by Barry Werth
“You can’t be the smartest guy in the room all the time. The smartest guy in the room is the guys in the room. How do you get that? I’ve spent my life really thinking about how it’s better to ask a provocative question than it is to give your answer. If you give your answer quickly, and you’re a real smart guy and the answer’s right, it’s relatively ineffectual. They don’t learn from it, so you’re not developing your people. And it’s not washed through the giant brain of the combined people at the table.”
Vertex announced another secondary stock offering, its third in twelve months. With ten million new shares at $32 a share, it netted $320 million and, as importantly, a new crop of long-term shareholders. Most development-stage companies depend miserably on biotech hedge funds—“people who aim to get rich trading volatile stocks, second to second, and make big bets, long or short, on whether an experimental drug will work,” as the Xconomy writer Luke Timmerman describes them. Now that Vertex had begun the subtle process of “derisking”—eliminating one by one the things that cause companies to crash and burn—more buy-and-hold fund managers were increasingly attracted to VRTX. They took small positions, but Smith envisioned that they would want to raise their stakes as the recession deepened.
The M&A frenzy in pharmaceuticals, a rare bright spot for Wall Street, peaked in March. The business development fever sweeping across the industry made hepatitis C an especially promising opportunity. The basic equation—big companies were cash rich and pipeline poor; small ones had promising leads but desperately needed funding and could neither borrow nor go public—had produced a permanent state of consolidation. But now after “Pfyeth,” it seemed all at once that every company (except the weakest) was a potential player while at the same time all (except the truly gargantuan) were set in play.
A small Canadian company outside Montreal, ViroChem, had two non-nucleoside (non-nuc) polymerase inhibitors in midstage development. Graves, competing against players with much deeper pockets, persuaded the drugmaker to come to terms by leveraging Vertex’s lead position. ViroChem decided that it could get its drug to market sooner by latching itself onto Vertex rather than onto pharma. On March 3 the company announced it would buy ViroChem for $375 million in cash and stock. Its lead compound, VCH-222, had been tested in thirteen people.
A week later, Merck announced a deal to buy Schering-Plough for $41.1 billion in cash and stock. Boger was not surprised that Merck, which had long avoided the acquisitions market—in large part because its people couldn’t believe that anyone else could make something that Merck couldn’t produce better on its own—was drawn into the competition. But the merger with Schering, which most analysts rated as better than the “Pfyeth” coupling but not by much, shocked him. It was not that Vertex would now, at last, and after so many disappointments, clash head-to-head with Merck, as telaprevir and boceprevir progressed to market. Nor was it the irony that the competition arose just as he was being pushed out. It was the brutal cultural disconnect. “Like the Four Seasons taking out distressed housing,” he said.
Three days later, Roche, overcoming eight months of resistance and the threatened exodus of top managers, agreed to buy full ownership of Genentech for $46.8 billion. Emmens wasted no time. Upping Vertex’s preparedness, he retained a new Wall Street “defense bank”—a relationship that effectively gave Vertex, if it got hit, professional muscle he felt he could trust in weighing its response.
In the trenches, the roiling above was concussive, dizzying. To manage the business of getting telaprevir through the approval process, and to smooth the contentiousness with the FDA, Lewis-Hall hired a politic and pragmatic industry veteran, Jack Weet, to run regulatory affairs. “Our relationship with the FDA is terrible,” she told him. “You need to fix it.” Barely had Weet set foot in Cambridge than Lewis-Hall left to become chief medical officer at Pfizer. People internally were shaken by the announcement, their small-company insecurities aroused. What did it say, they asked one another, that the top medical person representing their first drug would depart after just nine months with the company?
The buildout of the development organization remained undone. The challenge from Merck and boceprevir loomed, a race to the finish despite Boger’s insistence that Merck’s drug, which caused many patients to become so anemic that they had to take EPO as an add-on, wasn’t a serious threat, and, indeed, was unsafe and wouldn’t be approved. Emmens knew it would take a year to find a new development chief who could also keep the clinical organization on track. He had no time for that.
He turned to Mueller, who had pushed drugs over the finish line before, and who possessed an almost superhuman ability to toggle between breathtaking imaginativeness and exacting execution. Mueller could expand on a blue-ocean vision for curing the crippling neuro-degenerative disorder Huntington’s disease by designing a molecule to fix a mutant protein in the brain, and then, just as capably, comment on a minor technical issue related to the advanced spray-drying technology for manufacturing telaprevir. In May Vertex promoted him to head global research and development. Mueller took charge more or less of the entire science side of the business. Kauffman, who’d managed the nitty-gritty of the ever-widening clinical studies under Lewis-Hall, became chief medical officer, reporting to Mueller.
Mueller believed that telaprevir had made—and would make—Vertex the company it needed to be, but the hepatitis drug by itself would not be enough. The greater pressure was always to deliver on the next big promise. The progress in CF had proved that lightning could strike twice, but Mueller now thought that both those products could be just a warm-up: that hepatitis C, as a crucible, had made the company better equipped to address larger and larger problems than it otherwise might ever have become. Mueller:
The one thing that made the company is that we were capable to move Josh’s original vision that he had, which, in a nutshell is: you have to be on the forefront and the frontiers, constantly. We were able to move this frontier with us, across different disciplines. That is what made Vertex. It wouldn’t have been good enough to be great in clinical. You have to be great in everything. That’s why, in a way, telaprevir was an ideal molecule, because it put challenges on all angles. Wherever you looked with the frickin’ thing, okay, it was just a nightmare. I had sleepless nights over many, many, many problems there. But that’s what made Vertex Vertex, at the end of the day.
So there is a feel, okay, the sky is maybe the limit. You see what hell really looks like. You see the heat goes up every step you walk. But I think this is the real fantastic outcome; this is what telaprevir did to us. Telaprevir made the company, but it made it because we made telaprevir. But I think we have not to forget, this alone would not have done it. It is that telaprevir helped basically spark an environment that allowed us in parallel to do other complicated things—to have not just a one-trick pony. You have to have enough shots on the goal.
In Washington, Boger and BIO CEO Jim Greenwood made much the same case for the industry. Like all tech-industry lobbies, BIO had one focal issue: how to sustain profitable innovation and, more generally, America’s lead in it. Greenwood, a former six-term Republican congressman from the Philadelphia suburbs, took the position that his members had a stake in every part of the health care economy—“the entire step-by-step process from NIH funding until the patient is cured,” he said. Sizing up Obama’s campaign promises and the new Democratic-controlled Congress, including a sixty-member supermajority in the Senate, Boger and Greenwood shuffled BIO’s priorities to suit the new political reality: specifically, that the generic industry historically had better relations with the Democrats than the “brands,” which usually favored Republicans. Greenwood worried especially about the industry’s campaign for extended protections against follow-on biologics: cheaper versions of drugs like Enbrel and Avastin.
Boger viewed the overall health economy as bloated and wasteful but, in its basic structures, still optimally designed to find new cures. And so he supported, for instance, increasin
g funding for the FDA. “It’s notable,” he said in a BIO podcast about the new atmosphere inside the Beltway, “that an industry is asking for more resources for its regulator. But the reason we do that is that we all believe in the enormous value creation of the whole system. And we are standing up for the whole system, not just our narrow piece of it.” He conflated the issues of innovation, drug pricing, and access to new drugs for patients, and he believed that the surest route to improving all three resided in the existing government-driven regime of extending patent exclusivity and price protection so that owners and investors can expect a return on a risk they otherwise never could afford.
He continued: “This balance of innovation and exclusivity is paying off royally for society without damaging the innovation on the small-molecule side. And it would be tragic even as that Solomonic balance is paying off to have not as good a balance on the biologic side. The ultimate solution to the health care cost crisis is to make people healthier, and that’s gonna take innovation. If cost savings come at the price of poor health care, it’s a false saving. And so we can’t have a long-term solution to the cost crisis in health care without better health care, and part of that solution is technology.”
In mid-May Boger flew to Atlanta for the BIO annual meeting. That morning, Vertex published the actuarial study that Sachdev had commissioned to show elected officials the size of the looming threat of hepatitis C. The authors wrote that without changes in how the 80 percent of patients who don’t know that they have the virus are identified and managed, the annual cost of advanced liver disease in HCV patients would jump to $85 billion in the next twenty years. Medicare costs would soar 500 percent, from $5 billion to $30 billion. The authors found that most individuals living with HCV were born between 1946 and 1964, and a disproportionate number were African-Americans, who were almost twice as likely to have HCV as the general population. The $85 billion estimated cost included overall direct medical costs for patients with HCV infection but not other societal burdens such as lost productivity.
In the cacophony over health care costs, Sachdev knew he had a serious talking point: an epidemic about to explode at a moment in history when the bottom seemed to be falling out of everything. Government medical spending was spinning out of control. Here was an actual solution: identify the millions of people in the country with the virus and treat them before they got sick, thereby saving hundreds of billions of dollars in a future that was identifiably near-term on a graph of current spending obligations. People who knew they had HCV either were symptomatic or found out about it when they applied for life insurance and were sent for a blood test. Sachdev positioned Vertex to become a central mover behind a national screening program for baby boomers.
In Atlanta, Boger rocked to the B-52’s, now in their fifties, at the opening reception at the Georgia Dome. As outgoing chairman, he titled his valedictory “Save the Planet.” As an expression of the values he’d tried to impart to new employees for the past twenty years, the theme of salvation had become a useful shorthand, as when he’d convinced Garrison to join Vertex by telling him: “If I’m right, I’m gonna save a million lives a year. What else are you doing that’s so damn important?” Now Boger was being literal. In his remarks, he asserted his usual strategic advice: that the only sustainable business plan is to produce innovation that is of high value to society. He also said that millions of people who could solve the challenges the world faces could well die from disease before they make their discoveries without the production of innovative therapies and widespread access to them. “Josh and I would always have those debates,” Mueller recalls. “Josh believes that the world will get killed by asteroids, at the end of the day. My philosophy is that we’ll be killed by viruses. We came to the conclusion, let’s make sure that we basically cure people that have viruses so that we have some left to think about the asteroids.”
Boger had always equated doing well with doing good. The Pharmaceutical Research and Manufacturers of America, the drug industry lobby known as PhRMA, also considered that its mission was to ensure patient access to high-quality medicine, but its reputation was for standing first and foremost against any attempts by government payers to cut prices. During the 2003 debate over the Medicare prescription drug plan, PhRMA had it written into the legislation that Medicare couldn’t negotiate with drug companies. Now its lobbyists feared that Obama wanted to bring down drug prices and that he supported reimportation of lower-cost prescription medications.
Approaching summer recess, as the White House talked more about overhauling health care, the PhRMA operatives grew anxious. In early June, a few days after Boger cleaned out his office in Fort Washington (the company gave him as a parting gift the original door from the converted garage at 40 Allston Street where he started out), one of the lobbyists wrote to Obama’s senior health care advisor. Although Obama was overseas, meeting with Saudi King Abdullah in Riyadh, the advisor wrote back that she and other top officials had “made the decision, based on how constructive you guys have been, to oppose importation.” Two weeks later, before a packed East Room audience, Obama reversed Bush’s policy on stem cell research. He said he would release federal dollars to fund significantly broader experimental efforts because “medical miracles do not happen simply by accident,” and he vowed to make up for ground lost under Bush and the Republicans.
“With Josh gone,” Garrison recalls, “I was out of there.” The company’s culture was set. Whether it would remain now fell to Emmens and his team, and Emmens didn’t want or need Garrison’s help. Boger’s social experiment had produced an organization that was committed to applying a different set of values to overtake markets and revolutionize institutions—including itself. It characterized what influential Harvard Business School professor of management Clayton Christensen calls disruptive innovation, though the preferred term within Vertex, since its challenges were ultimately scientific, was “disruptive technology.”
No one embodied the mission more than Murcko. “I was the guy who was supposed to think about: As smart as Vertex is, what are the things we could be doing differently, where are the opportunities that we’ve been missing, what are the out-of-left-field ideas that we should be looking at more seriously?” he says.
In 2004, Murcko had proposed that the company completely revamp the way it looked at new projects. Mueller supported the creation of a sixty-person team to look for new leads not by rational drug design or high-throughput screening but by other methodologies: a team B, so to speak, an independent global unit with Murcko in charge that would scour the environment for alternative approaches and disease areas to broaden both Vertex’s discovery system and its pipeline. Kwong, especially, was interested in pandemic flu viruses—not seasonal varieties but those killers that regularly sweep around the world, such as bird flu and SARS (severe acute respiratory syndrome).
Without knowing the protein targets, Kwong’s group started feeding molecules to infected cells to see their effects, an approach called phenotypic screening, since the goal is to observe changes in physical properties and behavioral traits and deduce from them drug targets of interest. They soon identified several tantalizing compounds. Murcko:
One of the things I was really interested in, and Peter was as well, was the idea of using cellular screening for finding new projects. The trick with phenotypic screening is that you have to pick a screen that really does teach you something about the disease biology. We found that in the area of influenza, it was possible to construct such an assay.
The whole idea of getting the Cambridge site used to thinking about phenotypes was something that was violently opposed by many people. A whole long list of objections arose. It’s a stupid idea. We don’t know how to do it. It’s too risky. You don’t know what the target is. You can be blindsided later. The agencies won’t ever let you file for the drug if you don’t know what the target is. But we just did it anyway, with Peter’s blessing.
As with the kinase collaboration with Novarti
s, Murcko’s Boger-esque optimism and self-assurance failed to take fully into account the tendency within organizations, even forward-leaning ones, to resist disruption. Even as the new project group pushed ahead with flu, eventually discovering the molecular target that allowed the company to address it as a more traditional enzyme inhibition problem, the site heads complained that its centralized standards and processes were impeding the speed of discovery. Murcko countered that introducing check steps and validation steps earlier in the process would produce better data and drug candidates and that a decentralized system would be less effective overall. He lost the argument. In 2008 Mueller rolled out a reorganization that gave the sites control over which targets and diseases to pursue, effectively closing down team B and giving Murcko more time to think about where the company should be headed next.
After Boger left, Murcko pressed hardest on two main fronts where he and Mueller agreed that Vertex could stake out a lead. Cell therapy is the process of introducing living cells into tissue to repair function, a type of regenerative medicine that, from an experimental, basic biology, and drug-delivery standpoint, is the extreme opposite of designing small molecules. Murcko, seeing synergies, began to dig into dozens of cell therapy companies and develop key academic partnerships in the field. Mueller quickly became enthused by the prospects. Murcko also started building a team in systems biology, a speculative realm where complex computations are used to understand biological processes. “A lot of the work was dodgy,” he says. But he believed the field could someday be useful and intended to stay ahead of the bandwagon.