The current trend towards virtual business models for biotech companies has all of us thinking about how to reduce our risks and make our investments more efficient. Nowhere is this truer than in the emerging pharmaceuticals arena, where many years and millions of dollars separate company inception from eventual pay off, and fiscal care can determine who files with the FDA and who files for bankruptcy.

When investment capital is flowing freely, a start-up company with a good idea may be able to hire a full range of management and technical staff and build out laboratory facilities to conduct its research. This type of investment makes sense when funds can cover several development projects and the company strategy can thereby include multiple “shots on goal.”

When funding is tight, the strategy may need to shift to supporting only the “best shot,” and the need for facilities and staff must be critically re-assessed. Building out a laboratory and bringing in experts in all areas of drug development may stretch available funding so thin that none is available for the key studies that will make the technology sellable. In this light virtual development may be an attractive option.

Most of the virtual companies we work with use two primary strategies. One is to keep core staff to a minimum and control overhead burn. The other is to focus attention on the clinical trials of their lead program. Anything not needed to get clinical data on their primary product is put on hold. Spending is deferred on backup programs, “nice to have” research, and infrastructure.

The focus on key clinical trials is partly in response to the change in public financing. In the period from 2002 through 2006, many small pharmaceutical companies were able to achieve liquidity through Initial Public Offerings. This was attractive to venture capitalists because they could invest in a portfolio company and expect an exit in about 5 years. Since the beginning of 2008, however, the number of IPOs has dropped off to the extent that not a single public offering of a biotech company has occurred since November 2007 . The new expectation we hear from VCs is that they will need to work with a portfolio company for 7 to 9 years to get an exit, most likely in the form of a merger or an acquisition by large Pharma.

Despite the trend toward later payoff, the importance of small companies in pharmaceutical development continues to grow as large Pharma companies slash their internal R&D budgets and rely more heavily on outside innovation. The involuntary exodus of able researchers from large Pharma has also been a key factor in the founding of the many small and virtual companies that are driving pharmaceutical innovation into the Twenty-First Century.

Large Pharma’s divestment in internal research capabilities has also caused the contract research industry to flourish. Over the past twenty years CROs have evolved to handle essentially every aspect of pharmaceutical development, and it is theoretically possible for a few people working out of their homes, given adequate funding, to lead a product from concept to commercialization. But seldom does development proceed as smoothly as the full service CRO would have you believe.

The challenges of managing contract research in a virtual company:

While CROs hire many top-of-the-line scientists, those of us who have been in that business realize how tough and competitive it is. The reality is that top scientists are often torn between management, business development, supervisory, compliance, and scientific responsibilities, and they seldom enjoy the luxury of deep scientific contemplation and excellence in oversight. Furthermore, every CRO has its strengths and weaknesses, and optimal outsourcing depends on knowing who can do what quickest and best. Sometimes it is more efficient to use two or three smaller CROs to carry out different aspects of a project, and other times it is better to consolidate activities at a larger CRO. Selecting and getting optimal value from CROs is, in fact, its own area of expertise.

Like any skill set, expertise in outsourcing takes time and effort to develop. Requisite skills include asking the right questions when interviewing prospective CROs, balancing strengths and weaknesses, assuring clear communication, motivating remote teams, troubleshooting in someone else’s lab, and assuring that projects get adequate attention in the face of hidden competition for resources. To effectively manage work at CROs requires all of these skills in addition to the scientific expertise required for effective oversight.

What this means to the small and/or virtual company is that although development activities themselves can be readily outsourced, a need still exists for qualified management of those activities. The best option for a company that has made progress in development and has solid funding will probably be to hire a team of six or eight senior managers to track different aspects of development. For companies that are less established and want to minimize overhead, a better option might be to establish a virtual team through a pharmaceutical development management company such as PharmaDirections.

What, if any, activities should be kept in-house is one of the key decisions small companies face. Every company has creative initiative and some core competencies, and there may not be a CRO or development management company that can carry out those activities as well as the experts on staff. Keeping this key expertise inside the company and outsourcing everything else allows a company to run on a small core staff and allows this core staff to focus on what it does best. It also keeps the company streamlined and efficient, and it allows optimal flexibility should scientific or funding setbacks occur.

While internal build-up may be the best option for some small companies with well established funding, virtual development is a very attractive option for others. Using CROs for development allows organizations to shed the burdens of infrastructure, overhead, and bureaucracy and to concentrate efforts on exploiting their core expertise. To be effective at using CROs requires skill and understanding of the CRO business drivers. When it all comes together, clients and CROs both prosper.

Richard Soltero, Ph.D., President of PharmaDirections, a pharmaceutical consulting and project management company specializing in preclinical development, formulation development and regulatory affairs. We design and direct IND enabling programs for biotech and pharma.

Richard Soltero, Ph.D., President of http://www.PharmaDirections.com, a pharmaceutical consulting and project management company specializing in preclinical development, formulation development and regulatory affairs. We design and direct IND enabling programs for biotech and pharma companies.

Author Bio: Richard Soltero, Ph.D., President of PharmaDirections, a pharmaceutical consulting and project management company specializing in preclinical development, formulation development and regulatory affairs. We design and direct IND enabling programs for biotech and pharma.

Category: Medical Business
Keywords: Pharmaceutical Consulting, Project Management, Formulation Development, Preclinical, CMC