Monday, April 17, 1995
The power of zero
One person's focus is another's obsession. So at the risk of sending readers fleeing at the prospect of another Commentary on FDA reform, we propose this week to take a few words to explain BioCentury's preoccupation with the budding reform process.
In the past we have ridden hard on a company's responsibility to manage risk and pointed out management's culpability in sloppy clinical practice, creation of unfounded expectations, and other errors of omission and commission that have resulted in public embarrassment and very unhappy shareholders. In fact, we coined a phrase - The Clear Route to ROI (which seems to have taken on a life of its own) - which explicitly puts the onus on management to prove to shareholders and potential investors that it understands and is managing risk.
However, there's a limit to manage-ment's ability to manage risk, specifically technology risk and regulatory risk.
In the generally accepted business development model, the progression of a project through the research, preclinical and clinical stages of development should result in a diminishing of technology risk. As technology risk falls, the prospect for income rises and the time to financial returns shortens. In the process, the asset and the company's value should increase accordingly.
While the equity markets and companies may argue over the relative steepness of the value-added curve, the point remains that incremental success creates an accretion of value.
However, the model comes unglued at the regulatory stage, where the operator is more aptly described as multiplicative. This change is crucial, because it changes the power of zero in the equation.