Investors and other stakeholders frequently confuse risk with uncertainty. A life sciences company runs the risk of failing to fulfill its compliance obligations. The timing of the next regulatory audit by the US FDA is always uncertain. No management can ever guide a precise timeline for regulatory audits. However, adverse regulatory action, such as a warning, represents a risk associated with regulatory compliance. In his book, Capturing Upside Risk: Finding and Managing Opportunities in Projects, author David Hillson says that risk is “uncertainty that matters.”
Two essential filters must validate a hypothesis or project as “risky”: uncertainty and material impact. A risk that is certain does not qualify as a real risk. There must be an element of uncertainty. Secondly, if the impact is insignificant, then it is not a risk. Let’s explore this by examining a few scenarios involving innovators and their SaaS partners. Imagine a small biotech company committed to overpowering neurodegenerative disorders and removing historical barriers in scientific research and clinical development. This type of groundbreaking research inherently carries an uncertain outcome, as the preclinical to commercial pathway has a nearly 100% failure probability (or, to be more precise, 99.7%). There will always be uncertainty about whether the failure risk will materialize or not. All risks are uncertain, but some investors take advantage of this uncertainty, hoping to reap the benefits when a novel molecule receives regulatory approvals, scales up, and generates significant profits for shareholders. Therefore, we have successfully validated the first filter, which indicates that there is significant uncertainty in drug discovery and development. Now we need to validate the second important test: What will be the impact when this novel molecule dies in clinics? If this was one of the many molecules the biotech innovator was working on, and it failed and died, that’s fine. Nearly all CNS (central nervous system) novel molecules die somewhere in the preclinical to clinical jungle.
