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Case Study: Portfolio Scoring Model—Western European Pharma

Company assets were in dozens of billions of dollars in 2012 whereas its income was measured in billions of dollars. Despite an overall strong position of the organization, the executives of the company were somewhat concerned with a slow growth in revenues (4-8% per year) and net income (1-3% per year). Consequently, they felt that the company was falling behind the competition and, in the long term, in danger of losing the leading position in the pharmaceutical industry.

The case study below is focusing on the organizational R&D projects—both pharmaceutical and diagnostics—while ignoring the maintenance and stay-in-business ventures.

Strategy

The company executives developed a very clear unequivocal strategy, void of any ambiguous goals. The strategy consisted of four pillars:

  • No OTC products: The company decided to avoid the generic drug market altogether and focus on the prescription drugs only, due to IP protection and higher profit margins.
  • Five research areas: The company decided to focus its R&D efforts on five key pharma fields, including cardiology, cancer, infectious diseases, diabetes, and neuroscience.
  • Focus on personal healthcare: attending to the physical needs of people who are disabled or otherwise unable to take care of themselves
  • Personalized drugs: drugs that can be customized exactly to the needs of a particular patient, including the exact dosage and combination with other medications

Scoring Model

The portfolio committee decided to employ the following variables in the construction of their scoring model:

  • Market attractiveness (How many patients are out there?)
  • Strategic fit
  • Innovativeness
  • Risk (both technical and market)
  • Effectiveness
  • Cannibalization
  • Core competencies
  • Competitors
  • Financial (revenue)
Selection Criteria

Points Awarded (Maximum possible 135)

Joker

136 points

1 point

5 points

15 points

Kill?

Market Attractiveness (How many patients are out there?)

Number of  patients < X

X < Number of  patients < Y

Number of  patients > Y

Yes

Strategic Fit

Fits only 1 of the strategic fit criteria

Fits 2 of the strategic fit criteria

3-4 of the strategic fit criteria

Yes (if scores zero)

Innovativeness

Generic approach

Mixed approach

Unique approach

No

Risk (both technical and market)

10% < Probability of success < 25%

25% < Probability of success < 75%

Probability of success > 75%

Yes (if less than 10%)

Effectiveness

Low

Medium

High

No

Cannibalization

Will compete with several other company drugs

Will compete with 1 other company drug

No competition with other company drugs

No

Core competencies

No in-house knowledge

Some in-house knowledge

All knowledge is in-house

No

Competitors

More than 3 competitors with similar products

1-2  competitors with similar products

No  competitors with similar products

No

Financial (Revenue)

Revenue < $A

$A < Revenue < $B

Revenue > $B

Yes (if revenue minimal)

The first category considered was directly tied to the potential number of patients in the market. The project proposal received one point for less than X potential patients, five points for between X and Y patients, and 15 points for more than Y patients. (Note the decision to award 15 rather than 10 points for best performance; this way a company can skew their portfolio scoring to reward really good projects) Furthermore, this category was designated to be a “kill” variable for the project proposals targeting a very small number of patients.

In the strategic fit category, a simple measurable model was employed: One point is awarded to proposals that fit only one of the strategic criteria, five points are given to the endeavors including two criteria, and 15 points to the projects that incorporate three or more of the strategic goals. This criterion was also selected as a “kill” category for the projects not including any of the strategic goals.

Innovativeness category, a fairly unique variable, was also introduced by the company’s management in order to echo the strategic goal of developing more personalized drugs, since this particular field required the organization to partially part ways with the traditional approaches to the new drug development.

With regard to risk factor, the executives decided to incorporate both technical and commercialization aspects into the variable. While this factor will almost always remain a subjective measure, the management made a decision to award points as shown above. Projects with a probability of overall success less than 10% would be killed.

Perceived effectiveness of the drug was another fairly subjective category that was very difficult to accurately assess at the beginning of the project. However, it was hoped that as the product development neared its end, it would become more apparent to the management as to whether the drug possessed desired effectiveness.

The cannibalization category was introduced to measure the effect of the proposed product on other company-produced drugs. And core competencies, competitors, and financial revenue above are self-explanatory in their appearances and scoring.

To sum up the above model, the maximum number of points a project can generate is 135, and the minimum is seven. Four out of seven categories have been designated as “kill” factors, making the above scoring model a very aggressive filtration mechanism.

Furthermore, considering the fairly large number of variables in the model (seven), future assessment and ranking exercises could become a bit tedious, especially if there was a multitude of project proposals to analyze. Having said that, the executives of the company were made aware of this fact, but they decided to keep all the variables, hoping to calibrate and cut the model if necessary in the future.

 

Jamal Moustafaev will be presenting a free webinar with ITMPI on May 16! Sign up here: How to Develop a Scoring Matrix and Prioritize Your Projects

About Jamal Moustafaev

Profile photo of Jamal Moustafaev
Jamal Moustafaev, MBA, PMP, president and founder of Thinktank Consulting, is an internationally acclaimed expert and speaker in the areas of project/portfolio management, scope definition, process improvement and corporate training. Jamal Moustafaev has done work for private-sector companies and government organizations in Canada, US, Asia, Europe and Middle East. Read Jamal’s Blog @ www.thinktankconsulting.ca

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