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R&D Portfolio Management for Pipeline Strategy – Enrich Consulting

Published By Dan Smith

The past several months have seen a flurry of dealmaking in pharma and biotech. Pfizer, having been rebuffed by AstraZeneca, bought a manufacturer of biosimilars, increasing speculation that the company is planning to split itself in two. Shire, similarly stung by its failed attempt to buy AbbVie, is buying NPS pharmaceuticals. A very public drama also played out as Allergan staved off a buyout by Valeant and eventually sold itself to Actavis–itself a very aggressive dealmaker.

Such deals are among the biggest managers make. A successful acquisition or sale can redefine a company; a failed bid—or, worse, a bad acquisition—can haunt a company for years. Acquisitions can be made to promote growth or to prevent loss of market share. In the pharmaceutical industry, acquisitions are typically as much about acquiring a company’s projects as anything else. These companies are trying to remake their R&D portfolios—specifically they need to expand drug pipelines to drive future growth.

Pipeline expansion can look like a good reason to buy another company. It’s certainly quicker than developing a new drug from the ground up. But what often looks attractive at the 35,000-foot level can become far less convincing with closer scrutiny.

Fortunately, there are ways to anticipate the value of a potential deal. In fact, the tools and processes already established by R&D portfolio management can be used to assess the value of the combined companies, and help managers decide whether a deal is worth pursuing.

Case Study: Recast a Drug Pipeline’s Weakness as an Opportunity

A pipeline view of the company's portfolio showed that, while most TAs had a relatively full pipeline, the Dermatology TA had only two drugs. Would they be worth the investment?

A pipeline view of the company’s portfolio showed that, while most TAs had a relatively full pipeline, the Dermatology TA had only two drugs. Would they be worth the investment?

A large pharmaceutical client found itself with two promising mid-stage drugs in a therapeutic area (TA) in which the company had little expertise. The drugs seemed like a good fit with the R&D portfolio because they leveraged the company’s existing device technology, but the investment required to build up the research, sales and marketing, and manufacturing infrastructure to support the new TA was considerable. Further development  could only be justified if more assets were added to rapidly grow the company’s presence in the TA. That growth could come organically, by funding new research, or through the acquisition of individual assets or a division of another company devoted to that TA.

Which way to go? For answers, the company turned to its portfolio management (PM) group.

Layering the revenue of the future drugs (blue) on top of the existing drugs (orange) illustrated a relatively small, and distant, impact.

Layering the revenue of the future drugs (blue) on top of the existing drugs (orange) illustrated a relatively small, and distant, impact.

To evaluate the organic option, the PM group assumed a steady flow of drugs moving from research to the clinic over time. As these drugs did not yet exist, the team developed several drug profiles that included typical cost, risk, schedule, and sales data. Each potential drug was then mapped to a profile, and the resulting forecasts were combined with those for the existing drugs to paint a prospective financial picture for the TA.

For the acquisition option, the group identified a potential acquisition target and estimated financials for the target’s drugs based on publicly available information. (Obviously, the resulting analysis couldn’t include unannounced drugs in development, but the team felt they could generate a reasonable first-order approximation of the target’s value based on the data they had.)
In each case, the additional drugs for the new TA were combined with the company’s existing (and projected) portfolio of drugs to provide a complete picture of the potential pipeline, R&D budget requirements, and projected sales.

This analysis made it very clear that the anticipated cost of the proposed acquisition would outweigh the value added by the new drugs. The organic option was more attractive financially, but showed a 50-year payback period. More in-depth work demonstrated that the synergies with the existing device technology were insufficient to compensate for the infrastructure investment. As a result, the company abandoned the idea of expanding the TA and instead out-licensed the existing drug candidates.


For our client, the techniques of R&D portfolio management provided the information managers needed to make an informed decision—without overwhelming them with information. Other clients have employed similar analyses to determine whether or not to divest a mature TA, in-license a set of drugs, or acquire a company outright.

Licensing and acquisition deals often must be made quickly, as there are typically multiple suitors. There isn’t time to assemble a whole new set of models or tools to analyze potential deals. But when portfolio management software is already well established in the organization and well understood by executives, the PM group can use those tools to provide the insight that supports clear, rational decisions.

Our business forecasting software, the Enrich Analytics Platform, is employed by leading pharmaceutical and biotechnology firms for strategic R&D portfolio management. For more information, contact us, or follow us on Twitter.

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Written by Dan Smith

Dan Smith is the Product Manager for Advisor at Planview, Inc. Prior to that; he oversaw information security and application infrastructure at Enrich. Dan holds a graduate certificate in engineering management from the University of Cambridge, an MBA from Santa Clara University, and a BSE in mechanical engineering from the University of Pennsylvania. He believes a company runs on its collective stomach and, in his spare time, plots reasons to bring cake into the office.