by Barry Werth
Even with a depressed share price, Vertex was fortunate that the lust for mergers and acquisitions in biotech—what its advisor called “trades”—had cooled as Big Pharma tried to absorb those it had made during the frenzy of the previous decade. The company was safeguarded by its relatively high price and by the faith of the large funds—Fidelity, Wellington, Brookside, and a few others—that held 90 percent of its stock and whose managers, however bemused to be losing money on a portfolio leader, hadn’t panicked. Even at $40 a share, Vertex’s valuation was above $8 billion, meaning that, with a premium of 50 percent or more based on its rapidly improving balance sheet, strong cash position, and promising pipeline, it would cost another company $12 billion to $15 billion to take it out—a sizable enough trade to force an aquiring CEO to think long and hard.
Whereas three weeks earlier with Friedman he had been jovial, now Emmens was grim. Where did it stop? Wall Street’s negativity toward the possibility of success in biotech had clouded its judgment so severely that a single misreported data point had ignited a stampede. It didn’t matter what you did, he thought, only how much fear the naysayers could whip up on any given day. Twenty-two years of ferocious innovation and backbreaking science and you still faced being downgraded $3 billion overnight because of an isolated, incorrect, one-week sales estimate combined with the sudden perception that an untested rival would someday soon eat your lunch. Vertex remained lucky for the moment, but Emmens worried deeply about the overall trend, and he wasn’t sanguine about the company’s ability to withstand a future raid on its independence if the situation didn’t reverse.
“It’s really hard now,” he muttered. “Their biggest concerns, every one of them, we’ve showed them that’s wrong. You can make a pipeline; proof of concepts are working; we’ve got a blockbuster; it’s not a soft launch; we’re getting the patients; we’re getting the price. So it’s very frustrating to be hitting all those marks, and they’re off somewhere else. I don’t care about the share price, but this is an incredible bargain for somebody to look at it in terms of enterprise value. I think there’s a disconnect now between the value the market gives you versus what it would be to another pharma company, in terms of profitable assets.
“This company,” he said, toting the math, “you would be buying immediate income, a billion in cash by the time you closed, and pipeline. If we’re a nine-billion-dollar company, at fifteen billion they can give you a fifty percent net premium, and the next day still make it accretive. Duh. What you have to do is convince your shareholders that the company is undervalued, that the market is screwed up.” He recalled a scene from Jaws. “Maybe you can. Or, ‘Maybe the shark go away.’ You beat on the water, or maybe he comes up and bites you.”
The next morning, following IMS’s product bulletin on Incivek, VRTX rebounded nearly 7 percent to $43 a share—20 percent less than it lost on Monday. Emmens, Smith, and Partridge hoped the end result would be to reaffirm Vertex’s credibility while disparaging the validity of outside estimates, but the damage was done. Porges, who’d also challenged the IMS estimates based on his own focus groups and expansive modeling of how the medical community was adopting the drug in stages, told Reuters the episode should teach investors to wait for reliable data. Seizing the opportunity to defend the long thesis on Vertex, he sniped competitively at BOI-ML’s McMinn, his erstwhile ally in the tug-of-war with Morgan’s Meacham, Citi’s Werber, Friedman, and the rest of the shorts.
“This is the nature of any drug launch,” Porges told the newswire, “and no pharmaceutical or biotechnology company marketing analyst with any measure of experience would make judgments about the performance of a launch, and a product’s long-term potential, based on one, two or even three weeks of market audit data . . . We trust that the investment community will be discouraged from doing the same after this correction.”
“The future,” Vertex’s takeover defense banker liked to tell clients, “gets repriced every day.” New information roils both the math and psychology of every investment decision. CEOs of big companies prowling for acquisitions ask themselves whether they’re willing to bet their jobs on a trade, because if they’re wrong, their company’s stock will go down, and they’ll be fired.
By the next Friday, big drugmakers scouting Vertex saw the future as anything but a race between two small companies competing, zero-sum, for primacy in hepatitis C. Abbott announced, based on very small midstage trials, that it could have a twelve-week all-oral four-drug combination therapy on the market by 2015. Using data culled from a pair of studies with just forty-four patients, the company projected SVR rates as high as 90 percent, with annual sales of about $2 billion. Two weeks before the Liver Meeting, Abbott stock—ABT—bobbed nicely for a couple of days while Vertex, Pharmasset, and Gilead all retreated as Wall Street absorbed the increased likelihood that several companies would slice up the opportunity in hepatitis C, as Emmens predicted.
Murcko took Friday off to move his mother from a hospital to a rehabilitation center in Connecticut. His regular monthly meeting with Mueller was scheduled for Monday, and he emailed Mueller before he left to let him know he’d be out for the day. “Never heard a thing back from him,” he later recalled. “Nothing, which I thought was weird. Just didn’t make any sense at all. I thought ‘Jeez, he must really be preoccupied with something.’ I didn’t know what.”
If disruptive innovation means a state of permanent revolution inside those companies that promote it, the challenge ahead was how to scale Vertex’s creative DNA and expand its frontiers while trying to build a productive, sustainable R&D pipeline. “The issue, as always here, is, ‘Are we fearless enough and can we execute well?’ ” Murcko said. For years Mueller had had up to twenty direct reports. He wanted to streamline and simplify his leadership structure, bring some people up, shift some around, move functions, eliminate redundancies. In an effort to create powerful and aligned R&D organizations, he named two heads of research—Cambridge site head Mark Namchuk for North America and longtime UK site director Julian Golec for the EU—to spearhead the discovery of future medicines. He promoted Chris Wright to run global medicines development and affairs, putting him in charge of all clinical duties including regulatory affairs. In the process, he decided to disband Murcko’s Disruptive Technology group and reintegrate it piecemeal into the functional lines.
Monday afternoon Murcko walked into Mueller’s office for his meeting, carrying a stack of research papers and brimming with a long list of ideas. For years he’d been pushing the company to think harder about neurodegenerative diseases, and he had been pleased on Science Day that the keynote speaker was a pioneer in treating ALS—Lou Gehrig’s disease—an opportunity now for follow-up.
Mueller preempted him. “Your position has been eliminated,” he said. Murcko groped for an adequate response. He had no trouble seeing the logic of the move. Most midsized companies outgrew the need for chief techologists and his independence and influence had been shrinking since Mueller terminated his new project group in 2008. But emotionally Mueller, whom he’d struggled alongside for nearly a decade, seemed absent, conveying no trace of friendship or familiarity, much less sympathy or remorse. He was reading from a script.
“That’s apparently fairly common,” Murcko recalled. “He didn’t want to talk about anything else. The conversation lasted four and a half minutes. I asked him a couple of questions. One was, ‘Is there anybody else in my area who was being let go?’ I was worried about my secretary, Vicki. He said, ‘I don’t want to talk about that.’ I asked whether there was anything . . . actually it was more of a statement. I said, ‘To my knowledge there was no paper trail of any kind of any dissatisfaction with anything that I’ve done. Is that accurate?’ He said, ‘Yes.’
“I think on the script there was something to the effect that, ‘This in no way is a reflection on your performance,’ and he offered to write me a reference or be helpful to me in that sense if I needed it. Then he handed me over to Lisa Kelly-Crosswell
. She was one office over. She walked me through the procedure and suggested I go home. I said, ‘Well, I want to clean out my office and say good-bye to people.’ She said, ‘Sure, we’ll set that up.’ I found out when I got back to my office that they had turned off my email.”
Murcko drove home, switching swiftly into “detached, objective, scientist mode. It was all very, ‘Oh, this is interesting.’ ” No one at Vertex except possibly Thomson had worked harder to realize Boger’s vision. Murcko had a major role in finding every one of Vertex’s breakthrough molecules now on the market or in the clinic: from codirecting the “project from central casting” in HIV; to modeling the core structure of the ICE inhibitor pralnacasan, which generated the company’s experimental medicine for epilepsy; to being a coinventor of Incivek; to nurturing the CF work at Aurora and bringing Olson to Cambridge to shepherd it through; to championing the kinase program that made the JAK-3 inhibitor and driving the phenotypic screening approach that produced the flu drug. As word got out, as another torchbearer put it, that he’d been “kicked to the curb,” emotions in the labs, offices, and cubicles flashed over.
Knives came out for Mueller, who himself could be cutting, not in person but behind others’ backs. Everyone had seen him berate fellow scientists in public, in the hallways, when they weren’t around to defend themselves. The coldness of his actions seemed to some of the old guard to betray a desire to assassinate those who dared still challenge him. Mueller had advanced Vertex’s science, but he had inherited it and wasn’t responsible for finding the drugs that had brought it to this point, diminishing his primacy in the eyes of those who knew the fuller story. “Peter is like an alpha wolf,” a veteran researcher muttered. “He needs displays of submission. Mark wouldn’t do the public submissive rollover behavior that Peter required.” For those who valued Vertex’s original spirit, the organization’s apparent thanklessness opened a gaping distrust, not just with Mueller but the company itself, what it stood for. “There is no more Vertex,” someone said, raising the specter of defections. “Vertex is dead. They should call it something else.”
Mueller moved on decisively. “Honorable Colleagues,” he began the reorganization email distributed companywide the next morning. In outlining major personnel shuffles throughout research, global development, and medical affairs, he stressed the need for sustainability and congratulated Namchuk, Wright, Trish Hurter, Tara Kieffer, and a dozen others who had been promoted into new leadership roles. At the end he wrote: “In conjunction with these changes, Mark Murko [sic], Jack Weet, Paul Caron . . . [three others were named] have left Vertex. Please join me in thanking them for their contributions and wishing them well in the future.” The previous week, Weet, exhausted, had finished driving the new drug appliction for VX-770 through the FDA portal, eleven months after delivering the NDA for Incivek. Caron was the modeler who in the earliest days had predicted that the active site of HCV protease would be monstrously hard to inhibit—“a bowling ball.”
Mueller and his team rolled out the changes in a series of presentations. Namchuk, a popular scientific manager who’d been with Vertex since before the Novartis collaboration, delivered a pep talk in JB-II. “We’ve got to do better than we are,” he told a packed audience. “Our job is to invent first-in-class medicines faster and better than everyone else. We may be close to the top now, but I think we have to be even better in the next few years.” Without mentioning the reorganization’s casualties, he referred in passing to “legacy pieces left in that confused the new structure.”
Namchuk spoke excitedly and at length about several research projects, notably a Cambridge-based effort to correct the underlying cause of multiple sclerosis, an autoimmunity in which the fatty myelin sheaths around the nerves of the brain and spinal cord are damaged, leading to scarring and a host of painful, debilitating symptoms. The hallmark of the disease is the loss of myelin, which, like insulation on a wire, helps the cells conduct electricity. Lose the sheath, and the nerve eventually dies. Vertex scientists had labored for two and a half years to develop a novel assay: basically an MS brain in a test tube. “We took all the component parts of the brain, took them apart, put them in a dish, gave them MS, saw if we could reverse it, and then put all the parts together and see if we did everything right,” Namchuk said. Their goal was to find small molecules to stimulate cells already in the brain to fix the damaged myelin.
“They’re sort of like the Red Sox pitching staff,” he explained. “They’re sitting in the clubhouse, eating chicken and drinking beer. And so what we have to figure out more successfully than [Sox manager] Terry Francona, is how do we get them to jump in, to do some good before it’s too late and we’re out of the play-offs. What we’re trying to do is stimulate this growth and cause these cells to wrap around that nerve.”
Namchuk showed slides of cell cultures saturated with rejuvenating myelin, spidery dyed lines showing that its lead compounds had activated the cells, which had “gotten up off the bench” and were trying to reinsulate denuded neurons. Like Fred Van Goor’s movies of reactivated cilia in the bronchial cells of patients with CF, the images were visual confirmation of Vertex’s approach and a driving totem for the chemists now optimizing the molecules, although any other parallels between the two projects at this point were thin. CF was a well-thought-out, clear, well-executed program, with a single, coherent team of people working fanatically, a well-understood target, and total support from the foundation. At the moment, despite Namchuk’s tantalizing pictures and flair for analogy, Vertex possessed none of this in MS.
Murcko returned quietly on Friday to say his good-byes and clean out his office. Like other predevelopment candidates, the MS compounds were a promising but distant hope. One of them might come to market a decade from now, if ever. Mueller’s challenge was to see beyond the curve, to the possibilities for the next generation of medicines and the one beyond that. Yet by his decision to jettison Murcko, he ensured that Vertex would have to meet it without the company’s most seasoned, deepest-thinking drug hunter; without the person most fluent in emerging technologies and, more to the point, when they were ripe for exploitation and how to marshal them. Murcko was melancholy, writing in an email: “Honestly, I wonder how long it will take before at least some people start to whisper about how ineffective I was and how this was a kindness . . . it seems never to be the case that someone’s reputation grows after they leave.” Boxing up his books and papers, Murcko didn’t complain to the steady stream of well-wishers, many in tears. He resolved to be a good soldier, vowing to himself, for the company’s sake and in right-stuff spirit, “not to be an asshole.” Later he said:
The not-being-an-asshole rule is really important to me, because I can imagine, being in a situation like this, you could allow yourself to say things that might be perfectly justified, and defensible in a court of law, but which afterward, nonetheless, you would feel like a rat for having said them. So I’m trying not to go down that road.
But I do have to wonder what it means when a situation like this is handled in this sort of way. Certainly I know people at other organizations who have been in similar situations who ended up landing better, where there was more of a conversation of where to go from here, what to do next, some sort of transitional period. None of which happened in this case, which strikes me as odd. It also strikes me as inefficient, because certainly there were things I could continue to do for Vertex in some sort of transitional role. There may be good arguments against that. Whether there’s a larger lesson or not for Vertex I can’t say for sure, but I’ve had a number of people say to me that they thought what happened in this particular case, not just to me but to the other folks who were let go, was brutal. And if that’s an accurate reflection of what happened to us, I have to ask what that says about the organization. Hopefully nothing. It’s just an aberration and not an aspect of some larger change in the culture.
Two days before the Q3 earnings call, Emmens charted his succession. The directors wanted hi
m to stay on as CEO, but he’d convinced them that what Vertex needed next was both an “operations guy” and a top scientist—someone who in the coming few years, before the next great commercial breakthrough after CF, could focus the company as it matured.
The board had culled through thirty candidates but so far had reached no consensus. Emmens resolved to announce a change by the end of the year. In particular, he believed Vertex needed a leader who could come in and adapt, rather than someone who would think of it as his—or, far less likely, her—company. Also, he thought, the situation required a strong counterweight to Mueller, not a taskmaster but someone subtle enough, with the right balance of emotional intelligence and scientific sophistication, to handle his complicated temperament. Emmens:
Peter’s funny, because what you see is not what I see. He’s very, very demanding. He’s a control guy. That’s what made him good in bringing the right products forward and making the time frame to market. But he models it. He works like a dog, big hours. The answer is never, “No, I can’t do that.” It’s always, “Yes.” And with me, Peter’s also a very good employee, because when I say, “Peter, I’d like to do this,” it’s, “Yes sir.” So I’m very careful about what I say to Peter, because if I say we’re not gonna do cancer anymore, he might put up a little fight, but he’d cut the whole place out. Just like that. He’s not who you think he is.