The Antidote: Inside the World of New Pharma

by Barry Werth

  “Because what’s going to happen here,” he says, “and I’ve already been told this by a bunch of doctors in the CF area, they’re gonna give it to people with delta-F508 mutations. They say they’re gonna do that, but what if the insurers don’t pay for it?—which in my humble opinion they shouldn’t. I don’t believe that my tax dollars should go to funding Medicare and Medicaid drug payments for CF patients who have homozygous delta-F508 structures because it doesn’t work. But they’re gonna do it anyway. And they’re going to come to us and want us to do an expanded access. My answer, though it’s not controlling on the company—but if it were—is, ‘No.’ There’s no data that suggests that this works so we’re not gonna give it to you. I think it would be irresponsible to do that. I might as well give you apricot pits.”

  Johnson was sure there was no way he had been taking a placebo. He knew his body. Since 2004, his chief goal each year was to go twelve months without needing IV antibiotics. Every year he’d failed, going six months, maybe seven, before a pulmonary exacerbation. The last time he was hospitalized was eighteen months ago. VX-770 had turned his life upside down and now, abruptly, he couldn’t get it—“a putting Keith on an island type of thing,” as he described his jagged emotions: loss, desertion, separation, exile, solitude, hopelessness, rage. He was told he had to return the drug, and Adrienne joined him at Beth Israel. “When we’re done with the visit,” he recalls, “I just leave. It’s just unraveling, and every hour that slips by it’s getting further and further away from me and I’m coming to the realization that we’re gonna have to live the way it was before. I’m not saying I wish I never had this experience. I’m glad I did. But every hour it’s further and further away in the rearview mirror.”

  Vertex had devised a policy to enable selected patients, based on what used to be called “compassionate use,” to receive VX-770 before approval. In May, the company put in place an expanded access program that was reviewing about one hundred patients in the United States who had FEV1s below 40 percent but weren’t “in groups where we think the risks are too great,” Ken said. It wouldn’t, for instance, provide the drug to a patient on a respirator. “It’s unlikely they would benefit. Bad things happen to those people on a regular basis and you wouldn’t be able to prove that it wasn’t because of your drug.” Ken:

  In CF you have some pretty compelling stories about people who are in rapid decline, and there’s a drug that can help them, and it’s not approved, so what do you do? Our position has been in the past and continues to be that if we focus on a single patient, it’s almost always compelling. What you have to do is focus on the greatest benefit for the greatest number of people. That’s not what patient advocates want to hear, but that’s probably the most important thing a company can do. Our view is, we need enough data about a compound so that we believe we have a pretty good handle on its side effect profile and its toxicities.

  The company’s interest has got to be to the larger group that might be harmed if the drug is delayed, or not approved. We need affirmative data that the drug has a certain profile that we have a handle on so we can assess whether to give it to a particular patient. The second criteria is that we need to be certain when we open up expanded access we’re not allowing expanded access for people who otherwise might be in a clinical trial we are either running or planning to run, because that will gut the trial process. If we allow people the certainty of getting the drug in an expanded access program versus the uncertainty—because there’s always a placebo—of getting the drug in a clinical trial, they’ll always opt for the expanded access, and the clinical trial program will die. The FDA understands that, and they take the same position.

  Selling advanced data storage technologies gave Johnson a keen appreciation of both the scientific process and the perils of information-sharing. He was avid for privacy, spurning social media because of their invasive mining practices. He read carefully the endless releases he had to sign as a patient, and respected Vertex’s position, particularly the clauses in its release form designed to keep patients from broadcasting their experiences and feelings. Though he was too healthy to qualify for expanded access, and staggered by his re-reversal of fortune, he wouldn’t have disagreed with Ken’s logic or his arguments. “I just think about how irresponsible and reckless it would have been for me if I would have gone onto a forum or something like that and said, ‘I’m on 770 with double delta-F508, and it works. Everybody, you’re cured,’ ” he says. “You have to be careful about the expectations you set in a situation that is seemingly hopeless to begin with. So I have loads and loads and loads of respect for that because I actually think it could interfere with the study and the science.”

  At Beth Israel, after surrendering his meds, Johnson blew a 52 percent—near his original baseline. Indeed, ever since his peak FEV1s of 60 percent a year ago and 62 percent in November, his numbers had been declining. He dismissed the newest drop-off as part of the usual variability. “That was a bad day at the office, really, which will happen sometimes.” After his initial feelings subsided, he resolved grimly to fight through his abrupt new impasse, although he had no idea how. What he did know—the same thing that troubled Ken—was that FEV1 spiked and dipped, and there was much else to consider in deciding if a drug for cystic fibrosis was effective. “Who’s to determine what my baseline baseline is?” he asks.

  “What does five percent mean to me? It means everything. It means getting up the stairs from the subway with no problem. It means being able to play with my kids, most of the day. Even five percent means life. It’s a different category of life.”

  JULY 28, 2011

  “When I see the dailies,” Partridge said merrily, “I think, ‘Okay, who’s guarding Wilt? You may want to put your hand up in his face a little more.” For the last couple of days, the Incivek-Victrelis sales figures dribbling out of IMS Health were stunningly lopsided: 92–8. Partridge was riffing on the all-time National Basketball Association single-game scoring record of 100 points set in 1962 by Wilt Chamberlain in Hershey, Pennsylvania, against a hapless and vertically challenged New York Knicks squad. If this was an indication of the ultimate outcome of Vertex versus Merck in hepatitis C, the fight could be over before it started.

  Partridge posted himself at the whiteboard for the Q2 earnings call. After two decades of reporting on pipeline progress and clinical data, Vertex at last had product earnings to talk about. The Wall Street consensus for Incivek was around $30 million in sales. Porges, at the low end, projected $20 million. A “whisper number” of $40 million made the rounds, but it included inventory, and most company-watchers dismissed it as hype.

  Smith entered tapping on his BlackBerry, grinning. He had kept Vertex flush with other people’s money for a decade by raising their hopes; now he wielded results. Before reporting the figures and restating the company’s guidance on expenses, he told the analysts: “The opportunity that exists for Incivek is very large, and with this new opportunity we are giving careful consideration to managing reinvestment and R&D for future growth, yet achieving earnings and cash flow both for shareholder value.” Smith then announced that total revenues for the quarter had increased to $114 million, from $32 million a year ago, based on net product revenues from Incivek of $75 million—crushing the consensus figure. About half the total represented inventory build, “channel-filling,” not prescriptions. Vertex’s cash cushion had gone below $500 million but it finished the quarter with more than $600 million in the bank. Based on the sharp uptake of the drug, Smith forecast conservatively, the company would be “significantly earnings positive in 2012.”

  In the twenty years that Wall Street had been trying to determine what Vertex might be worth based on models and projections, here was the first shred of real data, representing less than a month and a half of sales of its flagship drug. The absurdity was lost on no one involved in the call, but that didn’t stop an urgent spike in speculation. Citigroup’s Yaron Werber asked Smith to help him extrapolate.
>
  “So we’re talking about maybe six weeks, and you sold seventy-five million dollars,” Werber started. He did a few back-of-the-envelope calculations. “You said half was retail demand, and then you said that retail stocking on the order of around thirty-seven, thirty-eight million is already out of the channel. So that’s within three weeks. And then there would have been inventory on top of that. It almost seems like I can back into a doubling of the rate of sales within the first three or four weeks of July over the last quarter. Am I thinking about this correctly?”

  “Directionally, Yaron, I think you’re thinking about it correctly,” Smith said.

  Ken, listening in on the call, worried that Smith’s comment was “on the verge of a projection, a forecast,” in which case Vertex might have to issue a press release confirming it, in order to conform with Reg FD. He concluded no harm was done, but it was part of his job to keep watch over Smith’s close, ambiguous relationship with the Street. Ken:

  I think Ian has actually pulled back a bit. The guy who’s really out on the edge right now is Michael, which is okay because that’s his job. He’s the guy that wants to answer every question that Wall Street has, and if we don’t have the answer we can speculate with them about it. I think Ian’s big task is coming up. I think he’s gonna be very hard pressed, emotionally, not to speculate on earnings and sales.

  Ian absolutely talks the right way about not being driven by Wall Street on a quarterly earnings basis. What I haven’t seen yet is what’s actually the only thing that’s important, which is how you act, not how you talk. He presented something to the ET and Matt jumped all over it. I had gone crazy over one slide. The slide was four charts that showed what Wall Street’s projected earnings per share were for 2012 and 2013. And the headline of the chart was: How Can We Meet Wall Street Projections?

  That is exactly what I’m talking about when I say walk the walk. Talk all you want about not being driven by Wall Street, but as soon as you start thinking about how you’re going to meet Wall Street projections, you’re off the reservation. I was really gonna go after it, and then, before I could say anything, we get to that page and Matt says, “Let me say something before we get any further. I don’t ever want to see a slide like this again.”

  Emmens, like a team owner watching his franchise build a solid first-quarter lead, relished Vertex’s position, but he was attuned to any disruption in the game plan. He, too, like the analysts, had to project ahead. The next step for the company was to think about connectivity, growth, and scalability worldwide. All three required costly investment. Yet no CEO can ignore for long Wall Street’s betting culture and relentless insistence on mounting returns. Now that Vertex was on a steep path to profitability, Emmens wanted to satisfy investors and analysts, but the Street always had been—and would continue to be, especially through the launch—secondary, the touts setting the odds, the fans in the skyboxes caring more about the point-spread than the actual outcome of the game. The solution was to win big, crush the spread, leaving the team on the field to stick to its plan, running audibles when opportunities arose, immune to the pressures of speculative second-guessing and the fortunes at stake on the sidelines. Emmens:

  What do you do with the money? Investors are biased toward “give it back to me.” We want to reinvest the money in the business. Here you get to this disconnect of timing. For the investment community five years is a millennium. And in the drug development business that’s probably a third of the time you need to develop a drug. You’re always going to have that tension. So we have to build the trust with these folks that their money staying with us is a good thing, and that we can make it work. That idea has been discounted by the lack of productivity of the big guys.

  At Shire, we went out and bought an orphan drug company. The market went berserk. They hated it, because that’s not what you do. Exactly right, but strategically we needed to do other things. We needed to get into research, but we also needed to learn about that, so we bought a self-standing business. Strategically it was a way for us to have a research platform. The market didn’t get it. We lost fifteen percent. I was a piece of shit for, I don’t know, three months. Now it’s a third of the business and the top contributor to growth in a company that’s growing twenty-five percent on a billion-dollar quarterly base.

  You have to outthink the market. You have to think strategically and opportunistically at the same time, which are often at odds.

  It was early, of course. Any number of things could—and would—go wrong. A patient could die, then another, inviting the FDA to put a hold on the drug. The supply chain could falter. Government payers could run out of money. A day earlier, the Seattle biotech Dendreon, another company whose stock had soared along with expectations as it launched a promising new drug, shocked investors by announcing that sales of its prostate cancer medicine, Provenge, were much slower than expected because doctors were worried about getting reimbursed. As Wysenski had predicted, any chink in the smooth connection between the user, the customer, and the payer—even a doubt or hesitation—could be catastrophic. Provenge cost $93,000 for a one-month course of treatment. Doctors unwilling or unable to shell out the money up front were concerned that insurers might not reimburse them on time, if at all. Shares of Dendreon plunged 62 percent—proving again Wall Street’s fear of any uncertainty arising from a drug launch. Noting the tendency for the industry to rove in financial lockstep, and for investors to become easily spooked, biotech columnist Adam Feuerstein of the website TheStreet predicted: “The ill-effects of the Dendreon debacle will unfortunately spread beyond the company’s stock price to infect the entire biotech sector.”

  Then there was Merck, which during its earnings call the same hour as Vertex’s announced it would cut about thirteen thousand jobs by the end of 2015, adding to the twenty thousand it had shed since acquiring Schering. “The pharma industry is starting to look a lot like the auto industry,” a commentator noted. Though Merck reported over $12 billion in sales in the quarter, analysts drilled CEO Ken Frazier about Victrelis, which accounted for just $21 million. Looking for a positive catalyst in hepatitis C, they were disappointed to find Merck at the trailing end of a 75–25 percent split in the market. “There are headwinds for this industry, and the Merck outlook was indicative of the situation,” Damien Conover, analyst at Morningstar, concluded. “This just confirmed what people thought, with the environment forcing Merck to do cost cutting to adapt.”

  Despite the ebullience at Vertex, which would spill into the next week even as the stock peaked at $52 before sliding to $43 along with the rest of the sector among broader economic fears, the spreading summer doldrums weighed on the industry, which more and more seemed stagnant, terminally self-afflicted. As Boger observed in the early days, no matter how different it tried to be, Vertex would be held to account by Wall Street not only for what it could control but also for a myriad of intangibles beyond its reach. “I’m not worried about us,” he said. “I’m worried about others falling on us.”

  Washington was a separate matter. The federal debt-ceiling “crisis,” manufactured by the Republicans who took control of the House in the 2010 elections, drove the country to the brink of default until, late on the night of July 31, Obama and congressional leaders of both parties broke the stalemate. The ceiling, which had become a bargaining chip in the debate over government spending, was extended in exchange for $900 billion in immediate across-the-board budget cuts. A “super-committee” was assigned the task of coming up with a second round of deficit reduction and a “trigger” was adopted that signaled that if Congress failed to enact the cuts the result would be sweeping reductions in military spending, education, transit, and Medicare payments to health care providers. By the end of the week, credit rating agencies began downgrading US government securities for the first time in history. Stocks plummeted.

  Vertex was aloft, yet VRTX got slammed, plunging 17 percent. Partridge, alarmed by the disconnect, sought to reassure employees who, just
as they expected their 401(k)s to pop, watched VRTX get swept down. Conflating the broader anxious investment climate with what would soon be dubbed the “Dendreon effect,” he encouraged them, in an article for the company newsletter, to be clear-eyed about what was happening. He wrote:

  Amid the broader market decline, stocks of health care companies have taken a disproportionate hit recently, in large part because investors believe that the debt-ceiling agreement will result in near-term, potentially significant cuts in health care spending. The health care sector had outperformed most other sectors since the beginning of the year, making it relatively easy for investors to sell these stocks, book a profit and walk away.

  To put this in perspective, Human Genome Sciences (just launched Benlysta, a lupus drug) lost nearly 25 percent last week, while InterMune (launching Esbriet for idiopathic pulmonary fibrosis) lost 29 percent. Important to note, Vertex is still up about 23 percent on the year, while the NASDAQ biotech index is down by 3 percent. In the NASDAQ 100, Vertex is the tenth best performing stock this year (beating such household names as Electronic Arts, Starbucks, Apple and Gilead). So, despite the downturn, we’re hanging in there.

  We have reason to be optimistic about the months ahead as well. The Incivek launch has so far exceeded Wall Street’s expectations, and recent IMS data suggests to many smart investors that this out-performance will continue. We are only a few months away from regulatory submissions of a second drug, VX-770, for cystic fibrosis. Our value is clear and measurable, and we are well positioned to see investors come back to the stock once the dust settles from the panic selling.

  Smith viewed the dip as a short-lived phenomenon, an imperfect storm. He calculated there were three forces affecting VRTX: the stomach-churning uncertainty in the capital markets, generating a flight from equities; broad calls from chief investment officers to pull money out of any company launching a high-priced drug because launches are high risk and many fail; and, disassociated from the other two, Vertex’s internals. Those, he believed were solid, starting with the launch. “Count the scrips,” he said. “The scrips are coming in, day after day. We continue to advance toward the filing of the cystic fibrosis drug, which we have great confidence for. We have greater clarity with the FDA about how to advance VX-770 monotherapy into other mutations, thereby broadening the benefit. We’re coming up on data with JAK 3. And financially we’re just getting a capital structure that is giving strength to do things in the future. So inside the walls of Vertex the company is just getting stronger and stronger.”