Presented at the SMi Pharmaceutical Portfolio and Lifecycle Management Conference in London April 2013

1. Putting Portfolio Risks into Perspective
Tim Harris
Turnstone Business Solutions
April 2013

2. Agenda
• Risk in the portfolio
• Why do the risks matter?
• The types of risks to your portfolio
• The importance of context
• Strategies to manage the risks
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3. What is Risk?
• ISO 31000 (2009) definition of risk is the “effect of
uncertainty on objectives”
• OHSAS (Occupational Health & Safety Advisory Services)
defines risk as “the product of the probability of a hazard
resulting in an adverse event, times the severity of the event”
• Sergio Pellegrinelli (Thinking & Acting as a Great Programme
Manager) describes risk as “….uncertainty that matters”
• For Portfolio Management it could be the probability of not
delivering what has been promised
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4. Agenda
• Risk in the portfolio
• Why do the risks matter?
• The types of risks to your portfolio
• The importance of context
• Strategies to manage the risks
4

5. What goes into the portfolio analysis?
Forecast
Time Estimates
Time Forecast Estimates
Risk
Cost
Risk Evaluation Cost Estimates
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6. Risk can have a big impact on your analysis
2,500 Representative Asset Line
High NPV, Low PoS ABC123 High NPV, High PoS
2,000
DEF456
1,500
JKL123
NPV
1,000 GHI789
ACE456
WXY456
500
QRS789 TUV123 GIK789
MNO456
Low NPV, Low PoS Low NPV, High PoS
0
0% 10% 20% 30% 40% 50% 60%
PoS
X-axis = PoS, Y-axis = NPV, Size = Dev cost Color = breakeven
= breakeven <3 years = breakeven at 3-7 years = breakeven >7 years
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7. This is the risk adjusted chart
Representative Asset Line
600
High eNPV, Low PoS High eNPV, High PoS
500
ACE456
400
DEF456
ABC123
300
eNPV
JKL123
WXY456
200
MNO456
GIK789
100
TUV123
GHI789 QRS789
0
0% 10% 20% 30% 40% 50% 60%
Low eNPV, Low PoS Low eNPV, High PoS
-100
PoS
X-axis = PoS, Y-axis = eNPV, Size = eDev cost, Color = breakeven
= breakeven <3 years = breakeven at 3-7 years = breakeven >7 years
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8. Agenda
• Risk in the portfolio
• Why do the risks matter?
• The types of risks to your portfolio
• The importance of context
• Strategies to manage the risks
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9. Types of risk
• Technical risk – failure of the science
• Regulatory risk – failure to gain approval
• Commercial risk – failure to deliver the “product”
• Operational risk – failure to meet the plan
• Financial risk – failure to achieve the forecasts

10. Technical risk – failure of the science
• The fundamental question – does it work?
• Focus on the
Efficacy
Safety
Quality
• Mostly subject to experimental investigation and
with unequivocal answers

11. Regulatory risk – failure to gain approval
• Why?
• Failure to show efficacy, safety, quality – the
inadequate dossier
• Change of level of expectation
• Risk-benefit curve changed
• Political will became a political won’t
• Change of guidelines

12. Commercial risk – failure to deliver the “product”
• What is the product?
• Not a target product profile
• Not a molecule
• Not a marketing campaign
• Not what 3 tame “opinion leaders” said they wanted 5
years ago
* courtesy of IDEAPharma
A physical entity supported by quality data showing it can
have a clinically relevant effect on a clear indication in a
defined population at an “affordable” price

13. Operational risk – failure to meet the plan
• Time
• How late?
• Is the delay recoverable?
• Impact of the delay?
• Cost
• How much more?
• Can other savings be made?
• Where are the trade-offs?

14. Financial risk – failure to achieve the forecasts
This can happen for many reasons
• Over-ambitious forecasting
• Change of commercial priorities
• Delays to launch
• Changes in the environment

15. Agenda
• Risk in the portfolio
• Why do the risks matter?
• The types of risks to your portfolio
• The importance of context
• Strategies to manage the risks
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16. So what is context and why does it matter?
Not all risks are unrelated
• Technical failure of a formulation could also impact on
timing
• If a single molecule project fails, the combination project is
also likely to fail
• Time delay could impact achieving the commercial forecast
and might affect priorities of other projects
• Changing population forecasts should impact all forecasts –
but do they?
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17. Agenda
• Risk in the portfolio
• Why do the risks matter?
• The types of risks to your portfolio
• The importance of context
• Strategies to manage the risks
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18. What can YOU do?
At a project level
• Understand the assumptions
• Check for double-counting of risks
• Interrogate plans – time/cost
• Ensure timely scientific review
• Challenge, challenge, challenge
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19. What can YOU do?
At a portfolio level
• All projects must use the same core assumptions
• Look for interactions between projects
• Understand the impact of individual project
changes
• Benchmark – internally
• Review the range of risks for projects in similar phases
• Facilitate risk discussions in a consistent way
• Benchmark externally
• May need to involve other organisations
• Ensure some common aspects 19

20. What can YOU do?
At a business level
• Identify any risks that can impact the corporate
strategy (prioritise these)
• Understand what level of risk is acceptable
• Monitor the external environment for changes
likely to affect the portfolio
• Communicate any critical risks calmly and
transparently
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21. Portfolio Management must ensure the decision-makers look
beyond the numbers
Context
Strategy
Decisions
Operation
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22. And Finally..........
He who asks is a fool for five minutes, but he who
does not ask remains a fool forever. - Chinese Proverb
Only those who will risk going too far can possibly find
out how far one can go. - T.S. Eliot