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Master's Thesis Defence > Introduction & Theory > Flashcards

Introduction & Theory Flashcards

1
Q

What is cost of capital?

A

The costs incurred by a company to finance new investments.

It measures the cost of borrowing money from creditors, or raising it from investors through equity financing, compared to the expected returns on an investment.

This metric is important in determining if capital is being deployed effectively.

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2
Q

What is WACC?

A

Weighted average cost of capital.

Takes into account the cost of debt and equity capital while considering the return.

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3
Q

Müller 2008 measured on what companies?

A

136 companies primarily within NA/Europe in IT/Engineering/Services

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4
Q

Research and discovery is?

A
  • Finding therapeutic targets
  • Finding molecules for the target and testing these for factors like affinity
  • Lead selection and optimization
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5
Q

Pre-clinical research is?

A
  • Safety and efficacy of the lead candidate in animals and in vitro studies
  • Establish safe dosing range for clinical trials in humans + metabolism considerations/distribution in the body + organ-specific toxicology
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6
Q

Clinical Trials - Phase I

A
  • Submit a NDA to start
  • FHD on 10-30 healthy individuals
  • Safety is key focus
  • Pharmakodynamics (where it binds and goes in the body) & pharmakokinetics (metabolism)
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7
Q

Clinical Trials - Phase II

A
  • Patients ~ 100 individuals
    IIA) Proof of Concept + Establish Dose Range
    IIB) First real efficacy testing + dose-response relationship + safety
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8
Q

Clinical Trials - Phase III

A
  • 1000+ patients - double-blind placebo trials (if deemed ethical)
  • Focus on proving significant efficacy and safety (needs to be better than competition)
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9
Q

Regulatory Review

A

Filling for approval based on all data.

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10
Q

Post-launch safety monitoring/Phase IV

A

Yearly safety report, drug can be withdrawn at any point if the report raises concerns

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11
Q

Cost of drug development

A
  • 7% direct investment in successful drugs
  • 40% out-of-pocket investments in failures
  • 53% cost of capital
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12
Q

What is a project?

A

a complex effort, made up of interrelated tasks, with a well-defined objective, schedule, and budget

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13
Q

Do we do more projects today?

A

Yes! Middler 1995 coined the term “Projectification” which is spreading out into society.

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14
Q

Difference between line work and projects?

A
  • Line work has one individual do one part before moving onto the next.
  • Project work has more tasks for one individual throughout the entire process.
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15
Q

What is a portfolio?

A

“a set of projects which are managed in a coordinated way to deliver benefits which would not be possible if the projects were managed independently”.

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16
Q

What is PPM?

A

the active management of a collection of projects or investments, whose consolidated purpose is to aid in the attainment of an enterprise’s ongoing strategic and financial goals under constrained resource conditions.

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17
Q

What is the efficient frontier?

A

Risk (standard deviation of return) vs. Expected return

There is a rate at which investors can take on risk and expect an increased return or vice versa

Portfolios on the frontier = efficient/optimal
Not on the line = inefficient/sub-optimal

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18
Q

Pre-requisites for PPM are?

A

1) Sponsorship from executive management
2) Strategic planning
3) Data and information foundation and integrity

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19
Q

The five levels of PPM capability maturity are?

A

1) Project & Program Office: Basic project information and metric gathering. Managed in a “what works” fashion.
2) Basic Portfolio Management: Consolidated and validated project information used in an unsystematic approach to selecting projects
3) Standard portfolio management: Systematic approach to project selection. Almost entirely based on prioritization methods. Strategy and temporal goals are now considered.
4) Advanced portfolio management: Optimization methods are now utilized. PPM spearheads strategy and business plans with portfolio management plans and strategy. Monthly stage-gate meetings.
5) Center of excellence: Leads integration of optimal PPM practices and strategic planning. PPM function executive is viewed as a peer to other executives. Training is heavily invested in.

20
Q

What are the four objectives of PPM?

A

1) Value Maximization
2) Portfolio Balance
3) Strategic Alignment
4) Right Number of Projects

21
Q

What is IRR?

A
  • Internal Rate of Return
  • The annual return that makes the NPV equal to zero for an investment
  • Estimates the desirability of different investments
22
Q

Decision trees are?

A
  • Grene der splitter ved beslutninger/events
  • Kan integrere risk og bruges i eNPV beregninger og fjerne scenarier is minus
  • Kan opsætte low/mid/high scenarior osv.
23
Q

Monte Carlo Simulations are?

A
  • Probabilistic financial method (as opposed to deterministic methods). Takes into account random variability.
  • Monte Carlo creates a probability distribution curve –> scenarios based on this curve –> run thousands of simulations.

Outcome: Range and likelihood for a portfolio outcome.

24
Q

What are the most popular PPM methods?

A

Financial methods! Only as good as the data, and the data in very early R&ED is not always great, meaning the complex and sophisticated methods can outgrow the data. - Thus being too extensive and labor-intensive for the payback.

COGS/efficacy, differentiation etc. makes it hard to have specific values in R&ED.

DIsfavour advanced technology due to low likelihood of success and uncertainty in the future pay-off

25
Q

Project scoring methods are?

A
  • Can range from simple lists to more complex like MODA
  • MODA - Decide decision criteria (both quantitative and qualitative) –> scored low/medium/high –> converted to a score through a utility curve (shape can affect risk willingness) –> Scores summed up and projects compared.
  • Does not take into account interdependencies nor reveal if superior efficient portfolios exists.
  • Often combined with a graphical representation
26
Q

Strategic methods are?

A

Evaluate the strategic alignment of the portfolio - can be methods such as the many 2x2s inspired by the BCG growth matrix (market share vs. market growth) or “strategic buckets” with buckets of projects divided into strategy.

Particularly interesting in PPM is the 2x2 of PTRS vs. expected return

27
Q

What are the categories of PPM methods mentioned in the thesis?

A

1) Financial methods
2) Probabilistic financial methods
3) Project scoring methods
4) Strategic frameworks/methods
5) Portfolio maps/graphs/diagrams
6) Optimization models
7) Comparative methods

28
Q

Optimization methods are?

A

Methods that aim to maximize or minimize a certain parameter based on a constraint.

  • Classics like linear programming can optimize on one parameter, whereas goal programming can optimize on several parameters, but can not be sure a global maximum is defineddiscovered
29
Q

Comparative methods are?

A

Measuring projects on multiple attributes with differents weights for each objective, before a pairwise comparison is made.

Must be redone if a project is added.

30
Q

Best practices in PPM include?

A
  1. Strategic objectives
  2. Portfolio evaluation
  3. Portfolio selection (Prioritization & Optimization)
31
Q

What should portfolio/project evaluations be?

A

Systematic and formalized

32
Q

What does the strategic objectives step in best practice do?

A

Set the direction of the company, and forms the basis for which projects should be piroritized higher.

33
Q

What is the challenge with portfolio prioritization?

A

If all projects of a portfolio are rank ordered based on NPV and projects are selected from the top until the resource constraint is met, an efficient portfolio is rarely obtained.

34
Q

Why is portfolio optimizations smart?

A

Revealthe best combination of projects that provides the highest value within the constraints for a given amount of risk.

If so, this portfolio will be located on the efficient frontier and thus be optimal and efficient

35
Q

Is optimizations the final step?

A

No, a following prioritization can be needed due to operational considerations.

36
Q

The stage gate is?

A
  • Stages with gates of go/no-go decisions before entering a new stage. With ressource allocation at these gate meetings.
  • Gates can be sufficient evidence regarding pharmakodynamics or other read-outs from studies.
  • Often accompanied by a yearly/bi-yearly portfolio review for coarser reviews
37
Q

Review-dominant approach is?

A

Several times a year, the entire portfolio gets resources allocated and are evaluated for go/no-go decisions.

Best for fast paced enviroements with lot of changes in the portfolio and/or the market.

38
Q

Archer et al 1999 created what?

A

A DSS - Decision SUpport System which shows the interaction of a project database, portfolio database (with support for its models/methods) and decision-makers through a user interface.

39
Q

What characterizes the three types of decision-making?

A

1) Evidence-Based Decision-Making: an objective decision-making rationale based on objective information and an understanding of the underlying assumptions.

2) Power-Based Decision-Making: When people or groups of power unequal to others use this power to make decisions that reflect their personal interests

3) Opinion-Based Decision-Making: decisions based on overall feelings and personal experience to build a subjective decision-making rationale

40
Q

What are the three main things a strategy should include?

A

1) Temporal/future objectives and goals
2) A defined scope of the company (and decisions on what NOT to do!)
3) Approach to survival/success (how to get there)

41
Q

Strategic choices in Biopharma are?

A

1) Originator vs. generics/biosimilar producer
2) Orphan drug or not
3) Blockbuster strategy vs. smaller cycles (like producing leads, doing clinical trials, or co-developing targets)

42
Q

Issues with blockbuster strategy are?

A
  • Patent cliffs! This can make for bad choices like rushed M&As to accommodate the revenue gap.
  • Overreliance on these
43
Q

What is the luck vs. strategy spectrum and where and why are certain biopharma companies there?

A

Luck
- Biotech - Rely on one or a few big bets (i.e. dependent on luck to work)
- Big Originators - Rely on luck but also several strategies with a already formed foundation for incremental innovation and safe bets/cash cows
- Niche Originators - Like orphan drug developers, knowing no competition is there and what the market is.
- Generics/biosimilar producers - knows the market/costs/competition well before entering, making for more strategic bets based on financial calculations.
Strategy

44
Q

Describes Bayneys figure about corporate, portfolio, and R&D & business investment strategy

A

CS (temporal objectives) influences portfolio strategy (where and how to win according to temporal objectives) influences R&D & business investments (aka resource allocation)

45
Q

Strategy becomes real when?

A

Resources are allocated according to strategy. Until then, it’s words on a document.

46
Q

Meskendahl 2010 did what?

A
  • Created a conceptual framework exploring the connection between business strategy and PPM and its success. Still needs empirical validation (observed validation/tests)
  • When we say “conclusion that PPM impacts business success” or similar, it might be a bit too direct.
47
Q

What are the three strategic postures?

A

1) The analytical posture: Considers the ability of a company to generate and build knowledge to secure competitive advantage.
2) The risk-taking posture: Describes how decisions are made and actions taken, i.e., if this posture is heavily applied, firms take up new products, markets, and technologies more readily.
3) The aggressive posture: Describes a firm’s behavior towards external threats and opportunities and ranges from defensive to aggressive.

Master's Thesis Defence (5 decks)

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