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Global Optimization of Portfolio: Therapeutic Area Considerations

Presenter: Vish Viswanathan, Johnson & Johnson

Presented at the 2003 DAAG Conference in Houston, Texas.

 

Abstract:  While global optimization of a drug development portfolio can lead to the optimal theoretical solution, there could be many reasons why it may not be the optimal solution from an overall strategic point of view:

A.  The global optimization problem may ignore the critical mass effect or the economies of scale within each therapeutic area. 

B.  The global optimization problem, if not carefully constructed, may ignore the contribution from multiple therapeutic franchises in constructing a diversified portfolio. 

C. The global optimization problem could also ignore certain synergies (or economies of scope) across some therapeutic areas that are, for example, linked by the same customer audience or underlying mechanism of action. 

D. The global optimization problem may ignore the company’s corporate goal to, for example, be a leader in multiple therapeutic areas. 

On the other hand, therapeutic level optimization may lead to a sub-optimization of global corporate objectives.  A realistic approach is to carefully craft the model so that a global optimization model considers these above requirements.  Or, as an alternative, use a local optimization approach with constraints on minimum acceptable levels of productivity on the marginal dollar spent in each of the therapeutic areas – incremental ENPV per dollar invested.  

Keywords: optimization optz, portfolio decision analysis portda, portanal, diversification

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