Effective resource allocation and portfolio designs are vital to a drug company's financial survival as backing the wrong product can waste millions of dollars and vital development time.
There is a great temptation to allocate resources in favour of existing and late-stage drugs over early-stage development because of their greater likelihood of delivering positive returns. In doing so they run the risks of stunted pipelines.
However, many drug companies are successfully adopting a variety of approaches to balance the allocation of resources effectively, highlighted in a new report by business intelligence firm Cutting Edge Information, Information, titled "Pharmaceutical Portfolio Management Strategy".
One approach being used is called "top down and bottom up." This involves the company's regional vice presidents and R&D executive team proposing a new R&D project and after a detailed assessment period, the project leaders, senior R&D and marketing managers feed back to the top-level management as to whether the project is viable and the allocated resources sufficient.
For the project to survive, the marketing and R&D departments must express a high interest in continuing with it.
In addition to deciding what research projects to pursue, balancing long-term resource allocation with accurate portfolio and pipeline assessments is also a challenge for all drug companies.
However, it is important to achieve this balance, as the success of a high-potential drug will often depend on a stable and long term resource allocation throughout its development.
At most companies the marketing and development teams make decisions with SWOT-like (strengths, weakness, opportunities and threats) analyses.
These analyses, which separately address commercial and scientific issues, create an objective tool for management to use to make difficult decisions about products and resources.
One method also proving effective in some companies is to hold an annual or quarterly portfolio review that is conducted by an independent panel or steering committee.
The panel will objectively prioritise the pipeline products and allocate an R&D budget accordingly.
Another strategy that is increasingly gaining popularity for freeing up additional resources is outsourcing R&D to biotech companies.
Biotech companies are typically able to produce new products to fill pipeline gaps quicker and cheaper than slow-moving big pharma companies can.
As only one in 5,000 experimental compounds eventually make it to market, getting a drug to market is a very draining process and outsourcing the R&D is a good way to minimise investments in early stage research.
Shifting R&D away from the company can also free up resources for early-stage marketing, which can give companies the advantage when their product is eventually approved for commercialisation.