Strategic portfolio management and new influencers in R&D decision-making

Dr Christoph Schnorr and Christelle Dujardin

Quintiles

In our R&amp,D innovation themed month, Dr Christoph Schnorr and Christelle Dujardin discuss strategic portfolio management and the importance of early payer involvement in the product lifecycle.

In the healthcare industry, drug developers deal with risk every single day. The question is not so much about how to avoid risk, but rather how to effectively manage the overall risk profile. Until a few years ago, Life Sciences companies focused primarily on safety, efficacy and quality. Recently though, Portfolio Managers have begun paying more attention to an emerging risk, that is the need to demonstrate value amid growing pricing pressures. But while the drug development paradigm has evolved with its environment, has Strategic Portfolio Management truly matured at the same pace to create the potential for future sustainable growth?

A robust portfolio management methodology is key

The competitive environment in today’s marketplace is forcing organisations to be more flexible, responsive and efficient than ever before. The challenge for leaders of Life Sciences companies is to ensure that the project portfolio remains aligned to strategic intent. A key characteristic of mature organisations is the ability to ensure that the most valuable projects are selected, prioritised accordingly and receive the appropriate resources. This pressure on companies to replenish pipelines with innovative drugs that have high potential for approval and reimbursement has driven companies to revise their portfolio strategy over the last decade. Whilst it is now well understood that allocating R&amp,D budget to projects in order to maximise the total value of the entire portfolio leads to an over-reliance on financial metrics and a narrow focus on individual products and their revenues and costs, not all companies have necessarily abandoned this model. The key to choosing products that contribute to sustainable profitability lies in changing the business focus of Portfolio Management from financial metrics to a business model that maximises customer value. The challenge is how to maximise return on investment within an increasingly competitive and tough economic environment that is focussed on value. The answer is to ensure that Senior Management takes a strategic view of its portfolio based on maximising value as a whole. Once the strategy is set, tactical resource allocation should align with the strategy and be followed through at an operational level where demonstrating product value and shorter cycle times are critical success factors.

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“Portfolio Managers have begun paying more attention to an emerging risk, that is the need to demonstrate value amid growing pricing pressures.”

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Measuring customer value

Whilst customers include payer, prescriber, patient, carer and patient associations, marketing efforts have historically focused primarily on healthcare providers, as the ones who initiate treatment. However, payers have now become key decision-makers with most markets having a system of Health Technology Assessment (HTA) which has driven value-based pricing (VBP). Central to VBP is the development of value arguments which can be adapted to meet the needs of individual stakeholders. These value arguments are crucial and should address the cost and benefits of the treatment, with budget impact arguments tailored to each payer environment.

Organisations looking to evolve their portfolio management approach need to translate payer-related strategic considerations and overlay these with the traditional portfolio decision-making metrics of strategic fit and investment intensity. There are two key critical success factors to consider to improve the accuracy of portfolio decision-making metrics. First, when assessing the overall risk, also consider success probabilities of achieving the optimal differentiated value of a product, which will support reimbursement and an acceptable market share. Demonstrating to regulatory agencies just a product’s safety, efficacy, and quality is no longer sufficient. Pharmaceutical companies must now demonstrate both clinical effectiveness as well as cost effectiveness to assure success in the marketplace. The portfolio strategy should thus include a continuous evaluation of individual product profiles during development to ensure they meet likely customer requirements and that they can compete with competitor products that are either in development or available on the market. Customer value can be measured by assessing how a Target Product Profile (TPP) caters for an unmet therapy need relative to the current therapy standards as illustrated below.

Figure-1-Target-Product-Profile-assessment

Figure 1: Assessing how a Target Product Profile (TPP) caters for an unmet therapy need relative to the current therapy standards.

Secondly use the price assumptions that do reflect the perceived value of the products to payers. Indeed, more and more HTA agencies will only grant reimbursement if a product’s projected cost effectiveness falls into a more or less defined threshold for willingness to pay e.g. £30,000 per quality adjusted life-year (QALY) in UK, $50,000 to $100,000 per QALY in US and €30,000 per QALY in Spain. Price assumption of a new product that is not based on cost-effectiveness grounds may lead to over-valuations in the risk-adjusted Net Present Value calculations (r-NPV). Therefore, a threshold minimum product price that meets the cost-effectiveness criterion should be used in the calculation for r-NPV.

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“Central to VBP is the development of value arguments which can be adapted to meet the needs of individual stakeholders.”

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Payers should be considered earlier in the product lifecycle

This approach, however, requires earlier consideration in the life-cycle stage of pharmacoeconomic challenges. Though a recent survey of 51 companies reveals that while payer needs should start to receive attention as early as Phase I, there are few Life Sciences companies who presently invest to this extent in pharmacoeconomic activities to support drug development with 47% doing this at Phase II, 40% at Phase III and 8% at Phase IV. With the growing concern over budget impacts and the pricing of products by healthcare systems, such a transition is imperative. A process of reassessing the pharmacoeconomic case for a drug underpinning each stage of the drug development process is required to contribute to the decision whether or not to proceed to the next clinical stage and, ultimately, to reimbursement and market entry. This has also a direct implication on the organisational model. We are seeing a lot of companies restructuring and reorganising to change how they deal with the increasingly complex environment. The establishment of multi-disciplinary Pricing and Market Access functions, including or supported by Health Outcomes, is essential in that process to develop and implement strategies that demonstrate and communicate the value of products to relevant stakeholder groups. The real challenge is getting the Research and Development and Commercial teams to acknowledge the importance of the payer stakeholders and getting Senior Management to put resources ‘at risk’ to develop the evidence needed for market access pre-launch.

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About the authors:

Dr Christoph Schnorr

Dr Christoph Schnorr, Vice President, Drug Development Consulting Europe, is based in Frankfurt, Germany, and has 30 years of technical knowledge and operational expertise related to all facets of Health Care and in particular Research and Development in the Biopharmaceutical industry. He is a strategic and growth-oriented business executive with a solid foundation of general management principles, Health Care and financial acumen and has extensive cross-functional leadership experience with a particular focus on Clinical Development. Most recently he was Head of Global Clinical Operations, Head of Development Operations (Managing Director) and Chief Medical Officer for a global pharmaceutical company. In a previous role, he was R&amp,D Service Line Lead Partner for Europe, Latin America and Africa (EALA) at Accenture providing sustained impetus for future growth of pharmaceutical companies based on an on-going transformation of Research and Development and on ensuring continuity in Accenture’s position as a business innovation partner for almost all large pharmaceutical clients in Europe. Christoph has a medical degree and is trained as an Anesthesiologist and Clinical Pharmacologist.

Christelle Dujardin

Christelle Dujardin, MSc, is Principal Consultant Drug Development Consulting Europe. Christelle brings over 11 years of experience spanning pharmaceutical and medical device management consultancy and project management. Christelle’s areas of expertise include strategic and operational consultancy across pharmaceutical R&amp,D, including Clinical Development, Medical Affairs, Clinical Operations and Portfolio and Project Management. She has a particular interest in optimising Portfolio, Project and Resource Management capabilities. Prior to Quintiles, Christelle worked for Kinapse as a Manager Consultant where she contributed to various projects across the R&amp,D value chain. Prior to this, she was a Manager of Project Planning for Eisai, based in London, responsible for both strategic and operational planning of drug development compounds in neurosciences. Christelle also worked for Novartis in Switzerland, as an R&amp,D Global Decision Support Coordinator, providing expertise on the cross-functional R&amp,D project and resource management system (OPX2) supporting Portfolio Management and strategic decision making. Christelle holds a Masters (”Maîtrise, Titre d’ Ingénieur-Maître”) in Clinical Research and Development, and a Higher Diploma (”Diplôme d’Etudes Supérieures Spécialisées) in Pharmaceutical Project Management, both from University Montpellier I, France.

How can we ensure that we maximise customer value?

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