The Antidote: Inside the World of New Pharma Read online

  In early spring, Boger’s expansion strategy struck a shoal. Construction on the building in Kendall Square—a $45 million architectural challenge to its neighbor Genzyme Corporation, with terra-cotta and linear panel-glass accents, a six-story skylighted atrium, and glass-enclosed elevator cabs—was completed. Ken and his lawyers put the final touches on the multivolume protease deal with Glaxo, bigger than the Novartis agreement—even as the fashion for high-tech, target-based solutions as the answer to plummeting productivity was fading fast across the pharmaceutical industry.

  “The agreement had been negotiated down to every last detail,” Boger remembers, “but the CEO had not been involved. The deal got up to his desk, and he just pushed it to the side and said, ‘I don’t think we’ll sign this right now.’ That was not a good day. It was crushing. The building was completed and empty and we were paying rent on it, and because of accounting rules we were having to write it off as a loss and take these horrendous losses on our P&L.”

  Smith confronted Boger and Sato. The balance sheet was badly out of whack. The convertible debt secured during the last days of the biotech bubble still loomed. Vertex, like the rest of the sector, had lost four-fifths of its value but was expanding as if the correction had somehow not applied to the company. Something had to give. All three of them understood implicitly that of all the optimistic promises Boger had made at the Morgan conference, the most urgent was to begin to bring its own drugs forward, as that was the only route toward profitability. Yet with the failure of the p38 kinase inhibitor VX-745 and the uncertainty over pralnacasan, that horizon, too, seemed further away than ever. Smith likened the company’s situation to a “perfect storm” and told them that the only way to keep afloat was to restructure the balance sheet: hunker down, focus inward, ride it out.

  “We had no productivity out of research; molecules were not coming out,” Smith recalls. “We were struggling with the Novartis collaboration. We were losing way too much money. We didn’t have a strong cash position, and we had no visibility of being cash-flow positive. We had drugs failing. Yet we had a debt repayment sitting on the balance sheet of about three hundred million dollars. The business was basically struggling on all three fronts: research, development, and finance. So we laid a small portion of our research efforts off. We consolidated down.”

  Vertex was a fifteen-year-old company with more than 850 employees at four sites, having added labs in Iowa and Oxford, England. Its research budget for the fiscal year was about $200 million—less than one-twentieth of Pfizer’s. The company anticipated an annual loss of $140 million to $150 million. By Smith’s math, the business needed to cut its workforce by 15 percent, or about 110 people. These layoffs would come chiefly in research, where a full-time employee, or FTE, cost on average $375,000 a year in salary, benefits, lab equipment, and supplies. No one in senior management had laid off anybody before.

  Thomson bore the brunt. From the beginning, he’d warned of the risks of chemogenomics, arguing that without an equally committed partner, a diffuse, structure-and-target-based approach to finding and treating the cause of a disease was less likely, in the end, to be as productive as the therapeutic-area paradigm favored across the industry. Companies like Merck, once they specialized, say, in heart disease or anti-infectives, assembled research campuses focusing just on the biology of the illness. Vertex was generating vast databases of information about every known kinase but few drug leads because its own biology was weak. What’s more, it was getting little help, unsurprisingly, from the people at Novartis, who resented having their insights outsourced. As Novartis R&D head Karabelas quipped, “Data, data everywhere, and not a drug, I think.”

  Thomson and his organization had put in place the industrialized platform that Vertex had promised, but the effort had stretched him, the scientists, and the company’s research in uncomfortable and untenable ways. Senior biophysicist Jon Moore remembers the tempo:

  We hired so many people so fast because we needed bodies, basically, to do the work. Every single day, chemists would come in, and by lunchtime, you’d have a yes or no. If somebody came in and gave a poor seminar or didn’t seem like they had it to fit in, I don’t even know if they got lunch. We were looking at so many targets at the same time. We were trying to do hits-to-leads on them. We were making proteins, assaying them, screening them, doing chemistry on them. We were as organized as we could be given the scope of what we were trying to do. I felt we were doing lots of things but not particularly well. Things like structural biology and biochemistry and enzymology can be made into high-throughput processes, but especially in the structural world, you’re only gonna get the low-hanging fruit. The easy things will fall, but it’s always inversely related. The hard things, the interesting targets, are always going to be more difficult. That’s just how it worked.

  When Sato told Thomson he would have to scale back research by 20 percent, he approached the problem with his usual rigor, intensity, candor, and doleful appreciation of the unique constraints he faced. “Being head of research for the Cambridge site is not like being at a site where the big cheeses don’t hang out,” he says. “You’ve got to be able to bite your lip. You’ve got to be able to show decisiveness—take a free rein. But sometimes the reins are pulled tight.” Thomson and his managers searched for an algorithm to decide how to refit the labs and select the scientists Vertex could best afford to lose, without disabling projects. They arrived at a matrix by first considering the effect on the future of the company. “There was a need to rebalance the workforce,” he recalls.

  “Asymmetric release of people is often a vital part of it, so that rules out that it’s a blunt culling of the weakest across the board. Our decisions had to be legally defensible, ethically defensible—also economically and scientifically. Then there were elements of longevity. Emotional? No, I would argue ethical.”

  A few married couples worked in the labs. Thomson, Moore, and others felt strongly that Vertex had a vital obligation to their families not to let both individuals go. In April—midway between the “Shock and Awe” and “Mission Accomplished” phases of the Iraq invasion—Sato called a Saturday meeting of all Thomson’s direct reports. Thomson laid out his criteria. Everyone was emotional—including Ann Kwong, who Sato now promised wouldn’t lose any of her own people—igniting a loud free-for-all as lab chiefs and project heads fought to protect their own scientists. By Monday, when those who were being laid off were summoned to the East-West conference room, Thomson had lost control of the process, though he still held himself to account.

  “These people don’t know why they were being brought together—and then smack in the audience is this couple, sitting next to each other looking terrified, and I’m up there to say, ‘You’re all being let go,’ ” he recalls. “I had to take it on the chin for the company.”

  As Vertex restructured its research division, Thomson, Moore, and those others who were there from the beginning “grew up fast,” Moore says. Thomson learned that Vertex, which prided itself on its humanity, under certain pressure could be as capricious and unscientific as any other company. Vertex thrived on its own exceptionalism, but he found nothing distinctively heartening about the way people who had given themselves to the company—“bled purple,” as others said of him—were being treated. Nor did he always bite his lip. “I was a boat rocker by that stage,” he says. “Boat rockers in the early days were what we wanted. But around this time, reminding people of a need for a conscience was not appreciated.”

  Boger gave himself and Sato until the first week in November to decide which two programs Vertex would take forward on its own. That the company needed to advance two projects had become an article of faith and was a blunt admission both of the risk that neither one was likely to get approved and of the fact that they had no presumptive favorite. Vertex couldn’t afford three projects, yet choosing only one would be putting all its eggs in one preposterously risky basket. No other decision in the company’s history was likely
to prove as fateful.

  As usual, they set in motion a process to maximize their inputs. The central pillar of Boger’s social experiment was the decision-making process itself, which called for as many voices and as much data as possible, but in the end was the opposite of consensus; that is, Boger, reserving the final decision, would leave things indeterminate until all the information was in and he could make the most informed choice, even if it totally reversed his earlier statements and positions. It was this fluidity that had allowed him, after writing into the company’s charter that Vertex wouldn’t work on HIV, to reverse himself when Murcko, Tung, and their colleagues convinced him that they had a conceptual advantage. “Success in drug development is usually tied to two or three people who are passionate about their opinion beyond explanation,” he noted at the time. “Vertex has a long history of ignoring my opinions.”

  In May, just after the layoffs, Vertex senior management met off-site to discuss overall strategy. Joining their ranks was the company’s new chief scientific officer, Peter Mueller, who formerly ran R&D in North and South America and Japan for Boehringer Ingelheim, the German firm developing the HCV protease inhibitor that Vertex hoped to catch—and beat—in human trials.

  Son of a Bavarian banker, Mueller, forty-eight, was a polymath, having been sent at age ten to study at a Benedictine monastery outside Munich, an intellectual “boot camp” where four out of five students failed to make it through. After receiving his doctorate from Albert Einstein University in Ulm, he joined its faculty as professor of theoretical organic chemistry and then migrated to pharmaceuticals via astrophysics. Mueller was relentlessly inquisitive, equaling Murcko in his hunger to innovate. He pushed people hard—himself harder. More to the point, he had vital experience in getting drugs across the finish line. Regularly dressed all in black, his curly blond hair greying but not thinning—with a jolly disposition in the lunchroom, an impatient severity in meetings, and always a rambling Bavarian syntax—Mueller was what Vertex most needed. He was a closer.

  “Peter had more personal drug discovery and development experience than the rest of us put together,” according to Sato. “I hadn’t developed small-molecule drugs: HIV was the first one I was sitting at the table for. Josh didn’t have any drug development experience at Merck. John Alam was the closest because he had taken Avonex all the way, but it was a biologic. Peter had been in the business. He knew big drugs, he knew good base hits, he knew things that looked promising but ultimately were gonna die. So his experience and judgment at the table were very important.”

  Two months later, senior management met again, this time with program executives and departmental chiefs, to review the company’s portfolio and try to prioritize their opportunities. Their challenge, as described in a Harvard Business School case study, “was to compare drug candidates at different stages of development, with different technical properties and different potential therapeutic applications.” In other words, Boger and Sato initiated a scientific process in which fifty or so managers from across Vertex would develop criteria to determine which of the company’s molecules to gamble their future on. As part of their analysis, participants used “real option valuation” (ROV), a modeling tool that stacks up the costs and risks of a drug’s clinical evaluation against its estimated commercial value.

  They focused on four types of risks: target, mechanism, molecule, and market. Boger believed the goal was to diversify the kinds of risks Vertex would encounter. If you had a choice, you didn’t want to place all your bets, say, on anti-inflammatories; or on unproven targets like p38 MAP kinase and ICE; or on molecules like VX-745 that might be neurotoxic, or, like VX-950, went straight to the liver. You wouldn’t choose two close follow-on compounds whose performance would be wide open to competitive drubbing, as Agenerase had been. You wanted to vary the type and number of land mines, anticipated and unanticipated, you would surely confront during a period of progressive investment stretching up to a decade into the future. “Companies tend to have biases in how they evaluate risks and which risks they are comfortable with,” he told the HBS researchers.

  “Some companies systematically underestimate target risk, some underestimate molecule risk, and some underestimate market risk. And the interesting thing is that when you’re inside the company, you’re probably not even aware what your biases are. So, to protect ourselves from these hidden biases, we deliberately want to make sure that we’re taking different kinds of risks in our portfolio. By balancing our risks, we can avoid being blindsided ten years later.”

  Four molecules emerged as front-runners. Two held reasonable promise as “oral Enbrels”: VX-765, a second ICE inhibitor chemically distinct from pralnacasan, a so-called fast follower into the huge rheumatoid arthritis and osteoarthritis sweepstakes; and VX-702, a second-generation p38 inhibitor that didn’t cross the blood-brain barrier, now being tested in a Phase II-a pilot study against another inflammatory response afflicting almost two million people a year in the United States alone, acute coronary syndrome. A third compound, VX-148, was one of a number of inhibitors Vertex had designed against the enzyme called inosine 5'-monophosphate dehydrogenase (IMPDH). It was nearing the end of a midstage study in patients with moderate to severe psoriasis, a scabrous and painful skin disease. Blocking a validated immune system target, IMPDH inhibitors were also being tested in the treatment of multiple sclerosis and cancer, and Vertex’s first IMPDH inhibitor, called merimepodib, was in Phase II trials for treating hepatitis C.

  The fourth portfolio candidate was VX-950, which because it cost so much more to make and was last in development, for the least certain of markets, lagged severely by every measure. Mueller’s first reaction to the molecule was negative, and he was initially skeptical that it could become a drug. “We kept going to these planning meetings where people would do the ROV, and hep C routinely came out at the bottom,” Sato says. “It was four standard deviations away from any program that was ever going to deliver any value to Vertex. Josh and I would go, ‘Wrong answer.’ The analytics kept saying that hep C was a disaster. There were a couple of meetings where poor Steve Lyons, who was program executive, I’m sure felt like Saint Sebastian on a bad day.”

  Sato and Boger refused to give up on the molecule. So did Mueller, who without their support couldn’t kill the project even if he wished to. Mueller’s departure from Boehringer—and his familiarity with its protease inhibitor—restricted him from asserting himself either way at this point. The process lurched ahead throughout the summer and fall, even as he cautioned against putting too much stock in the company’s assumptions. “ROV models are more valid for late-stage development compounds, when you have a pretty good feeling of the potential market ahead in one or two years,” he advised. “Everything else is pure speculation. I’m not aware of any prediction for early-stage compounds even close to market outcomes.”

  The deadline for a decision—the third-quarter earnings call with Wall Street analysts—loomed. Boger began to exhibit his own core bias, a blend of romance and risk-reduction. As Thomson put it: “HCV is a profoundly important medical area where Vertex can make a difference. We have a locked-down target with a low biological risk.” What Boger had learned about drug development he had learned at Merck, which is that if a drug has the right concept, and there are no physical reasons why it can’t be scaled up—and, above all, there are no toxicology problems—all the rest is capital, execution, and competitive commitment. Sato admired how Ed Scolnick, hell-bent on getting to market at the same time as the other HIV inhibitors, persuaded chairman Raymond Gilmartin to build a $150 million manufacturing plant a year before Merck could expect FDA approval. Vertex would have to commit to as much effort or more before it ever made a profit—yet another strike against VX-950.

  As Boger and Sato emailed back and forth on managing the portfolio, hepatitis C kept bobbing to the top of the discussion. “Nobody else was winning,” Sato recalls. “I would have felt differently if somebody had come up with a kick-as
s molecule, but nobody had.”

  Kwong and her group weren’t let go by the layoffs. Her midnight project for years had been to develop an HCV protease animal model, and she had hired an Indian virologist named Raj Kalkeri to work with her on it. They were trying to engineer a mouse that would produce active HCV protease specifically in the liver, so that Vertex could tell if its—and its competitors’—molecules were reaching and blocking the enzyme where it counted. They had stepped up the pace and were closing in on a solution before the cutbacks. Yet with human testing of merimepodib and Boehringer’s protease inhibitor overshadowing VX-950, management showed little enthusiasm. Kalkeri was laid off. “People were saying, ‘What’s the point?’ ” Kwong recalls.

  Kwong and Kalkeri had come up with a novel strategy and, having nearly proved the concept, weren’t prepared to drop it. First they had fused the genes for HCV protease with those of another enzyme that they reasoned would be cleaved, broken down, and released into the bloodstream once the protease was activated. Then they inserted the genes for this fusion protein into a type of virus that, as Kwong knew from earlier gene therapy studies, all went to the liver when injected into the tail veins of mice. Eventually they began to produce animals whose livers churned out both HCV protease and a toxic enzyme that could be measured in the blood as a marker of protease activity. Under the microscope, the mouse livers looked like a ravaged human liver from someone with late-stage hepatitis C.