Strategy in pharmaceutical R&D: a portfolio risk matrix

The management of any research-intensive company must weigh carefully the expenditure on any particular development product with the sales revenues that are likely to be obtained when the new product is introduced to the market. In particular, the technical risk (whether the development product results in a marketable product) and the market risk (whether the new product can be introduced to a suitable market niche where it will generate the required revenues) have to be scrutinised.
This paper sets out to develop an original model by Drews into a methodology for assessing the risk associated with a company's research portfolio. To test a model they had developed, the authors carried out in-depth interviews with three British pharmaceutical multinational companies, and compared the overall technical/market risk profiles of their respective development portfolios. Some interesting differences between the three were detected in terms of the overall risk profiles, in market risk, and in technical risk. The authors conclude that the matrix described here may be a useful tool in discriminating between the risk levels of the research portfolios of several companies; it may also be useful for plotting the movement of a particular firm's research risk over time.
While this paper concentrates on comparing the portfolios of three pharmaceutical firms at a particular point in time, R&D managers in other industries and other situations may find some evaluative utility in the model.