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is relatively straightforward in which the VPC employs a limited number of personnel (typically <10), and outsources almost all of its operations to third party providers. The core management team consists of experienced personnel who are respon- sible for managing specific functions of the compa- ny outsourced to expert third party providers. Limiting the number of employees can reduce cost and improve time efficiencies. In addition, staffing can be adjusted on a contract-by-contract basis from a much wider talent pool compared to a con- ventional company. VPCs tend to focus on one area of the pharmaceutical’s lifecycle such as early stage R&D, clinical development or commercial operations. This allows such organisations to suc- ceed with small, efficient management teams who provide critical attention to fiscal discipline. In turn this facilitates innovative, timely solutions to critical problems that larger companies often allow to balloon into exorbitant and lengthy endeavours. This “virtual model permits small groups to effi- ciently and economically authorise and oversee development of many drugs in facilities outside a company”14. The VPC model adopted by any one company


will vary as a function of management experience and goals. We capture the essential VPC model components that may be required in the DDD pro- cess, as a function of time, for a VPC to bring a drug candidate to market (see Figure 1). Most VPCs elect to focus on one portion of the pharma- ceutical lifecycle, depending on the perceived busi- ness opportunity. However, Myung Soo Kim (Kineticos Life Sciences) has argued that a Hybrid VPC (hVPC) model is most likely to emerge in the near future15. In this model, the primary VPC will outsource or partner with other drug companies who have differential core competencies. For example, Kim opines that “a small drug company A, or perhaps an academic institution, may focus on drug discovery and in vitro pre-clinical, while their partner, drug company B, focuses on pre-clin- ical animal models and Phase I/II proof-of-concept, and together they license out their asset to drug company C, most likely one of the large pharma companies, who finishes up the clinical develop- ment and commercialises the drug”15.


VPC model advantages and disadvantages The primary advantages of the VPC model are that it affords a decrease in costs (overhead and infras- tructure) and reduces time required for product development, as well as efficient decision-making and communication processes. It has been argued that this model enables entrepreneurs with limited


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access to capital to form a company for the devel- opment of their novel drug candidate compounds4. In addition, extensive outsourcing allows VPCs to maintain and focus on core scientific and disease indication competencies, developing and managing IP portfolios and co-ordinating their service provider relationships. Nevertheless, the VPC model also has difficulties associated with its implementation and maintenance. The dependence on independent, third-party service providers rep- resents a significant problem area for VPC man- agement. If a critical-path service provider fails to deliver on its statement-of-work terms, or suffers its own financial distress event, then the progress of the VPC drug candidate is put in jeopardy. In addition, reduced security and confidentiality are also a concern, since proprietary information has to be shared with the service provider to ensure execution of the task. This has the potential of imperilling IP filings and strategy. This is sum- marised in Table 2 and highlights the significant positive attributes associated with the VPC model, but also indicates that adoption of such a model can come with considerable risk. One particular complexity associated with the


VPC model that has not received much attention is the ‘pass through mistake by a service provider’ (Table 2). As an example, in 2012 the Food and Drug Administration Safety and Innovation Act (FDASIA) inserted a simple statement into Section 501(a)(2)(B) of the Food, Drug and Cosmetic Act that expanded the meaning of current good manu- facturing practice (cGMP) to include “the imple- mentation of oversight and controls over the man- ufacture of drugs to ensure quality, including man- aging the risk of and establishing the safety of raw materials, materials used in the manufacturing of drugs, and finished drug products”16. The change in law challenged VPCs to improve oversight over QA/QC of manufacturing even though the virtual company had no direct role in the process. Thus the VPC was beholden to the service provider for adherence with the new guidelines but without the ability of directly influencing the process. This example serves as a caveat to potential problems associated with the VPCmodel in which the service provider can pass through problems to the virtual company. The latter has limited capacity to control or influence the situation, but can be directly responsible for the legal consequences, but is reliant solely on the service provider17.


VPC management team Most of the limited analysis of the VPC business model contains a common exhortation that the


Drug DiscoveryWorld Summer 2019


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