Pharmaceutical companies are under more pressure than ever to make smart and efficient decisions regarding their drug discovery and drug development portfolios.
The following is a conversation with Dr. David Kreutter, Associate Academic Director and Senior Lecturer in Applied Analytics at the School of Professional Studies at Columbia University and former VP of Global Business Analytics at Pfizer. InfoReady President Eric Jacobson sat down with David to chat about the best practices pharmaceutical companies employ to make intelligent, streamlined decisions regarding their portfolios.
Right now, in the world of pharma, what are the basic challenges of portfolio management, especially the organizational ones? Is it hard to make the right decisions?
There are really two of them. There is a knowledge challenge. That’s about collecting and sharing data and information to inform decision making. And then there is a people-and-processes challenge. That’s about making the best possible decision from information available, and aligning all of the stakeholders around the decision. Alignment requires transparency into all aspects of how the decisions were made. For the process to hold up, it needs buy-in from everyone, including the teams whose projects were not funded.
The other part, this notion of making the right decision, that’s a tough question. So, look at it differently. How do organizations avoid making the wrong decisions? That is a critically important question. Somebody, a very high- level person, once said to me, ‘I can be wrong in one of two ways. First, I can take a risk on an opportunity, and if it doesn’t work, well 99% of what we do doesn’t work, so from a psychological point of view, I’m not so worried about that kind of a mistake. But the kind of mistake that really worries me is the visible kind of mistake. It’s the one when I say no to something and then somebody else proves that it was a tremendously valuable and important area. Because so few things work, I made that rare error of not picking the winner. Somebody else did. And so that’s visible, and that’s painful.’
So, balancing those things, what makes a high- quality decision?
A high quality decision is one where you’ve got the all the appropriate information. You’ve got a clear set of alternatives, what you can do under current circumstances. You’ve got clear objectives and a meaningful framework for analyzing your alternatives against your objectives. So, again, in the context of InfoReady, your sphere of influence is making sure that the right information is available to the right people to support and inform high-quality decisions. You are an administrative foundation utilizing whatever analytical framework an organization is applying.
Yes, InfoReady helps to administer the process of decision making. On a different note, let’s talk about other tools. We are talking to a number of companies. They cite their existing investment in project portfolio management software and the fact that PPM has powerful data analysis tools and project management tools. So, they use PPM to manage their portfolios. InfoReady provides a foundation to augment that. We’re not doing the analysis. Our product still has decision criteria and the Likert scales, but InfoReady primarily takes the information from PPM and then helps to route decision-making with it.
So, I’ll give you my bias and my understanding. When organizations say, ‘Oh we’ve got tools for project and portfolio management, what they’re telling you is they’ve got tools for tracking and measuring the progress of projects. Are these projects on time? Are they on budget? Are there any areas where there are resource conflicts and bottlenecks, so that I’ve got to think about constrained resources? Where do I apply my constrained resources? So, that’s what those platforms tell you.
They tell you whether you are doing things right. They do nothing to tell you whether you’re doing the right things. You’ve got to go upstream to ask, ‘How do I decide what even makes it into my portfolio?’ After that, you track execution of that through your existing project portfolio management system.”
Let’s talk about the importance of making decisions quickly and balancing that against making high quality decisions. Is it important for pharmaceutical companies to be able to make decisions expeditiously?
Yes. You can think about this from three dimensions. Think about it from a purely financial dimension. So, if you’re launching a drug that’s anticipated to sell $6 billion a year. Think about the value of each day. It’s a lot of money. Every day is worth a lot of money.
Closely related to that is patent life. In the U.S., you lose 90% of a product’s value within the first year of it losing exclusivity. Now it’s a little bit different for biologicals, but the same general concept applies.
The longer it takes you to make a decision, and the longer it takes you to execute, the less protected patent life you have.
The third dimension is competitive dynamics. Thereare very few areas, if any, where there’s only one company working in a space. So, unless you’re talking about things like ultra-rare diseases, where companies are really focused, everybody reads the same literature, everybody goes to the same meetings, everybody sees the same degree of medical need. There’s a lot of competitive intensity in large disease areas.
And so, the longer you take to make decisions, the bigger the risk that somebody gets there before you do. And that changes the goalposts. What you must prove to be commercially viable gets higher. You’ve got to be better than what’s already out there, and not just as good as what’s already out there.
In talking to generic manufacturers, they speak about the growing sophistication of their processes-- identifying molecules and compounds under development by major players, and reverse engineering them earlier and earlier. Competitors race each other to be ready for when patents expire, so that they can immediately capitalize on it. In addition to all of that, like you said, there’sever-accelerating competition among pharmaceutical companies to find best efficacy and least adversity.
So, given all that, what’s the trend in the industry right now? Is it towards making more careful decisions or making faster decisions?
I think it was Jeff Bezos who popularized this notion of ‘that’s not a trade-off you make.’ You never make a trade-off between fast decisions and quality decisions. That’s a false choice. You make high quality decisions quickly. The way you do that is by saying, ‘this is the amount of information I need to make that decision.’ And then stop collecting and analyzing information, and make the decision.
There’s this notion of the value of information, where if it costs you more to collect the information than the value that’s returned through it, don’t expend the resources to get the information.
But there’s also the psychological belief that, in the face of uncertainty, more information reduces that uncertainty. So high-quality, high-speed decisions become critical. There is a sense of urgency in the pharmaceutical industry given that there aren’t very many drug launches.
Companies spend a ton of money in the end. We can look up the statistics, but it’s about 17 or so percent of revenue, which approaches $10 billion investment in R&D. So, making high quality decisions quickly is critically important. (https://www.pharmexec.com/view/pharm-execs-top-50-companies-2020)
So, then what are the biggest culprits in terms of slowing down a high-quality decision-making process?
You got multiple stakeholders with multiple needs, and you’ve got to get them aligned. Governance in most pharmaceutical companies involves at least R&D leaders, medical leaders, and commercial leaders. It typically involves more than that, but think about those as the primary stakeholders.
So, if you think about the critical factors that companies analyze, they are the probability of technical and regulatory success. So that’s clearly driven by the R&D group. And then they think about commercial value. And then they meld those two, and they windup with some form of an expected commercial value.
But, sometimes those two sides of that equation come out with decisions from completely opposing perspectives, because they’ve got different priorities. From an R&D perspective, if the R&D organization has their incentives aligned with moving things through the pipeline, it’s in their best interest to work on projects that have the highest probability of success. Fundamentally, what one does is aligned with how they get paid.
From a commercial perspective, they’ve got to keep the enterprise at a profitable level. So, the things that have high probability of success tend to be the things that have already been proven. Thus, by definition, for the things that have already been proven, the commercial hurdles are even higher.
Somehow, you’ve got to bring the R&D and commercial teams together and get them to view projects through the same set oflenses, or at least complimentary lenses as opposed to antagonistic lenses.
Thinking of the governance issues that you just defined, what types of things are pharmaceutical companies doing to try to get multiple stakeholders to work together? How do you ask people in research to get the right information to commercial people and leadership? How to you create a fruitful discussion that’s done in an appropriate way.
So, portfolio governance groups tend to be multi-disciplinary governance groups. They are usually chaired by head of strategy or somebody at an executive level.
And then they’ve got the leaders of each of the relevant line functions. In addition to R&D and commercial, regulatory is in there, legal is in there, and finance is in there.
Governance is usually project-managed by somebody in the project and portfolio management group, and they try to foster transparency and open dialogue around the projects and the investments in the portfolio.
They also try to make sure that people understand the alignment between projects and the overall strategy of the organization. If an organization has either a publicly disclosed or a board-driven therapeutic area strategy, they are going to work in those areas. Illustrating and making transparent the alignment between your projects and that strategy is critical.
Any other best practices, beyond ones for governance, for making these decisions effectively?
Well, availability of information is clearly part of it, which is different from availability of data. You can make data available, but whether people understand it is different, right?
Make information available in a way that it’s consumable. Commercial information must be understandable and consumable by your R&D people.
And, R&D information? The easiest place for an R&D organization to hide is behind their jargon. There’s the genomic data. There’s the proteomics data. There is the other omic data. You can get tangled in knots very, very quickly. Helping the other stakeholders understand R&D information, in an easily consumable manner, is critically important.
One of the points that you made earlier was that it’s important to collect the information that was used in a decision, and then have the right processes to prove to the losers that the right decision was made. What are the best practices for organizing and archiving that information so that you can sit down with a losing team and have them learn from the experience? How do you get to where they’re able to salvage something out of it? Are companies archiving that information effectively?
The short answer is, I don’t know. The more nuanced answer would be that I’d be surprised if companies archive that information well because organizations view things like knowledge management as ‘yeah, yeah somebody else will do that, right?’ There is much to learn from both the teams that are funded and those that are not. For example, is there something about the composition/membership of teams with consistently positive track records?
So there tends to be almost no historical record of how we got to where we are, and that actually results in a fair amount of second guessing. Of course, post hoc, everything starts to become obvious. In the absence of understanding how decisions were really made, you start to conflate what we knew and when we knew it. This can create a dangerous situation where we believe we knew more about a decision than we actually did, and we become overconfident in our ability to predict the success or failure of projects.
Beyond that, we need to communicate that historical record effectively. It needs to go beyond just, ‘I’m sorry your project has been canceled.’
I don’t think this happens in a disciplined way, and I do think it’s very important.
Throughout the entire process, what’s the best practice right now for either a project manager or a portfolio manager to collect project data? They need to collect the correct information from a research team and then route it through to governance team members in a way that’s clear and meaningful.
How do portfolio managers get project teams to get governance teams the right data and then? How do portfolio managers present that data to governance team members in a way that they’ll make the right conclusion?
Often it is the portfolio manager who works with project teams to collect the right information. In organizations beyond their first iteration of portfolio management, where you don’t have to explain the ‘here’s why we’re doing this,’ collecting information goes fine. Often, it’s a matter of updating information.
However, if it’s the first time around, respondents question, ‘Well, why are you collecting this information? Why are you asking me about the state of the project? How’s the data going to be used, and by whom will it be used?’
Those are people-related issues. Those are the change issues that we talked about earlier. To inform decisions, objectives and criteria should be clearly defined and stable over time. This enables targeted and efficient collection of information. It’s not everything there is to be known about your project.
However, it’s also here where many different criteria are used to make investment decisions. Portfolio managers say, ‘Let’s talk about it. Let’s update your information in those areas.’ I think that’s critical because that requires a level of discipline in an organization. We’re clear about what’s driving our decision. We’re consistent in that decision making process.
Reflecting about consistency and the best way to do what you just described, do criteria vary from one therapeutic area to another? Or, is it important to keep them identical for making portfolio decisions universally across the organization, so that it’s always a consistent framework, regardless of the therapeutic area?
It’s the latter. It’s the consistency. At the enterprise level, the CEO or the executive team decides how much of the total budget to invest in commercial, and in R&D.
That’s that first slice right there. But then, within those, you should minimize the number of budget silos because you can’t optimize your portfolio from the bottom up. You’ve got to optimize your portfolio from the top down, so if you start to say ‘okay, one third of my budget goes to oncology.’ Of the remaining two thirds, one third of that goes to cardiovascular, one third goes to neurology, one third goes to infectious diseases. And then, you optimize from within. But, with all of that, what you’ve done is you’ve sub-optimized because you’ve never looked across the therapeutic areas to optimize at the research level or the development level.
The key to effective portfolio management is to be able to take a broad look across all your choices, regardless of therapeutic area, and determine what optimizes the enterprise. And, I’d go even one step further and say that’s even true for external opportunities. When there’s something from the outside, like when you have the opportunity to license something, it will require trade-offs from within. Applying that same framework to external opportunities is critically important.
As the world goes faster, and as opportunities for blockbuster drugs are becoming fewer, is it more commonplace that governanceteams may be making the wrong decision, and what’s the portfolio manager’s role - try to correct a decision or to steer a decision that’s being made by a governance team?
It’s the latter. The role of the portfolio manager, or the strategy leader if that person is shepherding the process, to inform and steer the group, not to correct their decision. That person must be aware of pitfalls in decision making, of biases in decisions, of thediscipline in the process itself. Leadership experience is important. Good judgement is important. Because even if you assume that you’ve collected all the right information and that it’s presented in the right way, what’s left are behavioral aspects around decisions. Portfolio management is not prescriptive. The decisions do not come from an algorithm. Senior leaders make trade- off decisions based on the analytical insights, their experience, and their judgment.
Think about things like sunk cost bias. You think that everybody’s been trained in some level of finance and that they know objectively that sunk costs are just that – sunk. But behaviorally, they think ‘I’ve already invested this much time, so let’s run just one more study and see what happens.’ So, the role of the person shepherding the process is to be aware of cognitive biases like sunk cost bias, optimism bias, and the status quo bias. The person shepherding the process must be able to steer the decision-making group appropriately or call people out when things don’t look right. Think about the person as a guide pointing people in the right directions.
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