Portfolio Management (Part 2) Flashcards
What is portfolio attrition?
Progressive project failure at each development stage; success increases as more data is generated.
What are key decision inputs in portfolio management?
Financial (NPV, PTS), strategic (alignment with company goals), cultural (management style, incentives).
List 4 key questions in portfolio financial evaluation.
- Is the opportunity worth it?
- What to deprioritise?
- Invest now or wait?
- Royalty vs upfront?
How is risk defined in this context?
Risk is the Probability of Technical Success (PTS) – the likelihood a drug makes it to market.
What is meant by ‘reward’ in financial evaluation?
The future economic benefit of the asset (e.g., revenue, value) calculated via DCF and NPV.
What is DCF and why is it important?
Discounted Cash Flow reflects the reduced value of future earnings to present-day terms.
What is Net Present Value (NPV)?
Sum of discounted future cash flows – shows true present-day value of a project.
How is adjusted NPV (aNPV) calculated?
aNPV = NPV × PTS – incorporates risk into value assessment.
What affects Probability of Technical Success (PTS)?
Prior data, TPP, disease complexity, and previous phase results.
What are typical PTS rates for drug phases?
P1→P2: 64%, P2→P3: 32%, P3→NDA: 60%, NDA→Launch: 83%; cumulative: ~10%.
How does investment vary across stages?
Lower early on due to high risk; increases as confidence builds (P3 ~$300M).
How are assets analysed visually?
Plotting unadjusted NPV vs PTS – quadrants indicate risk/value balance.
What strategic factors influence portfolio decisions?
Diversification, internal expertise, licensing vs in-house, market type.
What does a portfolio manager do?
Advises on value/risk, informs leaders, challenges bias, promotes objective decisions.
List 5 cognitive biases affecting decision-making.
Sunk cost fallacy, framing bias, confirmation bias, loss aversion, optimism bias.
How can cognitive bias be reduced?
Use independent review, vary data framing, focus on truth-seeking not progression.
How do incentives affect portfolio decisions?
Progression-based rewards encourage bias; truth-based culture improves long-term outcomes.
Summarise the purpose of portfolio management.
It is the art and science of allocating resources under uncertainty to maximise long-term value.
