Several methods have been presented in the literature for the management of a pharmaceutical portfolio, i.e. selecting which clinical studies should be conducted. We compare two existing approaches that use stochastic programming techniques and formulate the problem as a mixed integer linear programme (MILP). The first approach will be referred to as the ROV (real option valuation) approach since values are assigned to drug development programmes using methods for real option valuation. The second approach will be referred to as the PS (project scheduling) approach as this approach focusses on the scheduling of clinical studies and is formulated similarly to the resource constrained project scheduling problem. The ROV approach treats the value of a drug development programme as stochastic whereas the PS approach treats the trial outcomes as the stochastic component of the programme. As a consequence, the two approaches may select different portfolios. An advantage of the PS approach is that a schedule for when trials are to be conducted is provided as part of the optimal solution. This advantage comes at a much increased computational burden, however.
Keywords: Portfolio management; portfolio level decision making; project scheduling; real option valuation; research and development pipeline; stochastic programming.