Challenge:

Since the merger that created the company, SmithKline Beecham had become a victim of its own success. It had too many promising products in its R&D pipeline and its R&D budget was coming under increasing strain as more products successfully reached the later, and increasing expensive, stages of the clinical trials process.

Solution:

The company wanted a “fair” valuation process and a means of prioritising its R&D investments. More importantly, the resource allocation process had to be consistent, credible and transparent, or the decisions would fail to be accepted by staff at all levels across the organisation.

Results:

With colleagues I developed and implemented an innovative method for valuing SB’s R&D assets and dealing with difficult portfolio trade-off issues. Some projects had their budgets increased, while others were cut back or stopped. In the first year this added 20% ($2.6 billion) to the value of the company’s portfolio of drugs in clinical development. This work was documented in How SmithKline Beecham Makes Better Resource Allocation Decisions, Harvard Business Review, Mar–Apr 1998.

In the second year we trained and mentored an in-house group of portfolio analysts. The value added was not nearly so large, but was still substantial.

The portfolio management methodology developed initially for SB has now become standard across the pharmaceuticals industry.