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 Instructions

“As you have worked toward your final project, you developed an overview of your case study in Module One and a project charter in Module Three. In the project charter, you considered the scope of your project in a general way. The project scope statement asks you to drill more deeply into the details. A good project scope statement will define the boundaries of your project, will help you prevent scope creep, and will help ensure successful results.

Once you have completed your project scope statement, you will set up a work breakdown structure (WBS) using MS Project software and submit an MS Project file along with your project scope statement.

To complete this assignment, review the Milestone Two Guidelines and Rubric document, where you will find links to the case study, a case study dataset, and a project scope statement template for your use.”

Prompt

Overview: For the final project in the course, you will analyze the case study Value-Driven Project and Portfolio Management in the Pharmaceutical Industry and additional course resources to create a program performance report for a hypothetical organization. The completion of this assessment will allow you to demonstrate your knowledge of program-level management and your ability to develop key executive reporting following standard frameworks. There are two parts to this milestone. In the first part, you will create a project scope statement. In the second part, you will set up your project using MS Project software and create a work breakdown structure (WBS). Prompt I: Thus far in the course, you have completed a case study overview and a project charter. In this milestone, you will develop a project scope statement using the template provided. A data set for this case study has also been provided for your benefit. Your project scope statement should include the following critical elements: 

I. Introduction: A concise overview of the project. 

II. Purpose and Justification: How does the project support business goals and objectives? 

III. Scope Description: All known characteristics of the project’s product or service. 

IV. High-Level Requirements: All known requirements of the project’s product or service.  

V. Boundaries: What should and should not be included in the project? 

VI. Strategy: Strategy to be used by the project team to manage the project. 

VII. Acceptance Criteria: Criteria that must be met for the project to be considered “complete.” 

VIII. Constraints: Limitations due to time, budget, technology, or other resources. 

IX. Assumptions: Assumptions under which all stakeholders are making decisions. 

X. Cost Estimate: Estimate of funding needed to successfully complete the project. 

XI. Cost/Benefit Analysis: Analysis of organizational costs versus organizational benefits. 

****Prompt II: Once you completed your scope statement, you will set up your project using MS Project software. As you do this, you will be creating a WBS. In your WBS, you will identify what tasks need to be developed and the relationship among the tasks. This WBS will be used in planning your project. There is no need to go any further than a Level 3 in creating your WBS.  As part of the MS Project assignment, include project milestones and create relationships with all tasks with a start-to-finish dependency; create a project start time and document any assumptions you make in the task note field. If you choose to use it, a MS Project file has been created for your benefit. You can start with this and modify it as necessary, or you can create your own project using the software. 

As needed, use the following Atomic Learning tutorials to help you set up your project using MS Project software: Infobase: Project 2016 Training 

B. Set up Your Project (2016) 

C. Tasks (2016) Your MS Project file should be a WBS that includes the following critical elements: 

I. Project milestones 

II. Relationship of tasks to one another 

III. Notes in the task note field as necessary. Save your file with a unique file name for submission. 

© 2008 PALGRAVE MACMILLAN 1462-8732 J O U R N A L O F C O M M E R C I A L B I OT E C H N O L O G Y. VOL 14. NO 4. 307–325 OCTOBER 2008 307

www.palgrave-journals.com/jcb

INTRODUCTION The increasing discussion about rising healthcare cost is fuelled by reports that General Motors paid more for healthcare than

Value-driven project and portfolio management in the pharmaceutical industry: Drug discovery versus drug development – Commonalities and differences in portfolio management practice Kerstin M. Bode-Greuel and Klaus J. Nickisch Date Received (in revised form): 31st January, 2008

Kerstin M. Bode-Greuel is founding and managing partner of Bioscience Valuation in Germany and USA, and of Bioscience Market Research, USA. Her 20-year experience covers virtually all therapy areas in pharmaceutical R & D and strategic marketing. She held senior positions at Bayer AG, and after fi ve years of independent management consultancy, co-founded Bioscience Valuation. Her publications include two expert SCRIP reports, professional journal articles and chapter of a textbook. She is Associate Lecturer at University of Essen ’ s Masterclass programme, as well as speaker / workshop leader in international conferences. Kerstin studied medicine in Germany and UK, and was educated in corporate fi nance at the Wharton School of the University of Pennsylvania.

Klaus J. Nickisch received his PhD in Organic Chemistry from the Technical University Berlin in 1979. He then joined the Schering AG as a medicinal chemist doing research work in the endocrinology and cardiovascular fi eld for fi ve years. In 1985 he moved into development and fi nally led the chemical development department for many years. In 1999 he moved to project management and became head of project- and portfolio management of Specialized Therapeutics, a business unit of Schering AG located in the US. He fi nally got promoted to heading global project management. After the acquisition of Schering AG by Bayer AG, he joined the Berlin School of Economics where he is now in charge for building a new MBA programme for pharmaceutical management.

Abstract The concept of portfolio management has been widely used in the pharmaceutical industry. It is used to evaluate the commercial value and the risk structure of development projects. The fi nal goal is to select a portfolio of projects that addresses the strategic objectives of the organisation optimally and that leads to the highest overall portfolio value. Companies now start to apply the portfolio management concept on their research portfolios. Although the basic principle remains the same, the methodology applied has to be adapted to the greater uncertainty that early research projects carry. Commonalities and differences of the portfolio management process in research and development are described and recommendations are given how to harmonise the two different approaches. Journal of Commercial Biotechnology (2008) 14, 307 – 325. doi: 10.1057/jcb.2008.6 ; published online 4 March 2008

Keywords: portfolio management , research , development , pharmaceutical industry , risk management

Correspondence: Kerstin M. Bode-Greuel, Bioscience Valuation BSV GmbH, Am Zigeunerbergl 3, Grainau 82491, Germany Tel: + 49 8821 966979 0 Fax: + 49 8821 966979 29 E-mail: [email protected]

Bode-Greuel and Nickisch

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for steel per vehicle in 2004, 1 and Starbucks paid more for health insurance than for coffee in 2005. 2 The continuing rise in development costs for drugs has increased pressure on R & D organisations to contribute to higher effi ciency in the overall process of coming up with new drugs.

In the last few years the industry has made signifi cant efforts to address these challenges 3 and to increase the productivity of the drug development process. Some of the initiatives have without doubt led to considerable improvements. Examples are the earlier determination of a drug ’ s toxicology profi le and early tests to investigate the suitability of a new drug candidate for oral administration or once a day dosing. The question is no longer how good we are in what we are doing but whether we are doing the right things. Further improvements of the overall process should shift from attempts of enhancing effectiveness to a greater emphasis on the effi ciency of the processes applied.

In this context a lot of emphasis is put on portfolio management. In the broadest defi nition, portfolio management describes the process of maximising the value of R & D portfolios through proper resource allocation. This requires an alignment of portfolio management with strategic business objectives. Such objectives should not only be general (e.g., innovation) and quantitative (eg ROI or sales targets). They should also defi ne disease areas of interest, clearly outline the remaining medical needs, and specify the indications that are considered worth pursuing. This will enable decision makers and functional R & D managers to identify projects with both strategic fi t and a high value proposition. Depending on the size of the organisation, either a corporate or therapeutic area strategies need to be developed, approved, and endorsed by the entire organisation.

Value-driven project and portfolio management implies quantitative fi nancial and risk analysis of individual projects and overall portfolios. Such analyses elucidate options for

improving the value and risk structure of individual projects on the one hand and therapeutic areas or overall corporate portfolios on the other hand. They are applicable and relevant to companies of any size. Value-driven project and portfolio management is a methodology enabling the alignment of project decisions with corporate strategy and defi ned business objectives.

Although portfolio management has been applied in the fi nancial industry for many years and Harry Markowitz was honoured with the Nobel Prize for outlining this concept it was only around the end of the last century that the application of value-driven portfolio management in the pharmaceutical industry was published. 4 Around the same time, an investigation across various industries provided evidence that portfolio management based on quantitative fi nancial analyses using the net present value (NPV) algorithm correlates well with value creation. Value destruction, however, was observed more frequently in companies that built their portfolio decisions only on simplifi ed scoring methods or semi-quantitative portfolio matrices such as those introduced in the 1980s. 5

Most pharmaceutical companies have implemented portfolio management in drug development. 6 – 9 An increasing number of companies is now making efforts to apply it to discovery research and early development. Not surprisingly, given the relatively short period of use, the inherent complexity of the issue has prevented the establishment of a broadly accepted best practice in R & D portfolio management.

This review focuses on the entire portfolio management process with special emphasis on commonalities and differences in the research and development environment. For aspects where, based on the authors ’ experience, a best practice emerges this is clearly stated. Otherwise, different approaches are described and compared. We begin with the description of portfolio management in development because there it has a longer history than in

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The four tools mentioned above provide information required to evaluate and prioritise projects, and to analyse whether the portfolio is aligned with corporate objectives. TPPs are generally applied, but not always in an effective way. The stage-gate decision process is related to the major preclinical and clinical development milestones and is also a well- established principle in the pharmaceutical industry. At each stage-gate, it is decided whether the achieved results support continuation of development, and the project may be reprioritised depending on other projects competing for resources. Time line and budget management has been the responsibility of project management for a long time. Sales forecasting and fi nancial project evaluation is undertaken to a variable extent and level of detail, depending on companies ’ policies at which development stage quantitative analyses should commence.

In addition to the four tools mentioned above, risk analysis has become a particular point of concern for about fi ve years, both in project and in portfolio management. 10 In the context of the pharmaceutical and biotechnology industry, it is helpful to differentiate two different categories of risk as they are managed by different stakeholders: strategic and operative risk. 11 In brief, strategic risks typically affect go / no-go decisions and may have a signifi cant impact on value; therefore, they are matters of concern predominantly for project and portfolio management. Operative risks represent issues that may lead to deviations from the development plan and budget. They require particular attention by line functions and coordination by project management, as they are often cross-functional. Operative problems may eventually gain strategic relevance. Strategic risk analysis has been applied for some time in R & D portfolio management and is usually represented as estimates of the probability of achieving milestones. The systematic management of operative risk has been initiated more recently; here, risk is often not represented as probability but rather

research. This has led to a signifi cant body of experience on which portfolio management in early R & D can build.

CURRENT BEST PRACTICE OF PORTFOLIO MANAGEMENT IN DEVELOPMENT (BEYOND PROOF OF CONCEPT) There are two major tasks for implementation of value-driven portfolio management: evaluation methodology and metrics on the one hand, and the corporate evaluation and prioritisation process on the other hand. There is a general agreement in the pharmaceutical industry that the evaluation of projects entering ‘ full ’ development after successful proof of concept (PoC) should include quantitative fi nancial parameters. Furthermore, there appears to be a generally accepted set of portfolio management metrics. 6 – 9 The portfolio management process, however, differs, as well as the degree of implementation, refl ecting individual companies ’ corporate structure and culture. There are some prerequisites for successful portfolio management that apply to all systems: the evaluation of projects must be suffi ciently detailed, interdisciplinary, consistent, and embedded in a practicable corporate process.

Value-driven project management in development The fi rst step towards value-driven portfolio management is the establishment of effective project management. Project management is the predominant operative instrument for the execution of portfolio decisions. Four common tools are applied to align project management with portfolio decisions:

Target product profi le (TPP) A stage-gate decision process Timeline and budget management Sales forecast aligned with TPP and development plan

• • • •

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as semi-quantitative categorisation and plotted against categories of impact.

In the following, ways towards effective application of TPPs and strategic risk analysis (in the format of decision trees) are described. In addition, sales forecasting procedures and fi nancial analyses adapted to the needs of portfolio management are outlined.

Target product profi le (TPP) A TPP serves as a blueprint of the desired future product. It defi nes the disease category and targeted patient population, the requested effi cacy, safety and tolerability characteristics, and technical details such as, for example, formulation and mode of application of the product to be developed. The TPP describes features of the future marketed product that can realistically be expected based on the properties of the compound and the pathophysiology of the disease to be treated. It takes into account both regulatory and market requirements, as the profi le should refl ect both a registrable and a commercially viable product. Ideally, TPPs for individual projects and their respective targeted disease categories are well aligned across discovery research, development, and marketing functions. The FDA has recently defi ned a template for TPPs to facilitate communication with the agency. 12 This is an extensive document of several pages not only requesting target criteria but also a description of trial designs and obtained development results. As internal tool for value-driven management, focused TPPs are more suitable, summarising the features that drive development and marketing plans. Such TPPs do usually comprise not more than 1 – 2 pages.

TPPs defi ne the desired label in the packet insert and therefore serve as outline for R & D with respect to the required clinical trials and development activities, that is, TPPs defi ne the scope of investment. In order to fulfi l this task, effi cacy and safety / tolerability parameters are defi ned in a commonly agreed and, as far as possible, quantitative way, as they will drive trial design and cost.

The TPP outlines the development targets, but it does not always indicate to what extent results would be allowed to deviate from the target until further development is not worth while any more. Therefore, companies often defi ne a minimum product profi le (MPP) alongside the TPP to establish a common understanding of the minimum study results required for continuation of development. All of the MPP criteria must be achieved, and they must respect regulatory requirements. While the TPP outlines the scope of investment, the MPP represents stop / go criteria.

TPPs can play a benefi cial role in aligning project activities between the development functions and marketing and sales. This is best achieved if they are established through an interactive cross-functional process. TPPs also facilitate the communication of project issues and the alignment of senior management ’ s expectations. As such, they are an important element of value-driven management.

Decision tree analysis Decision tree analysis is an effective tool to illustrate R & D decision points, the probabilities of uncertain outcomes at each milestone, and potentially resulting decision options ( Figure 1 ). It is well established in pharmaceutical development. 4,12 As investment decisions are made with respect to milestones, it is useful to examine the risk and cost of individual milestones and the value gained assuming successful completion. Decision trees serve as communication tool for portfolio management and for project management and line functions. They are also used for risk adjusted net present value analysis ( ‘ augmented NPV ’ ).

Decision tree analysis focuses on those activities that are essential for successful development and for achievement of the TPP. If milestones are composed of several independent uncertain activities undertaken in parallel, individual probabilities are multiplied to provide the overall probability of success

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circumstances of the individual case. An interactive and systematic discussion process has proven to be most effective as participants refl ect their opinions against others. This leads to a fruitful knowledge exchange among experts and in most cases to a common agreement. It is sometimes believed that the interactive process consumes too much time, there may not be access to professional moderation capabilities, or expert teams are considered overly optimistic. Therefore, some companies prefer simplifi ed procedures, for example, the distribution of templates that have to be fi lled, or they use published average success rates. However, this may result in overlooking critical project issues that arise from the interaction of functions and that would not be recognised by individuals

for the respective milestone. Decision trees usually extend up to approval. Market scenarios and commercialisation uncertainties are often refl ected in probabilistic sales forecasts (see below).

Best practice decision tree analysis is conducted with the project teams and additional experts when appropriate. The analysis benefi ts from a neutral moderator, often a representative of the portfolio management function. The development plan is evaluated along the TPP / MPP and its milestone structure. For those uncertain elements that affect go / no-go decisions, the probability of success is estimated. Benchmarks can be used as orientation to outline a plausible range to the team. Probabilities are assessed based on available knowledge and the

54%

Phase III

Carcinogenicity

46%

Phase III: efficacy at least according to minimum profile (6 months treatment, p=80%), 12 months safety trial OK (p=80%), carcinogenicity study

OK (p=85%) – GO TO Registration –

Phase III and/or 12 months safety trial and/ or carcinogenicity study failed

– STOP –

54%

Phase III

Carcinogenicity

46%

Phase III: efficacy at least according to minimum

profile (6 months treatment, p=80%), 12 months safety trial OK (p=80%), carcinogenicity study

OK (p=85%) – GO TO Registration –

Phase III and/or 12 months safety trial and/ or carcinogenicity study failed

– STOP –

40%

Phase I go

60%

stop 65%

Phase IIa

(PoC) go

35%

stop

46%

Phase III L.T. Tox

go

stop 10%

Registration go

90%

stop

Phase IIb

CMC go

stop

54%

72%

28%

Figure 1 : Example of a decision tree. Decision trees are tools to illustrate the potential outcomes at development milestones and the risk structure of projects. Outcomes are differentiated according to available decision options. For use in portfolio management and for valuation purposes, the layout is usually simplifi ed as it assumes that development will be continued and the project will fi nd an investor if milestones are achieved. The Phase III milestone in the present example is comprised of three uncertain studies whose outcomes are considered independent, while all studies must be successful in order to proceed. Probability estimates can then be multiplied to achieve the overall probability of success of the milestone. If several studies are undertaken at a milestone, care must be taken to identify potential interdependencies between studies in order to avoid an overestimation of risk. 11 Decision trees may sometimes refl ect more than two decision options at a milestone. For example, a Phase II milestone may lead to more than one way forward: if effi cacy is as outlined in the TPP, it may be decided to go directly to Phase III; alternatively, Phase II results may suggest to investigate another treatment schedule before going to Phase III in order to maximise the chance of success of the latter.

Bode-Greuel and Nickisch

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alone. Furthermore, published benchmarks are averages across a sample of companies, and the method applied to generate them differs among sources. In addition, there is evidence that individual companies deviate signifi cantly from average success rates, indicating differences in R & D productivity within the industry. Finally, success rates differ across therapeutic fi elds, and the available statistics do not provide reliable data for individual disease entities.

Very often, alternative options exist for the development of projects. These may comprise a broader or restricted target patient group, a fast and risky development to achieve earlier launch versus a step-wise, risk reduced development strategy, the cheapest possible way towards registration, or a more or less ambitious TPP with respect to effi cacy or safety. Such alternatives differ with respect to cost, risk and risk structure, timelines, and commercial value. Decision tree analysis is an ideal tool to facilitate the analysis of alternative options.

The relevance of project risk structure . A project ’ s risk structure is defi ned as the resolution of risk per milestone. Risk structure may be front-loaded (low probability of success in early development), balanced, or back-loaded (high risk in late development). Alternative development plans usually differ in risk structure. Mostly, but not always, this is also associated with a difference in overall probability of development success. Risk structure affects the fi nancial value of projects because the relative weighting of outcomes is different.

This applies even if overall probability of success is not different, in cases where the relative weighting of expensive versus cheap failure scenarios is changed. In essence, it would always be advisable to reduce risk as early and quickly as possible in order to put the signifi cant investments in the later stages at the lowest necessary risk.

R & D projects can be classifi ed in different categories, such as, for example, fi rst-in-class

highly innovative new products, ‘ fast followers ’ with validated mechanism of action, or added-value generics, that differ in risk structure. Highly uncertain innovative drugs undergo signifi cant risk resolution only after Phase II (PoC) or even Phase III, depending on the therapeutic category and clinical trial endpoints. Fast followers are projects of moderate risk in Phases II and III; risk will mostly be driven by the incremental benefi ts the sponsor wishes to establish to make the product competitive vis- à -vis the market leader. Added-value generics are copies of products with a commonly known benefi t / risk ratio, while effi cacy, safety, or convenience is enhanced, for example, through an innovative formulation. Such projects have a comparatively low development risk and often a shorter development time. The analysis of project risk and the proactive selection of projects with complementary risk structure offer opportunities to balance portfolio risk. A risk- balanced portfolio is more likely to meet productivity goals. Furthermore, projects with favourable risk structure may have a comparatively high fi nancial value in early development (with less pronounced incremental value increase upon completion of development milestones), thus balancing not only productivity but also portfolio value.

The analysis of project risk structure facilitates the understanding of the impact of the chosen clinical trial plan and trial endpoints on risk ( Figure 2 ). Development risk is infl uenced by the reliability and validity of individual studies, and by the quality of development execution. Examples are the potentially low reliability of encouraging but small pilot studies that may carry forward risk into later stages of development, leading to unexpected late stage failures. If trial results remain unclear, development may be terminated because additional investments and further trials would delay launch to an extent that the value proposition is lost. If the expected knowledge gain of particular trials and its impact on the level of confi dence in

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COST (EUR mill.)* ; probability of success

discount rate: 10% tax rate: 40%

Peak sales (EUR mill.)

Years to peak Preclin Ph I Ph II Phase III Reg Phase IV

CMC/ Product devel.

Marketing (year of launch)

% sales reduction in year of

patent expiry Phase II/III

Added value generic 250 5 3 6 44 39 – 5 38 –

90% 85% 85% 90%

Standard product 500 5 7 9 22 98 66 5% of peak sales (years 1-5 after

launch) 13 125 75%

70% 75% 60% 80% 95%

Blockbuster product 3,000 7 7 10 32 258 452 5% of peak sales (years 1-5 after

launch) 13 450 90%

45% 60% 35% 65% 90%

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163

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Development Stage

P ro

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il it

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Cost per stage (EUR million)

Value (EUR million)

103

163

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1,001 1,315

214 261

376

635

806

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145

357

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2,608

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3

6

44

7

9

22

98

7 10

32

258

Added value generic

‘Standard’ product (validated MoA, incremental innovation)

1st in class (blockbuster, breakthrough innovation)

Figure 2 : Portfolio risk structure. R & D projects can be classifi ed according to risk / cost / value characteristics. For the three examples shown, both overall probability of success and risk structure is different. (a) shows three examples of development projects with different risk structures: (1) Innovative NCE ( ‘ breakthrough innovation ’ ): high risk, high cost, blockbuster potential; (2) ‘ Standard ’ product ( ‘ incremental innovation ’ ): for example, a product of a class with clinical PoC; moderate development risk, moderate development cost, moderate sales potential; (3) Added value generic (generic with added benefi ts through, eg, innovative formulation): low risk and cost, low to moderate sales, faster development. (b) illustrates the expected fi nancial value, the probability of launch, and the cost per stage of the projects at particular development milestones. For example, a project with low risk and fast development may have a higher fi nancial value in early development than a highly innovative project, emphasising the impact of risk structure on value. The expected value uptake of the latter is, however, much more pronounced when risk is resolved through the completion of milestones. Innovative projects usually experience their highest relative value uptake after successful PoC, whereas the value uptake of clinically validated development candidates or value-added generics is less pronounced at PoC. Value uptake profi les may also vary depending on the chosen clinical development strategy and the unique selling proposition to be established. Taking into account the effects of projects with different risk structures, R & D portfolios may be designed to achieve optimum productivity and diversifi cation. Analysis of the risk / cost / value structure of individual projects facilitates proactive portfolio planning with respect to overall portfolio value, effi cient resource allocation, and sustained growth.

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forthcoming development stages is analysed, the understanding of risk along the sequence of clinical trials will be enhanced.

Commercial analysis and sales forecast In fully integrated corporations, commercial analyses and sales forecasts are usually provided by (strategic) marketing. Representatives of the portfolio management function sometimes generate sales forecasts for projects that have not yet passed PoC or that are of low priority. In such cases, it is advisable to seek alignment of the key assumptions with marketing to ensure their buy-in.

Assuming contemporary forecasting capabilities (see below), the major issue of value-driven management is the proper alignment of commercial expectations with the planned R & D activities and clinical trials. Furthermore, project managers and decision makers benefi t from investigations how product sales may change if uncertain trial outcomes move to the optimistic or pessimistic direction, related to the likelihood of the respective scenarios. As outlined above, the TPP / MPP is a valuable tool to facilitate the establishment of trustworthy forecasts and expected sales scenarios.

As a consequence of the translational medicine approach, more and more companies choose an organisational model that separates research and early development until POC from full development. As a consequence this leads also to a split of the portfolio management function. In such cases there is a tendency of initiating quantitative fi nancial project evaluation only after PoC. This is different from portfolio management practice in the 1990s, when a development project was nominated with the start of preclinical development and its fi nancial value analysed. Signifi cant decisions with respect to the therapeutic indication and the development strategy are sometimes already made before the defi nition of the PoC programme, as they infl uence its objectives

and design. If TPPs and quantitative analyses are established only thereafter as prerequisite for the ‘ full ’ development decision, it may turn out that data generated earlier do not support a competitive value proposition. However, with a longstanding business experience of the company in the targeted disease areas, marketing input to early R & D, and a broader set of clinical options tested, it may be adequate to initiate market analyses and fi nancial evaluation only after PoC.

Productivity analyses of the biopharmaceutical industry indicate that approximately 20 % of project terminations in Phases II, III, and registration are based on commercial and strategic considerations. 13,14 A signifi cant fraction of these late terminations could potentially be avoided by conducting quantitative evaluation and market research earlier. The value of sales forecasting before PoC is sometimes questioned, as it is entirely based on assumptions. If, however, TPPs and MPPs are suffi ciently detailed and respected in development, they represent blueprints of the future product, because R & D will be directed towards proving the claims. In essence, uncertainty would only materialise as more positive product and market scenarios, as outcomes below MPP level should lead to a termination of development. The uncertainty of assumptions and their impact on overall results can be quantifi ed and illustrated by various techniques. Companies who apply forecasting to early projects also appreciate its educational effect, because the relation between criteria defi ned in TPPs and their expected impact on sales becomes transparent.

The following three approaches to the evaluation of the market potential can be applied in early R & D at a moderate cost:

i. Sales forecasts based on desk research : Commercially available reports on disease prevalence and incidence and market segmentation enable an estimate of patients available for treatment. Data- bases provide information about pipeline products and facilitate a judgment of

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forecast by market research reduces the risk of pursuing development strategies that prove to be commercially unattractive in late development.

Financial project evaluation The NPV algorithm is a generally accepted approach to the fi nancial evaluation of investments in the pharmaceutical industry, and it is also used in R & D portfolio management. 6 – 8,15 Originally, the NPV algorithm has been developed for ‘ static ’ investments where managerial actions have virtually no impact on value. As described above, the situation is different for the development of new drugs. Investment decisions are made stepwise along development milestones, while assumptions are made about the cost, duration, and probability of success of individual milestones. NPV calculations that refl ect the milestone and risk structure of projects are therefore more useful. Many companies report to apply ‘ risk-adjusted ’ or ‘ expected ’ NPV models, while it is not always disclosed whether such models include the probabilities per individual milestone or only the overall probability of launch. The ‘ augmented NPV ’ model 15 incorporates the probability of success at individual milestones and the option to minimise losses by terminating development if unfavourable results occur. While being built on the decision tree, the evaluation does not only include the overall probability of success but also adequately refl ects the risk structure of projects. Therefore, the augmented NPV is sensitive to changes in the development plan if they affect the project ’ s risk structure.

Augmented NPV refl ects the present value of the project. In addition, this fi nancial algorithm can be used to determine the potential future value of projects and portfolios assuming that subsequent milestones would be completed successfully. Project prioritisation decisions could refer to the relative and absolute value gain that the completion of a milestone of a particular

their competitiveness. Information of the pricing environment and dynamics enable an assessment of a potential price range for the new drug. The uncertainty of assumptions can be analysed using Monte Carlo simulation which, however, is not regularly applied in pharmaceutical companies at present. Tornado diagrams illustrating the results of one-way sensitivity analysis are often preferred over simulations as they are more illustrative.

ii. Focused market research : Interviews with key opinion leaders, experts, and health- care providers yield valuable informa- tion in early development, as physicians and insurances may adopt a much more pragmatic perspective towards drugs that scientists consider highly innovative. In addition, opinions may signifi cantly differ across the countries. Such information is used to refi ne the desk research-based forecast.

iii. TPP conjoint analysis : In early R & D, conjoint analysis is an ideal tool to investigate physicians ’ attitudes towards (potential alternative) TPPs. Conjoint analyses are statistically relevant trade-off analyses in which physicians weight the relative importance of particular product attributes including price (if information on a feasible price range is particularly relevant, the conjoint analysis could include further customers, such as, eg insurers, formulary com- mittees, or HMOs). In early R & D, this analysis allows investigating whether a TPP or MPP is competitive and focuses on attributes that drive the choice of products. The analysis provides pref- erence shares for alternative TPPs or products. Thus, TPP conjoint analyses facilitate the defi nition of robust TPPs.

In summary, building a desk research-based sales forecast reveals the relevant issues that may lead a product to market success or failure. Further enhancing the reliability of the

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project would yield, in relation to its respective cost and probability of success. Furthermore, such analyses provide an optimum basis for license contracts with option elements, and for investors ’ decisions regarding exit strategies.

Option pricing algorithms based on risk- neutral valuation are also investigated for their applicability to R & D projects. 16,17 The major argument is that it can be concluded from fi nancial theory that discounting in option pricing models would better refl ect the optionality of such projects. So far, there is no fi nal consensus among scientists and practitioners about the validity and advantages of option pricing methods compared to augmented NPV, and there is evidence that the results of both approaches converge and lead to similar conclusions if private risk is refl ected adequately. 17,18 This and the absence

of experience with this abstract valuation algorithm have prevented its widespread implementation.

Development portfolio management Most pharmaceutical companies apply a regular and systematic approach to review their portfolio of development projects. This is undertaken once or twice per year. The portfolio review usually comprises both qualitative and quantitative evaluations of individual projects ( Figure 3 ). Common qualitative parameters are strategic fi t and degree of innovation, while quantitative parameters include NPV and expected value uptake, project productivity (ie augmented NPV divided by risk-adjusted costs), (risk-adjusted) sales, probability of launch, time to launch, and (risk-adjusted) cost.

Strategic fit

Augmented (risk-adjusted, probabilistic) NPV

Probability of develop- ment success

Expected value uptake by development milestone

Project productivity

Expected near term and overall sales growth

Budget and capacity

Portfolio value and productivity

Portfolio risk structure

Project

analysis

Portfolio

analysis

Feasibility

Optimize Value per investment Value at a comfortable level of portfolio risk Pipeline

Degree of Innovation

Pipeline characteristics

Figure 3 : Commonly applied portfolio management metrics and criteria. Portfolio decisions in pharmaceutical R & D are usually built on both quantitative and qualitative criteria such as those shown above. From a purely fi nancial perspective, one would rank projects according to expected NPV and optimum productivity. This, however, ignores that future corporate growth requires a balanced pipeline which also includes early stage projects with lower expected NPVs. Furthermore, capacities need to be available and can usually not be allocated freely. Another issue is balancing portfolio risk to ensure that productivity goals are met. A proper strategic framework outlining growth and productivity goals and the therapeutic area focus serves as guidance for portfolio decisions. Effective data analysis tools facilitate the evaluation which combinations of projects would maximise value, sales growth, or the number of new launches. In addition, companies are currently establishing tools for capacity management to investigate more thoroughly which portfolio scenarios would be practically feasible.

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Data quality can be further enhanced by a comparative look across projects at the assumptions made in the evaluation. In larger companies, this may be most practical for projects within therapeutic areas. The major focus should be on validity and consistency among the probability estimates in development and on the assumptions underlying the sales forecasts. Ideally, the review process would involve senior function managers. This has two advantages:

1. input of senior expertise may improve the quality of the data and cross-project consistency and

2. the involvement of senior management in the portfolio evaluation process builds the basis for acceptance of valuation results in the prioritisation discussion.

Interactive decision making as prerequisite for proper prioritisation decisions There is no single optimal portfolio, alternative solutions are usually feasible. Project scoring methods leading to

While there is common agreement on portfolio management metrics in development, there are differences in the portfolio management process and in the preferences for particular project value indicators. For example, some companies establish quantitative project analyses only after PoC, while others start earlier. Furthermore, some perform a project-per- project review with little emphasis on cross-project comparisons, while many use templates displaying two or three value dimensions across projects in order to facilitate project prioritisation decisions.

Data validation and buy-in of senior management If experts and project teams evaluate their own projects they may be subjective and sometimes overly optimistic. Subjectivity can be balanced effectively when the project evaluation meetings are moderated by an experienced individual, for example, a representative of the portfolio management function who has no stake in particular projects ( Figure 4 ).

Senior Management Review of Key Assumptions

Portfolio Management Workshop

Communication to Functions Capacity Allocation

Project Prioritization Portfolio Optimization

Decision Tree Meetings

Marketing Meetings

DRAFT Project Evaluation

Finalization of Project and Portfolio Models

Potential re-iterations depending on senior management input

Potential re-iteration if capacity constraints become apparent

Figure 4 : Portfolio management process in fully integrated companies. The evaluation of development milestones and probabilities ( ‘ decision tree meetings ’ ) and the commercial analysis ( ‘ marketing meetings ’ ) of individual projects is usually performed on the project team level. A senior management review of the key assumptions across projects facilitates the establishment of valid and consistent assumptions. As capacity constraints may limit the operational execution of portfolio decisions, effective communication and interaction with functions facilitates the translation of project prioritisation decisions into feasible actions.

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computated project ranking lists have therefore not found general acceptance. Instead, portfolio review meetings benefi t from thorough interactive discussion and the consideration of alternative prioritisation solutions. Corporate strategy leaves room for interpretation, decision makers ’ risk preferences may differ, and keeping the balance between short- versus long-term value propositions or new project versus lifecycle management investments is often a matter of diverging opinions. Therefore, robust portfolio decisions are best achieved in an interactive way. Individual opinions and attitudes of the participants become transparent. This paves the way for consensus and compromise that increases the chance that decisions are respected and translated into action on the operational level.

Understanding evaluation results that comprise a set of parameters related to a set of projects is a complex pattern recognition task. The discussion strongly benefi ts from moderation by a representative of portfolio management who supports the participants to achieve a balanced view.

Analysing an existing portfolio is a bottom- up approach that usually comprises the elements described below:

i. Evaluation of the overall pipeline with respect to the distribution of projects across development stages and the frequency of expected future launches; identifi cation of gaps.

ii. Prioritisation of projects based on multiple criteria: In a fi rst step, par- ticipants may agree on the ranking of projects with respect to individual criteria. Projects may rank high or low for different reasons, such as, for exam- ple, value, risk profi le, time to market, or sales volume. In a subsequent step, overall project priorities are defi ned. In addition to the criteria representing value, strate- gic and operative aspects may be relevant for the prioritisation of projects. Care is taken that not only late stage / high

value projects are assigned high priority, because a systematic under-resourcing of early stage projects would result in late stage projects with short patent life and unfavourable profi le. Effi cient software tools can facilitate the investigation of alternative project prioritisation options that may, for example, differ with respect to maximising productivity, maximising near or mid-term sales growth, or minimising portfolio risk.

iii. Identifi cation of projects with fi rmly assigned resources, identifi cation of remaining budget and capacities that will potentially be subject to reallocation.

Depending on the size of the corporation, prioritisation decisions are either made across the whole portfolio or within business units or therapeutic areas. The latter model would require a corporate body that assigns resources to individual business units according to their relevance for the entire corporation. Preference for a ‘ fractionated ’ approach to project prioritisation usually depends on the overall number of projects and the corporate culture.

An effective portfolio management process also requires reporting procedures to follow up actions taken upon decisions at the operational level. This facilitates establishing a culture of value-driven management.

Capacity management An often underestimated prerequisite of successful portfolio management is appropriate capacity management. 19 The best portfolio management system cannot prevail if there is a signifi cant gap between available and needed capacities.

The consequence of a lack of a capacity management system is not only that more or less all projects get delayed but also that the priority decisions are made on the working level, based on individual judgment and personal relationships.

In prioritisation decisions in portfolio review meetings, the ranking should not just

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process as an iterative business process, the links to corporate strategy for getting strategic directions and with project management for appropriate execution appear to be most important. Furthermore, an effective organisational link to business development would also be relevant as portfolio analysis indicates which in-licensing candidates and R & D partnerships would ideally complement the internal assets.

In larger multinational organisations composed of strong and relatively autonomous business units covering particular therapeutic areas, the portfolio management process might be broken down in an inner business unit and a corporate portfolio management process.

Observational evidence suggests that the most effective organisational model is one in which the portfolio management function is closely linked to the strategy and project management function, jointly reporting to either the CEO or another Board member that is neither responsible for R & D nor for commercial. Merck Serono is currently implementing such a model in order to enhance the cross-functional management of R & D and to improve alignment of portfolio decisions with strategic goals: all functions, along with portfolio management and business development, are represented in the new Executive Management Board reporting to the CEO. 20

PORTFOLIO MANAGEMENT IN RESEARCH AND EARLY DEVELOPMENT Not so long ago there was the general belief in the industry that research was hardly manageable and that portfolio management techniques were just not suitable for the discovery process. Arguments given were that changes in research direction would create a slowdown in productivity because the skill set is not readily transferable, the fi nancial value of projects could not properly be determined so early and that serendipity would play a major role anyway. 21

depend on the potential economic benefi t but also on the needed capacities to reach the goal (R & D effi ciency).

Portfolio management in different organisational systems As with all new management concepts the organisational introduction of a portfolio management function has to be seen in the context of the overall organisational model that the respective company applies.

The portfolio management process involves the entire R & D organisation and all commercial functions. In most organisations, R & D and Marketing & Sales are represented on the Board level by different individuals. Therefore, the fi rst question companies need to address is to which corporate body the portfolio management function should report.

In principle, three organisational models are possible and as a matter of fact are found in certain companies.

Either the portfolio management function reports to:

Head of R & D Head of Commercial CEO / Head of Strategy, etc

All models could be feasible, but they face different challenges in practice.

As R & D and commercial functions are equally involved in the portfolio management process, the fi rst two organisational models are complicated by the requirement that one stakeholder reports into the other. This could raise bias concerns given that very often R & D and commercial are different in their perspectives. This issue is avoided by a model where the portfolio management function reports either directly to the CEO or to another Board member responsible for, for example, corporate strategy or business development.

Another aspect that needs consideration is with which other functions portfolio management needs to collaborate. Given the very nature of the portfolio management

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Whereas past efforts focused mainly on decreasing the time to reach the next milestone and fi nally the time of launch it can be questioned whether further reductions in development time are still feasible with reasonable efforts. The emphasis is shifting towards infl uencing attrition rates favourably, either by improving the quality of R & D execution or at least by terminating projects as early as possible by optimised decision making. 13 Doing things right is no longer enough, doing the right things becomes the rule of the game.

This paradigm shift is currently increasing the awareness that portfolio management techniques could contribute signifi cantly by ensuring that:

Portfolio value increases – by killing low value and unproductive projects early Portfolio risk is well balanced – by working on an appropriate ratio of validated and non-validated targets Research targets support the franchise strategy – by defi ning a franchise strategy

Prerequisites for portfolio management in research and early development As for development, there is one very important prerequisite for the successful introduction of portfolio management in research – a proper strategic framework.

Furthermore, tools applied in development portfolio management, such as, for example, the stage gate decision process, TPPs, and time line, budget, and risk analysis are increasingly used in early R & D.

TPPs in early R & D TPPs in discovery research outline the pharmacological, safety, and technical profi le required for compounds to enter clinical development. Fulfi lling such predefi ned criteria would create reasonable confi dence that the optimal drug has been selected and

that clinical trials can succeed. TPPs in research and development that are well aligned with each other and with strategic objectives in a cross-functional process serve as ideal tool to manage the interfaces between discovery research, development, and marketing.

Evaluation of individual projects along a stage-gate decision process For the drug research process the following phases can be defi ned: target selection, assay design, lead discovery, lead optimisation, and candidate profi ling (also called preclinical development, required for entry into man), see Figure 5 .

Every project needs to be evaluated at the end of each phase based on the achieved data. A set of milestone criteria is defi ned according to the TPP that must be fulfi lled to let the project move into the next phase. Some of the go / no-go criteria may be quantitative like affi nity and selectivity of a compound for particular receptors, others may be more qualitative, like competitive edge versus competitors or attributes for which no validated animal models might be available. As in advanced development, a stage-gate process only for individual project decisions would, however, fail. With the decision to move a project into the next phase a certain amount of resources, either internal or external, is to be allocated. It has to be made sure that these resources are not already utilised by other projects the organisation is working on. In case bottlenecks are determined, debottlenecking strategies need to be developed or clear prioritisation decisions have to be made for the entire portfolio.

Regardless of the capacity issue, what appears to emerge as best practice in early R & D is that individual compounds are considered from the perspective of the selected pathway in comparison to other targets under investigation for the respective disease area. Trade-off decisions are made to optimise the entire franchise portfolio.

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TPP risk : Risk that the compound will not meet the specifi ed effi cacy and safety targets of the TPP. Competitive risk : Risk that the predefi ned TPP will not create a differentiated product with a unique selling proposition.

Companies may apply a scoring model that provides an overall judgment of project risk. Recently, some discovery organisations made favourable experience with decision tree analysis, allocating probabilities of success to each milestone of the stage gate model based on the criteria used for go / no-go decisions. 23 Probability assessments also enable the establishment of a pipeline model for discovery research, indicating the expected number of compounds entering Phase I or completing PoC per unit of time, related to a defi ned budget and capacity. Pipeline models in research have proven to be extremely useful in managing and monitoring productivity and performance in early R & D.

Financial evaluation At present, there appears to be a general agreement in the pharmaceutical industry that it does not make sense to do detailed fi nancial

Project risk analysis While there is a lot of experience with project risk analysis in drug development, systematic risk and probability analysis is less established in drug discovery. It has been particularly diffi cult for project teams in discovery research when they worked on innovative targets in the absence of any reference data. Since recently, industry benchmarks are also available for the drug discovery stage, referring to the stage-gate decision model. These benchmarks have become particularly useful as many companies adopted the stage-gate research process. In some disease areas, commonly accepted animal models are available that are to a certain extent validated for their predictivity of effi cacy in man.

To characterise the risk profi le of individual projects, the following risk dimensions are evaluated:

Compound risk : Risk that the compound will fail due to defi ciencies of the specifi c molecule. Mechanism risk : Risk that the biochemical mechanism does not work in pharmacological models and in man as expected.

Assay design

go

stop

Lead discovery

go

Candidate profiling

(preclin. dev.)

go

stop

Phase I go

stop

Lead optimization

go

stop

stopTarget selection

Figure 5 : Stage-gate decision process in discovery research. Many companies have implemented a stage-gate decision process in drug discovery and manage their research along milestones such as those indicated above. Some companies have recently implemented an organisational model in which the responsibility of discovery research extends up to PoC. As in clinical development, go / no-go criteria are defi ned for each milestone according to the TPP that must be fulfi lled to continue research. Companies usually set time lines for the achievement of milestones. Discovery research is nowadays also covered by benchmark initiatives which provide average success rates, time lines, and resources used per milestone.

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analyses in the research stage. The main argument is that at this point effi cacy and differentiability might not have been established and that the effective dose in man and the COGS are not known. What is used instead is a kind of ranking based on epidemiology and market data, leading to an estimate of the sales potential:

High economic value >1bn US $ Moderate economic potential >500m < 1,000m US $ Low economic potential < 500m US $

The resulting conclusions will depend on the company ’ s commercial situation, with larger organisations defi ning cut off numbers under which a further development does not appear to be appropriate, and projects may be terminated only for commercial reasons.

There are circumstances in which full NPV analyses are performed in early R & D. For example, companies establish detailed fi nancial models in licensing situations. Biotechnology companies benefi t signifi cantly from quantitative fi nancial evaluation for early stage projects, as these create a rational basis for fund rising and licensing purposes, especially if risk is explicitly addressed and quantifi ed. Thus, biotechnology companies often establish more detailed and precise quantitative modelling for early projects than pharmaceutical companies, which sometimes even comprises primary market research. NPV analyses are also applied during the discovery to PoC stage in fully integrated pharmaceutical companies. In research portfolio management, such analyses allow to quantify the contribution of early research to the overall R & D value chain. In addition to using the number of drugs entering clinical development or completing PoC as productivity measure, the value added by completing individual preclinical milestones can be quantifi ed based on the augmented NPV model. 15 It is used to demonstrate the fi nancial benefi t of investing in particular

• •

projects and to identify the value drivers in early R & D.

Research portfolio evaluation Besides the gating decisions for individual projects that should be done as soon as the required data are available, it is common practice to review all projects every 6 – 12 months. 19 In such reviews projects compete with each other. The primary focus of review meetings is to have a holistic view of the whole portfolio. The number of projects in the different phases of research is evaluated in order to make sure that the overall productivity targets are met. In addition, these meetings serve to analyse whether the overall portfolio risk profi le, for example, the ratio of validated to unvalidated targets, is as intended and whether the research projects are properly aligned with the agreed company or business unit or franchise strategy. It is very important that if in such meetings the projects from different research sites are compared, a common understanding is established on how to measure progress, how to set standards and how to defi ne milestones.

Beyond evaluating individual projects, an assessment of the status of the different franchises can be done. Issues of competitiveness, ways to improve strategically and operationally need to be addressed regularly.

Scoring methods At present, most research organisations have established scoring systems for portfolio evaluation. Although it appears that every company has developed a specifi c set of criteria along which their projects are rated there appears to be common sense that at the following items should be covered:

Value : Scoring around market size, attractiveness, and competitiveness; if NPV models are established, parameters such as NPV and the realised or future expected value uptake upon successful

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the highest number of priority ratings per project. One inherent problem of scoring systems but also of predefi ned milestone decisions is that projects are compared against a minimal acceptable standard to move forward. These tools do not take into account the overall capacity available.

Portfolio risk evaluation One of the primary goals of portfolio management is to ensure that the portfolio is well balanced with respect to the potential risks and rewards. Experience has shown that focusing exclusively on ‘ me toos ’ is as dangerous as only concentrating on very exciting but unvalidated targets. There is no single optimal portfolio throughout the industry. Every organisation has to defi ne the level of risk that optimally supports the strategy. As the strategy gets reviewed from time to time so has the risk profi le of the research portfolio to be adapted from time to time.

In order to characterise the overall portfolio risk structure, research projects could be classifi ed along the following groups:

Pioneer : No known competition. Novel : Other companies work on the same target but target is not validated in man. Back up : In-house programme exists in development for same target. Fast follower : Target has been validated in the clinic by another company. Me Better : Pursuing a target that other companies have already successfully launched.

It is quiet obvious that the more pioneer projects a company pursues the more risky the portfolio becomes. If probabilities of success are determined for project milestones, pipeline models as described above can serve as highly educational tools to monitor project and portfolio risk and past and expected future productivity.

• •

completion of milestones are included as value indicators. Cost : High, medium, low, either for research cost alone, or including development cost. Timing : Time to entry into clinical development / PoC / launch, expected time per milestone. Strategic fi t : Score against therapeutic area strategy. Risk / probability of success : Scoring against TPP and milestone criteria.

Some other organisations apply a larger range of criteria and rate every item with high, medium and low. Potential meaningful criteria are:

Innovation potential Specifi city Effi cacy Tolerability Appropriate early clinical PoC / availability of biomarkers Preclinical feasibility Clinical feasibility Degree of unmet medical need Competitiveness Number and categories of competitors Patent status Peak sale potential Potential follow-on indications

Although good arguments can probably be given for any of these criteria, the experience speaks for using as little as possible items because the likelihood that the scoring system does not provide enough differentiation between the projects increases with the number of criteria used. This is particularly true for the middle of the ranking. 19

If the scoring system were used for prioritisation decisions, the so-called ‘ forced ranking approach ’ should be applied. All potential pairs of projects are compared against each other and the higher prioritised project is determined, respectively. At the end the project portfolio is ranked according to

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SUMMARY Modern portfolio management techniques can play an instrumental role in enhancing the overall productivity of pharmaceutical R & D. The fact that portfolio management has been applied for some time by the major pharmaceutical companies while productivity did not increase is no disproof for the statement because the productivity crisis has many facettes, and productivity might have been even worse without portfolio management. In addition, portfolio analysis does not automatically result in objective and rational management decisions.

The portfolio management process needs to be cross-functional, involving the entire organisation. It requires the discipline to develop and constantly apply a set of tools in order to allocate the scarce resources to the most promising projects. Keeping portfolio management alive and effective vis- à -vis corporate reorganisations and scientifi c paradigm shifts is a continuous organisational effort.

Emphasis should be given to the following items:

Defi ne the business strategy and align the entire organisation behind it. Develop and constantly update a TPP for every project. Defi ne clear go / no-go criteria for every milestone. Set up a tool to evaluate the potential value of all projects either through in- depth fi nancial analyses for later stage projects or based on a semi-quantitative scoring system for earlier projects; do quantitative fi nancial modelling for early- stage projects to investigate the expected value uptake upon successful completion of milestones and to facilitate licensing negotiations. Install a capacity management system in order to avoid a disparity between available resources and the number of projects. In case there is a lack in capacity, be ready to make tough choices

and terminate the projects with the lowest value as early as possible.

The organisational embedment of the portfolio management function needs special consideration. An organisational model in which the portfolio management function could closely collaborate with the corporate / business unit strategy function and the project management function appears to be most appropriate in the authors ’ experience to help increasing effectiveness and effi ciency in the overall drug development process.

References 1 . Cervantes, M. (2004) www.AutomotiveForums.com,

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5 . Slater , S . & Zwirlein , T . ( 1992 ) . Shareholder value and investment strategy using the general portfolio model . J. Manage. 16 , 717 – 732 .

6 . Seget , S . ( 2005 ) . Pharmaceutical project and portfolio management – Effective organization and decision making . Business Insights , Business Insights Ltd .

7 . Ahmed , N . ( 2005 ) . Effective portfolio, project management, and resource allocation for enhanced competitiveness , presented at Drivers, Roles And Challenges of Portfolio and Project Management in Pharmaceutical Industry Conference , May 2005, Brussels .

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management more effective . Research-Technol. Manage. , March – April, pp. 18 – 33 .

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21 . Nakagaki , P . ( 2001 ) . presented at Portfolio Optimization for Pharmaceuticals Conference , November 2001, London .

22 . Zoche , M . ( 2007 ) . Risk assessment of drug discovery projects as an integral part of portfolio management , Thesis for the Master of Science in Pharmaceutical Medicine, University of Duisburg-Essen, April 2007 .

23 . Artuso , A . ( 2005 ) . Using decision analysis and portfolio management to enhance R & D performance , presented at Drivers, Roles and Challenges of Portfolio and Project Management in Pharmaceutical Industry Conference , May 2005, Brussels .

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16 . Kellogg , D . & Charnes , J . M . ( 2000 ) . Real options valuation for a biotechnology company . Assoc. Investment Manage. Res. , May/June, 76 – 84 .

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QSO 680 Milestone Two Guidelines and Rubric Overview: For the final project in the course, you will analyze the case study Value-Driven Project and Portfolio Management in the Pharmaceutical Industry and additional course resources to create a program performance report for a hypothetical organization. The completion of this assessment will allow you to demonstrate your knowledge of program-level management and your ability to develop key executive reporting following standard frameworks. There are two parts to this milestone. In the first part, you will create a project scope statement. In the second part, you will set up your project using MS Project software and create a work breakdown structure (WBS). Prompt I: Thus far in the course, you have completed a case study overview and a project charter. In this milestone, you will develop a project scope statement using the template provided. A data set for this case study has also been provided for your benefit. Your project scope statement should include the following critical elements:

I. Introduction: A concise overview of the project. II. Purpose and Justification: How does the project support business goals and objectives?

III. Scope Description: All known characteristics of the project’s product or service. IV. High-Level Requirements: All known requirements of the project’s product or service. V. Boundaries: What should and should not be included in the project?

VI. Strategy: Strategy to be used by the project team to manage the project. VII. Acceptance Criteria: Criteria that must be met for the project to be considered “complete.”

VIII. Constraints: Limitations due to time, budget, technology, or other resources. IX. Assumptions: Assumptions under which all stakeholders are making decisions. X. Cost Estimate: Estimate of funding needed to successfully complete the project.

XI. Cost/Benefit Analysis: Analysis of organizational costs versus organizational benefits. Prompt II: Once you completed your scope statement, you will set up your project using MS Project software. As you do this, you will be creating a WBS. In your WBS, you will identify what tasks need to be developed and the relationship among the tasks. This WBS will be used in planning your project. There is no need to go any further than a Level 3 in creating your WBS. As part of the MS Project assignment, include project milestones and create relationships with all tasks with a start-to-finish dependency; create a project start time and document any assumptions you make in the task note field. If you choose to use it, a MS Project file has been created for your benefit. You can start with this and modify it as necessary, or you can create your own project using the software.http://search.proquest.com.ezproxy.snhu.edu/docview/232912662?pq-origsite=summon&accountid=3783http://snhu-media.snhu.edu/files/course_repository/graduate/qso/qso680/qso680_project_scope_statement_template.docxhttp://snhu-media.snhu.edu/files/course_repository/graduate/qso/qso680/qso680_final_project_case_study_data_set.xlsxhttp://snhu-media.snhu.edu/files/course_repository/graduate/qso/qso680/qso680_ms_project_template.mpp

As needed, use the following Atomic Learning tutorials to help you set up your project using MS Project software: Infobase: Project 2016 Training

B. Set up Your Project (2016) C. Tasks (2016)

Your MS Project file should be a WBS that includes the following critical elements:

I. Project milestones II. Relationship of tasks to one another

III. Notes in the task note field as necessary Save your file with a unique file name for submission.

Rubric Guidelines for Submission: Your project scope statement must be submitted using the provided project scope statement template. All citations should be in APA format. In addition, you will submit an MS Project file (.mpp) saved with a unique name.

Critical Elements Proficient (100%) Needs Improvement (75%) Not Evident (0%) Value

Introduction Provides a concise overview of the project

Provides a concise overview of the project but overview lacks organization and pertinent detail

Does not provide a concise overview of the project

7

Purpose and Justification Discusses project purpose, background, and justification

Discusses project purpose, background, and justification but lacks relevant detail

Does not discuss project purpose, background, and justification

7

Scope Description Describes all known characteristics of the project’s product or service

Describes some characteristics of the project’s product or service but description is incomplete or inaccurate

Does not describe characteristics of the project’s product or service

7

High-Level Requirements Describes all known requirements of the project’s product or service

Describes all known requirements of the project’s product or service but description is incomplete or inaccurate

Does not describe requirements of the project’s product or service

7

Boundaries Identifies what should and should not be included in the project

Identifies some of what should and should not be included in the project

Does not identify what should and should not be included in the project

7

Strategy Identifies strategy to be used by the project team to manage the project

Identifies strategy to be used by the project team to manage the project but strategy is not a good fit for the project

Does not identify strategy to be used by the project team to manage the project

7https://www.atomiclearning.com/highed/project-2016?cn=snhu

Acceptance Criteria Explains what criteria must be met for the project to be considered “complete”

Explains what criteria must be met for the project to be considered “complete” but information is incomplete and/or inaccurate

Does not explain what criteria must be met for the project to be considered “complete”

7

Constraints Identifies limitations due to time, budget, technology, or other resources

Identifies limitations due to time, budget, technology, or other resources but lacks details and certain information

Does not identify limitations due to time, budget, technology, or other resources

7

Assumptions Identifies assumptions on which key decisions are based

Identifies assumptions on which key decisions are based but assumption are illogical and/or irrelevant

Does not identify assumptions on which key decisions are based

7

Cost Estimate Provides estimate of funding needed to successfully complete the project

Provides estimate of funding needed to successfully complete the project but estimates are illogical based on facts of case study

Does not provide estimate of funding needed to successfully complete the project

7

Cost/Benefit Analysis Analyzes organizational costs versus organizational benefits

Analyzes organizational costs versus organizational benefits but analysis lacks detail and/or logic

Does not analyze organizational costs versus organizational benefits

7

MS Project: Milestones WBS in MS Project specifies project milestones

WBS in MS Project specifies some but not all significant project milestones

WBS in MS Project does not specify project milestones

7

MS Project: Relationship of Tasks

WBS in MS Project specifies relationship among tasks

WBS in MS Project specifies relationship among tasks but is inaccurate and/or illogical

WBS in MS Project does not specify relationship among tasks

7

MS Project: Notes WBS in MS Project utilizes notes section as deemed necessary by project

WBS in MS Project utilizes notes section as deemed necessary by project but contains gaps of information

WBS in MS Project does not utilize notes section as deemed necessary by project

7

Articulation of Response Submission has no major errors related to citations, grammar, spelling, syntax, or organization

Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas

Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas

2

Total 100%

QSO 680 Milestone Two Guidelines and Rubric Overview: For the final project in the course, you will analyze the case study Value-Driven Project and Portfolio Management in the Pharmaceutical Industry and additional course resources to create a program performance report for a hypothetical organization. The completion of this assessment will allow you to demonstrate your knowledge of program-level management and your ability to develop key executive reporting following standard frameworks. There are two parts to this milestone. In the first part, you will create a project scope statement. In the second part, you will set up your project using MS Project software and create a work breakdown structure (WBS). Prompt I: Thus far in the course, you have completed a case study overview and a project charter. In this milestone, you will develop a project scope statement using the template provided. A data set for this case study has also been provided for your benefit. Your project scope statement should include the following critical elements:

I. Introduction: A concise overview of the project. II. Purpose and Justification: How does the project support business goals and objectives?

III. Scope Description: All known characteristics of the project’s product or service. IV. High-Level Requirements: All known requirements of the project’s product or service. V. Boundaries: What should and should not be included in the project?

VI. Strategy: Strategy to be used by the project team to manage the project. VII. Acceptance Criteria: Criteria that must be met for the project to be considered “complete.”

VIII. Constraints: Limitations due to time, budget, technology, or other resources. IX. Assumptions: Assumptions under which all stakeholders are making decisions. X. Cost Estimate: Estimate of funding needed to successfully complete the project.

XI. Cost/Benefit Analysis: Analysis of organizational costs versus organizational benefits. Prompt II: Once you completed your scope statement, you will set up your project using MS Project software. As you do this, you will be creating a WBS. In your WBS, you will identify what tasks need to be developed and the relationship among the tasks. This WBS will be used in planning your project. There is no need to go any further than a Level 3 in creating your WBS. As part of the MS Project assignment, include project milestones and create relationships with all tasks with a start-to-finish dependency; create a project start time and document any assumptions you make in the task note field. If you choose to use it, a MS Project file has been created for your benefit. You can start with this and modify it as necessary, or you can create your own project using the software.http://search.proquest.com.ezproxy.snhu.edu/docview/232912662?pq-origsite=summon&accountid=3783http://snhu-media.snhu.edu/files/course_repository/graduate/qso/qso680/qso680_project_scope_statement_template.docxhttp://snhu-media.snhu.edu/files/course_repository/graduate/qso/qso680/qso680_final_project_case_study_data_set.xlsxhttp://snhu-media.snhu.edu/files/course_repository/graduate/qso/qso680/qso680_ms_project_template.mpp

As needed, use the following Atomic Learning tutorials to help you set up your project using MS Project software: Infobase: Project 2016 Training

B. Set up Your Project (2016) C. Tasks (2016)

Your MS Project file should be a WBS that includes the following critical elements:

I. Project milestones II. Relationship of tasks to one another

III. Notes in the task note field as necessary Save your file with a unique file name for submission.

Rubric Guidelines for Submission: Your project scope statement must be submitted using the provided project scope statement template. All citations should be in APA format. In addition, you will submit an MS Project file (.mpp) saved with a unique name.

Critical Elements Proficient (100%) Needs Improvement (75%) Not Evident (0%) Value

Introduction Provides a concise overview of the project

Provides a concise overview of the project but overview lacks organization and pertinent detail

Does not provide a concise overview of the project

7

Purpose and Justification Discusses project purpose, background, and justification

Discusses project purpose, background, and justification but lacks relevant detail

Does not discuss project purpose, background, and justification

7

Scope Description Describes all known characteristics of the project’s product or service

Describes some characteristics of the project’s product or service but description is incomplete or inaccurate

Does not describe characteristics of the project’s product or service

7

High-Level Requirements Describes all known requirements of the project’s product or service

Describes all known requirements of the project’s product or service but description is incomplete or inaccurate

Does not describe requirements of the project’s product or service

7

Boundaries Identifies what should and should not be included in the project

Identifies some of what should and should not be included in the project

Does not identify what should and should not be included in the project

7

Strategy Identifies strategy to be used by the project team to manage the project

Identifies strategy to be used by the project team to manage the project but strategy is not a good fit for the project

Does not identify strategy to be used by the project team to manage the project

7https://www.atomiclearning.com/highed/project-2016?cn=snhu

Acceptance Criteria Explains what criteria must be met for the project to be considered “complete”

Explains what criteria must be met for the project to be considered “complete” but information is incomplete and/or inaccurate

Does not explain what criteria must be met for the project to be considered “complete”

7

Constraints Identifies limitations due to time, budget, technology, or other resources

Identifies limitations due to time, budget, technology, or other resources but lacks details and certain information

Does not identify limitations due to time, budget, technology, or other resources

7

Assumptions Identifies assumptions on which key decisions are based

Identifies assumptions on which key decisions are based but assumption are illogical and/or irrelevant

Does not identify assumptions on which key decisions are based

7

Cost Estimate Provides estimate of funding needed to successfully complete the project

Provides estimate of funding needed to successfully complete the project but estimates are illogical based on facts of case study

Does not provide estimate of funding needed to successfully complete the project

7

Cost/Benefit Analysis Analyzes organizational costs versus organizational benefits

Analyzes organizational costs versus organizational benefits but analysis lacks detail and/or logic

Does not analyze organizational costs versus organizational benefits

7

MS Project: Milestones WBS in MS Project specifies project milestones

WBS in MS Project specifies some but not all significant project milestones

WBS in MS Project does not specify project milestones

7

MS Project: Relationship of Tasks

WBS in MS Project specifies relationship among tasks

WBS in MS Project specifies relationship among tasks but is inaccurate and/or illogical

WBS in MS Project does not specify relationship among tasks

7

MS Project: Notes WBS in MS Project utilizes notes section as deemed necessary by project

WBS in MS Project utilizes notes section as deemed necessary by project but contains gaps of information

WBS in MS Project does not utilize notes section as deemed necessary by project

7

Articulation of Response Submission has no major errors related to citations, grammar, spelling, syntax, or organization

Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas

Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas

2

Total 100%

Project Scope Statement

Date

Project Scope Statement Template

6

Table of Contents

Introduction 3

Project Purpose and Justification 3

Scope Description 3

High Level Requirements 3

Boundaries 3

Strategy 4

Deliverables 4

Acceptance Criteria 4

Constraints 4

Assumptions 4

Cost Estimate 4

Cost Benefit Analysis 5

Introduction

The green text in this document is guidance for you on filling out this template. Please replace it with your own words.

The purpose of the project scope statement is to provide a baseline understanding of the scope of a project, including the project’s scope and deliverables and the work required to complete the deliverables, and ensure a common understanding of the project’s scope among all stakeholders.

The project scope statement defines the following:

· Project purpose and justification

· Scope description

· High-level project requirements

· Project boundaries

· Project strategy

· Project deliverables

· Acceptance criteria

· Project constraints

· Project assumptions

· Cost estimates

· Cost benefit analysis

Project Purpose and Justification

It is important that project stakeholders understand the purpose and justification of a project. Projects are conceived to support various business goals and objectives and these must be communicated to ensure understanding of how the project will improve business. This also helps stakeholders understand the investments being made and how this translates into better business performance.

Scope Description

The scope description should include all known characteristics of the project’s product or service. It is important to note that as the project moves further along in its life cycle, this scope description will become more defined. All details may not be known at the onset of the project, and it may be progressively elaborated as the project moves forward. This section is key as it serves as a primary reference for project planning and execution later in the life cycle. This section should contain descriptions of what is included in the product or service as well as the desired outcome of the project.

High-Level Project Requirements

This section should describe the capabilities to be met by successful completion of the project. Depending on the size of the project, there may be very many or very few requirements. However, during the creation of the project scope statement, it is important to capture, at least, the high-level requirements as many detailed requirements may not yet be known.

Project Boundaries

Project boundaries are an important part of the project scope statement as they identify what should be included in the project as well as what should not be included. Without specific boundaries as a part of the project scope statement, it is possible to introduce scope creep as stakeholders may assume certain items to be included in the project that are not clearly stated.

Project Strategy

This section should describe the strategy the project team will use in executing the project. Depending on the size and complexity of the project, strategy can differ significantly. As the number of stakeholders, deliverables, and complexity grow, the strategy may become more difficult to plan. Strategy is sometimes referred to as the approach the team will take to complete the project.

Project Deliverables

Project deliverables are the products or outputs that the project is intended to produce. Deliverables may also include various reports or documentation. This section should describe the project’s deliverables, which may appear in general terms and not a high level of detail. During the project life cycle, more detail can be added as it is determined.

Acceptance Criteria

Acceptance criteria must be met for the project to be considered complete and accepted by management. This section is important as it sets the expectations of what will and will not constitute acceptance of the project. Without clear definition of what will be accepted, there may be uncertainty across the project team and stakeholders. Acceptance criteria may be both qualitative and quantitative.

Project Constraints

Project constraints are limitations that the project faces due to funding, scheduling/time, technology, or resources. Constraints may also be physical (i.e., inadequate space or facilities). Constraints must be carefully planned for and communicated to all stakeholders as they may require an elevated level of urgency or flexibility to work within and successfully complete the project. This section should describe the project’s constraints to ensure that all stakeholders understand the limitations within which the project must be completed.

Project Assumptions

Project assumptions are factors affecting the project that are believed to be true but that have not been verified. It is important to document these assumptions because there is a level of uncertainty associated with them that introduces risk to a project. This section should describe the assumptions for the project so all stakeholders are aware and so that they can be analyzed going forward in order to mitigate risk.

Cost Estimates

The project cost estimate is the foundation for budgeting for the project. It represents an estimate of the funding that will be needed to successfully complete the project. While all costs may not be exactly known until later in the project life cycle, it is extremely important to develop as accurate an estimate as possible. This section should provide a project cost estimate with all known details so that there is a common understanding among all stakeholders.

ExpenseEstimated BudgetExpended to DateEstimate to CompleteVariance

Cost Benefit Analysis

The project cost benefit analysis is a measure of a project’s costs vs. its benefits to determine a course of action that is most beneficial to an organization in terms of cost. Projects are undertaken to provide some benefit to an organization assuming the project is completed successfully. If there is no benefit provided by a project, then it will not be approved. However, there must be a quantitative way to measure the benefit provided by the project. This section must provide this quantitative analysis and ensure all stakeholders understand why the project has been approved as well as the benefits.

Sponsor Acceptance

Approved by the Project Sponsor:

Date:

<Project Sponsor>

<Project Sponsor Title>

Sheet1

Lifecycle PharmaceuticalInterest Rate = 5%
Assumptions for Valuation
Drug CandidateCurrent StageComplete Phase IComplete Phase IIComplete Phase IIIDrug ApprovalRemaining Development Costs
LC-1Phase IINAQ2 2004Q1 2006Q2 2007$100 MM
LC-2Phase IINAQ2 2006Q2 2008Q1 2009$300 MM
LC-3Phase IIQ1 2004Q4 2007Q2 2008Q2 2008$600 MM
LC-4PreclinicalQ2 2005Q4 2007Q1 2009Q2 2009$220 MM
PTC-Ph 1PTC-Ph 2PTC Ph-3Probability of ApprovalPTC = Probability of Technical Success
LC-1100%40%65%75%
LC-2100%60%50%50%
LC-380%60%60%75%
LC-470%50%75%80%Clinical Phase Durations (estimates)
Phase I1 year
Peak SalesProfit MarginsAnnual ExpensesPhase II730 days
LC-1$600 MM90%$40 MMPhase III3 years
LC-2$800 MM90%$65 MMDrug Regulatory Submission0.5 year
LC-3$1,000 MM80%$80 MM
LC-4$750 MM82%$65 MM

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