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Xyz Pharama Essay

5496 words - 22 pages

September 2005

Project Portfolio Management
at XYZ Pharma
Early morning, Monday 29th August 2005. John Smith, head of portfolio management and strategic
planning, was paging through the slides he had prepared for the Portfolio Management Board (PMB)
meeting which would start at 9 am, and which was scheduled to last until Friday. “We have been
preparing this meeting for weeks”, he thought, “and it seems the PMB has some tough decisions to
make”.
The PMB of XYZ Pharma, the pharmaceutical division of XYZ, one of the world’s leading companies
in the life science sector, convenes yearly in August to review the composition of the research and
development (R&D) project portfolio. It ...view middle of the document...

Nevertheless, each pharmaceutical “giant” only
holds a relatively small share of the total drug market.

This case is written by Bert De Reyck, Associate Professor of Decision Sciences at London Business School, Zeger Degraeve,
Professor of Decision Sciences, and Pascale Crama, doctoral candidate. The case is prepared solely as the basis for class
discussion, and is not intended to serve as a source of primary data, or as an illustration of effective or ineffective management.
Copyright © 2005 by London Business School. No part of this publication may be reproduced, stored in a retrieval system,
used in a spreadsheet, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or
otherwise – without the permission of London Business School.

Project Portfolio Management at XYZ Pharma

The pharmaceutical market is characterized by increasing competition between brand-name drugs,
illustrated by the shrinking time span in which a drug is the sole drug for a specific therapeutic class.
Also, the profitable lifetime for drugs has substantially decreased over the last decade, largely due to
quick approvals of generic copies of brand-name drugs, virtually eliminating the time lag between
patent expiration and entry of generic competitors into the market.
The pharmaceutical industry is increasingly multinational in scope, with most research-based
companies marketing products globally. Approximately 47% of R&D is performed in the United
States, followed by Japan with 13%, the United Kingdom with 9%, France with 8% and Germany with
7% (see Exhibit 3). Approximately 45% of drugs developed are from U.S. origin, 14% originated from
the U.K., 9% from Switzerland, 7% from Germany and Japan and 5% from Belgium (see Exhibit 4).
The US is by far the largest market, accounting for almost half of global sales, which totalled $550
billion in 2004 (see Exhibit 5).1

The Drug Development Process

40,000

20%

R&D Expenditure

35,000
30,000

15%

25,000
20,000

10%

15,000
10,000

5%

5,000
0
1970

1975

1980

1985

1990

1995

2000

0%
2005

R&D Expenditure as % of Sales

Drug discovery and development is an extremely risky, time-consuming and expensive process. The
average time from compound to market has grown from 8.1 years in the 1960s, to 11.6 years in the
1970s, to 14.2 years in the 1980s and 1990s.2 Lengthening development times also increase
development costs. Recent estimates indicate that the cost of developing a medicine is around $800
million3, significantly higher when compared to 1990, due to a substantial increase in important cost
drivers such as the number of required clinical trials and patients per trial. This has resulted in a
doubling of development costs since 1991, and a threefold increase since 1980. In contrast, the cost
of demonstrating bio-equivalence of a generic product, the key requirement for approval of a generic
Global R&D...

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