product forecasting is an inexact science that is subject to many changes in the market as well as changes in a drug’s profile. Most of these changes cannot be accurately defined or predicted early in an investigational drug’s development. In some situations, the number of patients to be treated after the drug is marketed is extremely difficult to estimate, and any forecast may be highly inaccurate. This situation may occur when a new drug is to be used for an as yet untreatable disease. Each year that most drugs are on the market, it generally becomes easier to forecast their sales with greater accuracy.

There is usually pressure for marketing groups to provide a forecast early in a project’s life. Providing a range of numbers based on whether a drug attains either the realistic or minimally acceptable profile is desirable. This range allows others to determine whether the minimally acceptable profile would affect the expected sales (based on the projected profile) by up to 10% or by tenfold. A range also allows others to understand the degree of variability and confidence placed in the numbers provided by those who developed them. If marketing reports estimate third-year sales of $40 million for the expected drug profile, it is uncertain whether their calculations are ±10% or ±100%. Even if a range is provided as a forecast using the expected drug profile,
it is uncertain how the minimally acceptable drug profile would affect the forecast. Marketing forecasters must be cautious about clinicians who provide them with overly positive attributes about the drug and glorify the compound’s profile.

The first step in evaluating a portfolio of investigational and/or marketed drugs is to determine which projects should be considered as part of the portfolio. The second step in evaluating a portfolio is to evaluate each project in terms of its individual characteristics. The third step is to evaluate the overall balance and composition of the portfolio using the methods desired. The fourth step is to interpret the results. This interpretation is based on changes, trends, progress toward goals, and various comparisons. The last step is to determine if it is necessary to modify any aspects of the company or results to modify the company or business area.

Categories of the portfolio include (a) marketed drugs, (b) investigational drugs, (c) drugs that are both marketed and investigational, (d) investigational drugs that have passed their go-no go decision point and are definitely going to be developed, and (e) research compounds. Other categories could also be defined.

The current phase of development or status may be illustrated for each project in the portfolio in several ways. A common method is to use a horizontal bar for each project listed along the left margin (ordinate) to show whether it is currently pre-Investigational New Drug Application (IND); in Phase 1, Phase 2, Phase 3 (pre-NDA submission), or Phase 3 (post-NDA submission); or is marketed. Another method is to have years along the abscissa (X axis) and to show dates of regulatory submission and approval for each project. Many alternative categorizations may be used, depending on the make-up of the drugs in the portfolio.

The total number of projects or drugs in the portfolio can be easily illustrated on a year-by-year basis with a line graph or histogram. This type of graph may also show the number of projects terminated per year. The number of projects initiated may be (a) expressed as a number per year, (b) compared with a standard goal, or (c) described on a moving multiyear average (Fig. 52.2A). A graph of all projects may be shown (Fig. 52.3).

Some of the parameters that may be applied to the measurement of individual projects are described in the following text. Not all of these are usually used in an analysis.