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Forestalling Healthcare Center Foreclosure: Using @RISK to Analyze Debt Capacity and Find a Strategy to Avoid Mortgage Default

Steven E. Slezak
California Polytechnic State University

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This case illustrates how even a simple @RISK simulation can provide valuable insights into a complicated financial issue and lead to a strategic solution.

A medical center in rural California secured a 30-year mortgage from a lending agency backed by the U.S. Government.  Combined annual principal and interest payments became a burden shortly after the loan was issued due to an unexpected decrease in the center’s net income, leading the borrower to suspend mortgage payments and the lender to begin the default process.  The parties to the loan requested FinEx Company, LLC, provide an analysis of the debt situation, with particular focus on the borrower’s debt capacity from 2010 through the maturity of the mortgage.

What is the best strategy for the borrower to follow to avoid default?  Should the center refinance?  If the current mortgage is to be salvaged, how likely is it the borrower will be able to resume mortgage payments within the next 12 months?

The study aimed to identify a minimum level of net income for the center to target, a level which would allow it to maintain sufficient debt capacity to pay off the mortgage.  The study also looked at how changing the terms of the loan – interest rate and maturity – by refinancing might contribute a solution.  Could refinancing help the center manage its debt?

The goal of the study was to determine the best course of action to enable the center to resume debt payments.  Three possibilities existed:  repayment of the existing debt, refinancing, or default.  Since repaying the mortgage was in the best interests of both the borrower and lender, and since default was not a desirable option, emphasis was placed on a work out strategy that would allow the existing mortgage to be serviced.

A simple Excel spreadsheet was used to determine target the minimum net income level need to support debt capacity for the mortgage at various points of time in the maturity of the mortgage.  A uncomplicated @RISK analysis was then performed to determine the probability that the center would be able to meet that minimum net income level within the next 12 months, and to find out if refinancing would be a viable solution under the circumstances.  The @RISK simulation helped to determine an optimal strategy.


Optimizing Global Clinical Trial Investments: Palisade’s @RISK Software used to optimize Patient Enrollment Forecasting

Todd D. Clark
Value of Insight Consulting

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In this presentation, Value of Insight Consulting, Inc. (VOI), a life-sciences advisory firm, discusses the results of a recent project employing risk-modeling for a global clinical trial. Specifically, VOI was hired by a major pharmaceutical company to determine the relative suitability of 23 countries as locations for a phase III oncology clinical study. The objective of our analysis was to determine the best countries in which to place this trial in order to ensure that a minimum of 690 patients would be enrolled within the sponsor’s 26-month timeline.

To accomplish the task, VOI employed Palisade Software’s @RISK software to conduct Monte Carlo Analysis. The results of our forecasts allowed our client to considerably reduce the number of countries in which the trial was held, thus lowering the cost of the clinical trial by millions of dollars without sacrificing the on-time enrollment goal. As this presentation shows, in an industry that is arguably facing the most challenging period in its history, companies that incorporate risk-modeling into their decision-making process can provide themselves with a distinct and affordable advantage over their competitors.


The use of the DecisionTools Suite in Biotechnology Project and Portfolio Decision Making

Svetlana A. Sigalova
Vertex Pharmaceuticals, Inc.

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Vertex Pharmaceuticals, Inc. is a global biotechnology company based out of Cambridge, MA. The Company's strategy is to commercialize its products both independently and in collaboration with major pharmaceutical companies. Vertex's product pipeline is focused on viral diseases, cystic fibrosis, inflammation, autoimmune diseases, cancer, and pain.

Given the uncertainty of outcomes in the biotech industry, consideration of variability is an inherent part of the decision process. Often, the mean (average) is not a relevant decision criteria. This is especially true for smaller biotech companies like Vertex – the opportunity costs are extremely high because scarce capital resources would be invested elsewhere, with a higher probability of realistic return. For example, a company may reject a project which is profitable on average (positive Net Present Value) because some of the possible outcomes are unacceptable to the decision maker. Consideration of variability allows a decision maker to bring in their own risk tolerance into the decision. A similar argument applies when estimating a safety margin above a base case (e.g. in cost budgeting).

Vertex’s strategy and analytics group within the corporate finance division seeks to provide the senior management with dynamic revenue and profit forecasting methodology that helps to identify types of drugs that should be developed given a finite amount of cash and resources. A traditional financial view allows the user to identify scenarios and potential outcomes, but lacks the ability to show the range of potential values within each and every outcome. Vertex’s team uses the DecisonTools Suite to establish the average outcome, the variability of outcomes and to pressure-test risk and uncertainty of a particular scenario throughout the decision process.

Vertex’s team built a complex financial model using @RISK to enhance its portfolio process.  Simulation and optimization are used to analyze and optimize project and portfolio decisions, given short and long-term corporate strategy. @RISK is also frequently used throughout the business development process: simulating across multiple sales forecasts provides BD team with a range of potential outcomes, making it easy to pinpoint a particular scenario on a curve, along with its probability and value. Top Rank turns the sensitivity analysis into a quick and seamless exercise, answering multiple what-if questions within minutes. Franchise and program leaders can now see a dollar effect of their program being delayed or advanced, adding supplementary indications to the development plan and even addressing the price uncertainties all at the same time. Simple interface of PrecisionTree along with tornado chart outputs makes it easy to explain the effect and importance of a particular assumption / decision to an audience with no finance background.

As the company continues to grow, adding more drugs and collaborations to its development pipeline, the DecisionsTools Suite remains one of Vertex’s analytical tools of choice to enhance and guide the decision making process.


Using @RISK for Opportunity Analyses to Estimate Likely Health Program Outcomes

Gordon K. Norman, M.D., M.B.A.
Alere LLC

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Alere and its parent company, Inverness Medical Innovations, offer a health management program for PT/INR home testing for patients on long term warfarin anticoagulation to adjust their medication dosage within the narrow safe range for PT/INR. Health plans are interested in purchasing this program to the extent they are convinced it can help them save costs, but have trouble extrapolating the expected financial impact of deploying such a program. Using @RISK to model the key uncertain variables that influence cost impact, Alere has been able to demonstrate a likelihood of significant cost savings which has helped us sell this new program.


The Use of @RISK for Project in Biopharmaceutical Schedule Risk Assessment, Team Building and Strategic Planning

Michael Huston
Huston Associates, LLC

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Biopharmaceutical projects are a complexity of disciplines with technical challenges in manufacture, formulation, clinical development, and regulatory approvals. The average time to approval from identifying lead compounds is about twelve years. Only 2% of drugs that enter nonclinical animal testing make it to clinical testing. Historically, only 20% of those compounds show acceptable benefit/risk to be approved.

Working with teams to identify and model timeline or schedule risks can benefit the project financially and operationally. Identifying critical path sensitivities illuminates the importance of factors identified by @RISK for MS Project. In a case study, this information led to manufacturing decisions that took years and considerable cost to implement. Operationally, the team members from various disciplines contribute actively in the assumptions and uncertainties used to build the model with the project scheduler. In practice this exercise can build team cohesion and appreciation of each other’s technical challenges

Huston Associates has worked with teams in start-ups and mid-tier pharmaceutical companies to establish development plans for investors, senior management, and federal agencies. Examples will be presented that will illustrate the value of the @RISK for Project for project teams and to these stakeholders.


Valuing Life Science Investments Using Simulation: Calculating the odds and playing to win

Robert Ameo, PhD
Principal, Market Modelers, LLC

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The basics of high-stakes biotech betting is the subject of this presentation. Whether you’re a buyer, investor, or seller, you have to know at what value an investment is a good bet. To do that you need to calculate the odds like a championship poker player.

Simulations can produce histograms that lay out the range of possible outcomes from any venture, but there are just so many histograms senior executives will look at before their eyes glaze over. These individuals are used to making decisions on a handful of metrics from a point forecast (e.g., NPV, IRR). The data overload from a simulation forecast can be both overwhelming and unwelcome.

In his presentation Dr. Ameo describes how to use the simple, straightforward language of wagering to effectively communicate the relative risks and opportunities presented by specific investments.

The derivation of key gambling metrics—chances of winning, value of winning, cost of a loss, and “the odds”—will be presented along with the appropriate language and graphics to present and discuss the findings. Implications for portfolio planning and decision-making will be discussed.



Introduction to the DecisionTools Suite 5.5

Thompson Terry
Palisade Corporation

This session will show you how to use the elements of the new DecisionTools Suite 5.5 as a comprehensive risk analysis, optimization, and statistical analysis toolkit. Each of the products in the suite, @RISK, RISKOptimizer, Evolver, PrecisionTree, TopRank, StatTools, and NeuralTools, will be presented, showing how they can be used to solve practical problems in the real-world.


Introduction to @RISK 5.5

Thompson Terry
Palisade Corporation

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This introduction to @RISK 5.5 will walk you through a risk analysis using various example models. Key features of @RISK will be highlighted, and new enhancements in version 5.5 will be pointed out along the way. You will experience the intuitive interface of @RISK 5.5 as you define distributions, correlations, and other model components. During simulation you will be able to see all charts, thumbnails, and reports update in real time. View results with a variety of graphing options, including new cumulative-histogram overlays, scatter plots in scenario analysis, and more. There’s so much to see, we’ll cover as much as time permits.


Introduction to PrecisionTree 5.5

Thompson Terry
Palisade Corporation

This presentation combines an introduction of the enhanced user interface, tighter Excel integration, and new features of PrecisionTree with demonstrations of how PrecisionTree can be used to analyze various problems in decision analysis.

Introduction to RISKOptimizer 5.5 and
Evolver 5.5

Thompson Terry
Palisade Corporation

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RISKOptimizer and Evolver use powerful genetic algorithms to perform optimization in Microsoft Excel. RISKOptimizer builds on traditional optimization by adding Monte Carlo simulation to account for uncertain (stochastic), uncontrollable factors in your optimization problem. This session introduces you to these powerful tools, showing you how to set up a model, define constraints within the model, and ultimately arrive at the optimal outcome. Examples of resource allocation, budgeting, and scheduling will be included.




Dr. Robert Ameo
Market Modelers, LLC

Robert Ameo has over 20 years’ experience in health care management, marketing, and business development. Prior to founding Market Modelers, he served in the corporate development group at Johnson & Johnson and is a recognized expert and innovator in the modeling and forecasting of new life sciences technology adoption and product market share. Robert has extensive experience evaluating investment opportunities and their portfolio impact for mergers and acquisitions, venture investing, research development, and marketing efforts.
Using his extensive industry experience and psychology training, he designs and executes targeted market and expert research experiments to quantify the defensible range of possibilities for new technology and product adoption. Robert’s forecasts are used both by start-up ventures to create a vision of their potential worth and well-established biopharmaceutical and medical device companies to understand the true economic (uncertainty adjusted) value of their potential investments.

Previous to his industry experience, Robert was VP of clinical operations and utilization management for a national managed-care company. He holds a behavioral science PhD from the University of Miami.

Todd Clark
Value of Insight Consulting

Todd Clark is the President of VOI and the author of many pharmaceutical industry publications, including PharmaHandbook: A Guide to the International Pharmaceutical Industry and GenericHandbook: A Guide to the US Generic Drug Industry. During nearly 20 years experience in the life sciences field, he has consulted with 11 of the top 15 drug companies, as well as leading biotech firms, investment banks and cutting-edge health technology services — advising them on market entry, clinical trial design, regulatory compliance, marketing strategy, forecasting, competitive intelligence, pricing, allocation of sales-force resources, promotional programs and more.

Todd is a graduate of Tulane University and has an MBA from the Kellogg School of Management at Northwestern University where he majored in strategy, finance and marketing. In addition to his duties with VOI, he has taught courses in marketing, business strategy and managerial decision making, at Loyola University and Tulane University. For the latter institution, he developed a healthcare management curriculum and taught healthcare policy, payment and regulation within that program. In addition, he serves on the Business Studies Advisory Group for Tulane.

Michael Huston
Huston Associates, LLC

Mike Huston holds a BS in Microbiology from Purdue University and an MBA from St. Mary’s College of California. Bench research in the academic and biotechnology sectors has led to several publications in cellular physiology, immunology, and signal transduction. Over the last 25 years Mike has experience in clinical trials design and management, regulatory affairs, and interdisciplinary project management and corporate alliances. Mike has been the project manager for several approved biologics and pharmaceuticals.

Huston Associates was formed in 1999. Assignments have included providing operations management of clinical trials and regulatory submissions; company representative to FDA and Department of Defense, corporate alliance management between small and large companies; and project manager/leader for several programs.

Gordon Norman
Chief Innovation Officer
Alere, LLC

Dr. Norman has devoted his career to improving the value of health care through a mix of practitioner and executive roles in the provider, hospital, health plan, and disease/health management sectors of the health care system.

As Chief Innovation Officer at Alere, Dr. Norman is charged with leveraging science, technology, innovation, and partnerships to advance Alere’s strategy, program development, business growth, and industry leadership. He is also leading efforts to support patient-centered delivery models through greater connectivity and alignment with provider systems and accountable care organizations. Previously at Alere, he has held business development, chief medical officer, and chief science officer roles since joining the company in 2005.

At the industry’s national association, DMAA: The Care Continuum Alliance, Dr. Norman currently serves as Chairman of the Board of Directors, and has previously served as Chair, Quality & Research Committee, leading efforts to standardize DM outcomes evaluations, patient safety and other quality activities.

Prior to joining Alere, Dr. Norman served as executive director of PacifiCare’s dedicated disease management unit, providing DM programs for the company’s health plans and Medicare demonstration programs. In 2004 and 2008 he was named among the most influential people in the field of health management by Managed Healthcare Executive magazine. Earlier he served as PacifiCare's V.P., Health Care Quality, accountable for health and disease management, quality improvement, and medical informatics.

Dr. Norman received an M.B.A. from Stanford, where he previously earned degrees in Psychology and Medicine. Following family medicine training in Maine and New York, he practiced in rural upstate New York and later, southern New Hampshire. He remains a board certified family physician.

Svetlana Sigalova
Senior Financial Analyst
Vertex Pharmaceuticals

Svetlana Sigalova is a Senior Financial Analyst for Vertex, and currently supports their cystic fibrosis, oncology and other early development assets. She is responsible for the integrated P&L, valuations, business development and strategy support as it pertains to respective drug candidates. Prior to joining Vertex, Svetlana held a variety of marketing positions. She holds an MBA from Babson College.

Steven E. Slezak
California Polytechnic State University

Mr. Slezak has nearly 30 years experience in strategic business planning and in financial planning and analysis.  He has utilized Palisade software since 1998.  His consulting practice serves clients in health care, agribusiness, and education.  He has particular expertise in financial and market risk management, and has worked as a risk manager for energy companies and a Chicago trading firm.

Mr. Slezak is also a Lecturer in the College of Agriculture, California Polytechnic State University, San Luis Obispo, where he teaches finance and credit, strategic planning, linear programming, and trade and development.  He has also taught fixed income securities and business calculus at Cal Poly.  He previously taught corporate financial management and financial mathematics at the Carey Business School at Johns Hopkins University.

He holds a BS in international studies from Georgetown University and an MBA in Finance from Johns Hopkins University.

Thompson Terry
Senior Training Consultant
Palisade Corporation

Thompson Terry is a dedicated member of Palisade’s training and consulting staff. With ten years of experience at Palisade, including eight in technical support, he is recognized as an expert in all Palisade software products and their applications.

Thompson has led numerous regional training seminars on risk and decision analysis and provided customized onsite training in a variety of industries including insurance, manufacturing, pharmaceuticals, defense, and food safety. Clients Thompson has trained include: The Hartford, Unilever, Duratek, Eastman Chemical, Canadian Food Inspection Agency, National Rail (UK), RWE Thames Water (UK), National Gas Company of Trinidad & Tobago, Stone & Webster, and Northrop-Grumman.

Thompson is also on the board of directors of a local credit union’s not-for-profit, community development investment fund. He holds a BS in Agricultural Economics from Cornell University with specializations in economics, marketing, and finance.






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