Since the 1970s, a familiar way of looking at portfolio analysis is through a model developed by the Boston Consulting Group (BCG). The BCG Growth-Share Matrix describes products in terms of two factors: market growth rate and relative market share, defined as a ratio of a firm's sales of a product relative to the sales of its largest competitor. Positions on the matrix typically correspond to a product's cash-flow characteristics (see "BCG Growth-Share Matrix," below).
Believe it or not, the majority of products in any company's portfolio are cash traps or "dogs" (see "Learn the Lingo"). But the product portfolio of any pharma company should be an exercise in the balance of cash flows. Each firm needs high-growth products in which to invest cash, and low-growth products with high market to ensure excess cash flow. Each drug should eventually generate cash and compound the cash invested in it. Otherwise, it is worthless; it is a drain on EBIT (Earnings Before Interest and Taxes) and only becomes of value to the company in being sold off.
Look at Inspra (eplerenone). Pfizer launched this drug in Q4 2003 and continues to pump money into this problem child, despite anemic sales of roughly $40 million in the $2.7 billion heart-failure market dominated by Toprol-XL (metoprolol). Pre-launch hopes were probably high for Inspra. It was supposed to gain market share and become a star, and eventually a cash cow when the market growth slowed. But Inspra is likely to remain a dog, despite any amount of promotion, given its perceived safety issues and a cheaper, more effective spironolactone in the same Pfizer portfolio. Because Pfizer invested heavily in promotion early on with Inspra, the drug's earnings potential and positive cash flow is elusive at best. A portfolio analysis of Pfizer's cardiovascular franchise would suggest redeploying promotional spend on Inspra to up-and-coming stars like Caduet (amlodipine/atorvastatin) or torcetrapib to ensure those drugs reach their sales potential.
Know When to Grow 'Em