The literature contains a number of different definitions for virtual drug development. Most people understand (correctly) that “virtual” means that a majority (or all) of the activities of drug development are not performed by the company that is controlling the development and presumably owns the rights to the drug or at least to the work being conducted. The spectrum of work that is contracted out to organizations or consultants varies from parts of a few or many functions of a drug’s development (e.g., toxicology, patents, manufacturing, clinical) to all of several functions to the entire development effort. Many pharmaceutical companies could claim to outsource half or more of several functions and, therefore, are virtual companies according to the definition of outsourcing half or more of their development work, whereas in the other extreme, a single person could serve as a virtual company farming out over 99% of the work involved. Most discussions cover the middle ground where a large percentage (e.g., 60% to 90%) of the development effort is contracted out.

Advantages of a virtual approach include the following:

Priorities are kept high in virtual companies because they are only needed if two or more drug projects compete for the same resources, such as head count. Priorities are not an issue if the company has enough money and its projects do not need to compete for staff or other internal resources. In a virtual organization (i.e., one that contracts out most of its drug development activities), there should be little competition for internal head count to work on each project. As long as the company has enough money to operate and fully support its development activities, the project leaders may go to outside groups to conduct the work, and the company’s priorities on all of its development projects (as well as its productivity) may be maintained at a high level. Of course, the sponsor is always responsible for the quality of work performed by its vendors, and the sponsor has an obligation to monitor the vendor to ensure it is performing its roles correctly.

Numerous trade-offs must be considered when determining to what degree a company wishes to use virtual (i.e., contracting-out) techniques. For example, a company that increases contracting-out activities may compromise or even lose its ability to move quickly to handle questions, issues, problems, or crises. There may not be enough experience and talent in the company to contract work out successfully (i.e., to develop the most appropriate strategies and plans, coordinate the outsourcing, monitor what is going on at the vendors, and make decisions rapidly and correctly), and the company may lose its ability to control vital aspects of a drug’s development. Those managing the external vendors must have sufficient experience to determine that the work is being done correctly and is adhering to high-quality standards. For example, if the manager at the sponsor was to monitor the work of a vendor on a toxicology study, he or she could be taken advantage of. Therefore, hiring a toxicology consultant who could oversee the work on behalf of the sponsor would be an appropriate step to take at this point. Another disadvantage of the virtual approach is that the company may not be able to establish sufficient interactions (i.e., communications) among external team members who must work as a team, although they are in different companies. This means that the external project team may not have the ability to discuss issues, to brainstorm as a group, or to interact directly, although ad hoc meetings are possible, particularly by having telephone conference calls or video conferencing.

Companies are always trying to achieve the right balance in deciding which activities to conduct themselves and which to have done outside the company. The irony is that the perfect balance will continually change as the size and the life cycle of the company/product change (i.e., you may not need internal market research when you have no marketed products, but just prior to launch and in the early launch years, you may need it; once the product is well established and the market is somewhat stagnant, you may once again not need it). Therefore, growth and success (or failure) force every company to re-evaluate this question on a periodic basis. The best answer to the question depends primarily on the experience and expertise of in-house employees. Nonetheless, there are a few core functions that almost all virtual companies of about five or more people would probably want to retain in-house. These include:

While it is possible that some or even all of these core functions may not be handled in-house, one would seriously question a company that had its overall management handled entirely by outside experts or by people who were not working full time for the organization. Even in those cases where major decisions of management and strategic direction are made by external people, these decisions must be approved and ratified by one or more people who are internal to the company. Depending on the nature of the business, the staff available, and the specific situation, there are likely to be other functions or activities that a specific company would not want delegated to outside individuals or groups. An overall principle is that having fewer people of more experience and talent is far better than having a larger group of less experienced
professionals. The choices of which functions must be in-house must depend on the few people who are in charge of the company and the company’s product/technology rather than any strict diagnostics.

To decide if any given function should be kept (or built) within a company, it is important to ask the management group the following questions:

This exercise or a similar one should be conducted on an annual basis to review decisions about which functions to maintain in-house and which to outsource. The functions that are often contracted to external contractors and consultants include some or all of those listed in Table 54.1.

Another way to balance the amount of work that can be done inside versus outside the company relates to the number of professional employees (apart from financial or administrative staff) that the senior member (e.g., Chief Executive Officer or president) is able to efficiently direct himself or herself. These employees may be project managers or matrix staff. Most presidents or Chief Executive Officers are able to direct between five and eight people, but some like to have up to 25 people reporting directly to them or as few as two to four people. This depends primarily on their managerial style and approach. The correct answer is totally dependent on how well the manager handles these interactions and the work/progress of the company.

There are numerous types of relationships or partnerships between companies involved in drug development. These include partnerships, joint ventures, collaborations, alliances, preferred providers, and so forth (Table 54.2). These relationships are not examples of a virtual company or virtual drug development, although a group formed by two collaborating companies may use virtual techniques or even establish a virtual company to manage one or more of their drugs’ development. The collaboration of two companies, each with an equity position in a product being developed, is not an example of virtual development and is not discussed further. Other common relationships that companies forge with external groups are listed in Table 54.2.