Objectives and constraints

ASSIGNMENT
Project Portfolio Management at Novartis
This case describes the R&D project selection and prioritization process at Novartis Pharmaceutical, a recurrent issue of strategic importance to the firm. In the pharmaceutical industry, project portfolio decisions are crucial to the viability and success of a company, and require huge investment commitments.
IMPORTANT: The spreadsheets “Novartis-Oncology.xls” and “NovartisAll.xls” (posted in Canvas under Session 12) contain the relevant data for the R&D projects in the Oncology therapeutic area and R&D projects in all areas respectively.
Questions

1. Framing the project portfolio management problem.
   (a) What are the objectives and constraints? What are the risks involved? What are the firm’s alternatives?
   (b) What information is required for making these decisions? How can it be collected?
2. Consider the following project (“Project 1”) in Novartis’ portfolio, a project in the pre-clinical phase, part of the Oncology therapeutic area.
   Project 1 Phase Pre-Clinical Launch Year 2009 Probability of Technical Success 5% Net Sales (if success) $4,753 million Pre-launch costs (including R&D cost) $152 million
   (a) What is the value of this project?
   (b) Would you execute this project?
   (over)
   OMM 500D, Chayet Project Portfolio Management 2
3. Project Risk
   (a) How would you assess the technical (technology) risk of Project 1?
   (b) How would you assess the market (commercial) risk of Project 1?
4. (a) Suppose that next year’s R&D budget for the Oncology area has been reduced to $50 million. How would you decide which projects to continue, and which to put on hold?
   (b) Suppose that the following R&D budgets have been set for next year for each of the different therapy areas: • Oncology: $100 million • Cardiovascular: $200 million • Respiratory & Dermatology: $150 million • Transplantation: $100 million • Rheumatology, HRT: $300 million • Central Nervous System: $100 million • Ophthalmic: $50 million How would you decide which projects to continue, and which to put on hold?