Portfolio Management (Part 2) Flashcards

1
Q

What is portfolio management in pharma?

A

Strategic selection and management of drug development assets to balance risk, cost, timing, and value.

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2
Q

Why is portfolio management necessary?

A

To make strategic investment decisions, optimise limited resources, and build a high-value, balanced pipeline.

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3
Q

What is portfolio attrition?

A

Progressive project failure at each development stage; success increases as more data is generated.

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4
Q

What are key decision inputs in portfolio management?

A

Financial (NPV, PTS), strategic (alignment with company goals), cultural (management style, incentives).

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5
Q

List 4 key questions in portfolio financial evaluation.

A
  1. Is the opportunity worth it? 2. What to deprioritise? 3. Invest now or wait? 4. Royalty vs upfront?
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6
Q

How is risk defined in this context?

A

Risk is the Probability of Technical Success (PTS) – the likelihood a drug makes it to market.

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7
Q

What is meant by ‘reward’ in financial evaluation?

A

The future economic benefit of the asset (e.g., revenue, value) calculated via DCF and NPV.

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8
Q

What is DCF and why is it important?

A

Discounted Cash Flow reflects the reduced value of future earnings to present-day terms.

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9
Q

What is Net Present Value (NPV)?

A

Sum of discounted future cash flows – shows true present-day value of a project.

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10
Q

How is adjusted NPV (aNPV) calculated?

A

aNPV = NPV × PTS – incorporates risk into value assessment.

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11
Q

What affects Probability of Technical Success (PTS)?

A

Prior data, TPP, disease complexity, and previous phase results.

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12
Q

What are typical PTS rates for drug phases?

A

P1→P2: 64%, P2→P3: 32%, P3→NDA: 60%, NDA→Launch: 83%; cumulative: ~10%.

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13
Q

How does investment vary across stages?

A

Lower early on due to high risk; increases as confidence builds (P3 ~$300M).

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14
Q

How are assets analysed visually?

A

Plotting unadjusted NPV vs PTS – quadrants indicate risk/value balance.

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15
Q

What strategic factors influence portfolio decisions?

A

Diversification, internal expertise, licensing vs in-house, market type.

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16
Q

What does a portfolio manager do?

A

Advises on value/risk, informs leaders, challenges bias, promotes objective decisions.

17
Q

List 5 cognitive biases affecting decision-making.

A

Sunk cost fallacy, framing bias, confirmation bias, loss aversion, optimism bias.

18
Q

How can cognitive bias be reduced?

A

Use independent review, vary data framing, focus on truth-seeking not progression.

19
Q

How do incentives affect portfolio decisions?

A

Progression-based rewards encourage bias; truth-based culture improves long-term outcomes.

20
Q

Summarise the purpose of portfolio management.

A

It is the art and science of allocating resources under uncertainty to maximise long-term value.