DrugBaron’s mantra is simple: drug development is too expensive to make economic sense. Because its impossible (not just difficult) to know whether a given asset is going to make it to the next value inflection point, the numbers only add up if you can ask the value-adding questions as cheaply as possible.
Paying for more information to guide decisions only makes sense if it materially increases your chances of reaching that pay-out. And since most things make you more comfortable without making success more certain, they should be eliminated from the plan – or, rather, delayed until a positive outcome (approval and sales) are more certain.
Understanding the right WAY to cut costs is as important as embracing the need to cut costs in the first place
Driving costs out of the business in this way is central to the asset-centric investing paradigm born at Index Ventures and espoused by DrugBaron.
But watching different management teams operating in the asset-centric world, under extreme pressure to minimize costs, has revealed two very different strategies to achieve the cost reductions – one of which works; and one which definitely doesn’t.