|
|
|
|
|
|
|
risk-adjusted return, $71M ($710 × 10%), is almost exactly the same as project Y with only $75M NPV ($75M × 95% = $71.3M). The latter also has a higher strategic fit value. Looking at return on investment, neither project is as attractive as project W. This brief example clearly illustrates the point that assessing the value of a portfolio in one dimension is misleading and potentially dangerous. |
|
|
|
|
|
|
|
|
One other key consideration here is the need to compare like with like. Early preclinical projects bear little relationship to late phase III projects in terms of risk profile, cost commitment, or key resources supporting development progression. For these reasons, it is appropriate to group similar projects for comparison, for example, all projects up to phase I or all projects prior to proof of principle. This approach does not preclude comparisons across therapeutic areas or customer segments. |
|
|
|
|
|
|
|
|
A particularly useful aid to ensuring focus on key issues is examining the sensitivity of the results to different factors. It is relatively easy to look at the sensitivity of any of the criteria contributing to overall project assessment. Consideration of upside and downside values derived from the product profile give a reasonable starting range of sensitivity to be examined. The aim is to ensure that discussion and debate is targeted on the areas which are important and which will impact conclusions. One way to present these data effectively is by a Tornado diagram, as shown in Fig. 11. |
|
|
|
|
|
|
|
|
This clearly shows that there are major sensitivities around the market entry date and price. The downside of late entry is major, but there is enormous upside potential which suggests that discussion should be focused on how to achieve earlier entry. Similarly attention needs to be paid to bringing down cost of goodsbut no time should be wasted debating research potential which has almost no impact on value within the expected range. |
|
|
|
|
|
|
|
|
Having considered the risk/reward balance, the next step is to consider resource and cost issues which the proposed prioritization highlights. |
|
|
|
|
|
|
|
|
Presentation of risk return results, as shown in section VII.A highlights a preferred set of options; appropriate use of the resource and cost data gathered allows determining the resources needed to deliver those options. Figures 9 and 10 indicated how resource demands can be expressed at an overview level. More detail will be needed to help operating managers and project teams. Figure 12 diagrammatically illustrates how cost and resource data simply collected from one source are used to illustrate a variety of key features across the portfolio. |
|
|
|
|
|