by Barry Werth
VRTX went vertical, soaring on Monday, May 7, from $37.41 to $58.12—a 55 percent increase. The company gained back $4.2 billion in market value, the largest one-day rise in its history, effectively putting it back where it was during the optimistic weeks before the launch of Incivek a year earlier. On Tuesday, the price went to $64.16. ISI Group’s Schoenebaum said Vertex could have a $4 billion-plus annual franchise in cystic fibrosis. Adam Feuerstein predicted cystic fibrosis revenues of $6 billion to $7 billion per year, equaling Gilead’s revenue from all its antivirals, including its dominant HIV drugs.
The following Monday, Morgan’s Meacham, who for a year had fanned fears about Vertex, boosted his rating from “neutral” to “overweight” and raised his price target per share from $45 to $82. He conceded, in a note to investors, being “a bit late” in making the revisions.
“Pretty amazing stuff, that 809 data,” Boger emailed to a correspondent. “Also amazingly straightforward; it just works.”
He was rolling now. Vertex was thriving without him there to drive it ahead, yet its growing record of success and reputation for leadership and integrity enhanced his luster and credibility, capital to be invested in the arenas of medicine, business, government, education, political action, public policy, philanthropy, and the arts, all of which Boger took on at a gallop. On a rainy night in May, he and Amy stood like hosts outside the ballroom of the Boston Sheraton, amid the throng at the state American Civil Liberties Union’s annual Bill of Rights dinner. The honoree was singer-actor-activist Harry Belafonte. Journalist Amy Goodman of the news program Democracy Now! gave the keynote. The Bogers were offering a $100,000 challenge grant, and he was on the program.
With the national election looming, he recently had spent a long Saturday at the state Democratic convention in Lowell, sizing up the early contenders against Republican Senator Scott Brown. “The second most important election in America for 2012,” he predicted. He’d just agreed to head a $1 billion capital drive at Harvard Medical School and, after swearing not to go back into business, even as a consultant, he had become executive chairman of a start-up seeking a cure for the leading cause of childhood blindness. As ever he failed to see boundaries. With the fate of Obama’s health care overhaul law and the country’s direction at stake, he spoke, in his remarks to the crowd of 900 civil libertarians, to what he saw as the essence of the campaign.
“There are two competing historical theories about how to establish the delicate emotional state that drives economic growth,” Boger began. “The first is what I will call ‘European Feudalism’ and is popular among many of those in power: ensure that everything breaks my way (. . . because I’m owed that), continue to advantage my advantages (. . . because that’s the natural order), and then I’ll consider investment, especially if I am guaranteed to win (. . . and am completely covered in the unthinkable case that I might lose, because, you know, I’m too important to fail).
“The economic and social paradigm alternative to this Feudalism I’ll call, for short, ‘The Bill of Rights.’ As radical a social contract as has ever been written, the Bill of Rights outlines a remarkable thesis, simply put, that treating everyone with justice and respect is good for everybody in the end.
“The Bill of Rights isn’t a cost we pay,” he concluded. “It is something we believe in just because it is right, but it’s also an economic development plan: together we are stronger and more productive than any of us can be separately or selectively. To be together most productively, we require the ground rules to make it clear that opportunity is open for all and that the power of the majority can never be used to cut some of us ‘out of the herd.’ The love we feel for the Bill of Rights is its protection of us all. All one hundred percent of us.”
Boger had joined the ACLU in graduate school after the organization defended the rights of Nazis to march through a predominately Jewish suburb of Chicago, Skokie, because he admired the intellectual honesty of the position. Equating the Bill of Rights with a business plan and loving it because it defends “us all”—even the worst of us—was in his view not just a no-brainer but wise, progressive, patriotic politics. Indeed, he saw it as a prescription for growth. As he posited in a subsequent email decrying the country’s willingness to squander its vision and hope by indulging short-term reward incentives:
“Boger Tax Plan: 99% tax on all capital gains under a year. 90% under two years. You want to be an investor? Invest. You wanna be a trader? Go to a casino.”
Michael Partridge and his wife took their children to a lodge in New Hampshire for Memorial Day weekend. Before starting a daylong hike, he checked his voice mail. Ty Howton, Ken’s replacement, had phoned from Vertex: “If you’re getting this message, you need to call me.”
Partridge assumed the worst. The direst possibilities—a patient blow-up or program-killing tox result or government investigation or FDA stop order—were the most likely but by no means the only scenarios that could erupt to test a company. Howton had learned late the previous afternoon that the proportional analysis of the FEV1 data from the CF combination trial was wrong. FEV1 is measured in percentages. The lung improvement measures that Vertex had received from the outside vendor doing the analysis and disclosed to Wall Street and the public weren’t absolute but relative—a frequent error made even by many doctors. The responses to the drugs were still impressive and consistent with the other markers, but the company needed to revise the data.
Cell service on the mountain was spotty, but Partridge was able to participate enough in an hours-long conference call that afternoon to return at night to the lodge to bang out a call script. Senior management met all day Sunday at Vertex. “Jeff was the voice of reason: ‘This is what happened; this is what we have to do; we have to correct it before the market opens Tuesday,’ ” Partridge recalls. The reinterpreted figures showed that after eight weeks Kalydeco and 809 improved lung function at least 5 percent in 35 percent of patients and at least 10 percent in 19 percent of patients, compared with 46 percent and 30 percent, respectively, as announced earlier in the month.
Speaking on the update call were Leiden and Wright. Neither was a Vertex veteran known by the analysts. Wright explained that the revised result remained “a significant and clinically meaningful difference given such a short study with such a small amount of patients.” Leiden stressed that Vertex was advancing aggressively into Phase III. Questioned first, as always, by Porges, he laid out the company’s stance in response to the mix-up.
“Look,” he said, “I just want to tell you straight out, this mistake is very disappointing; unacceptable to us. It’s not how we do business here at Vertex. We’re a high science company, and we pride ourselves on getting the science right and the numbers right.
“We assumed it was absolute, obviously presented it that way, and it was relative. As soon as we realized that, we corrected it. We’re coming back to you not only with the corrected data but with more data to share with you why we’re confident about this result. And obviously the final data available in midyear will trump all of this, and we will be able to tell you much more definitively about where we are. But I think what you’re hearing from all of us today is that even with the corrected data, we have many reasons to be confident that the effect we’re seeing here is real, at least from this interim analysis.”
How often any company can play the “trust me card,” as Smith called it, depends on the company. Within an hour, VRTX suffered its worst intraday drop since the crash of pralnacasan eight and a half years earlier, then recovered to $52.85 as the analysts repriced their forecasts. “This is a downward revision, but it is still good data in our opinion,” ISI Group’s Schoenebaum wrote in a bellwether note to clients.
By the next night, after a previously scheduled Bernstein investor conference in New York, Porges hosted a dinner for thirty analysts and fund managers so that Leiden could make the case personally. “People were upset—‘How on earth could you do this?’ ‘How could you screw this up?’ �
��How could you not know?’ ” Partridge recalled. The takeaway for a few of them reflected long-term suspicions about the company that no amount of high-minded behavior or hand-holding would soon overcome. “From a management credibility perspective,” Marshall Gordon, health care analyst for Clearbridge Advisors, told Barrons.com, “this looks bad. This has been known as a promotional management team in the past, and this smells like they hyped their data, prematurely. But I’m not convinced that this diminishes the clinical or commercial potential of the drug . . . it remains obvious that the drug is still active and should be able to get to the market.”
Still upbeat, the analysts reproved Leiden and Vertex but didn’t punish VRTX; on Wednesday shares rallied, climbing back over $60. Then, at once, another minor but untimely setback arose, further dinging the company’s reputation. The FDA’s Office of Prescription Drug Promotion routinely criticized a proposed piece of promotional literature for Incivek that Vertex had submitted for review, a story from a patient who received the drug and who was quoted as saying, “Six months after the treatment ended, I found out I’d cleared the virus. That made me feel so good. I was happy to know I’d be around a little longer to see my son grow up.” Expressing concern that “this branded story misleadingly implies that most or all [patients] infected with hepatitis C will successfully achieve sustained virologic response” on Incivek and objecting to the use of “cleared,” FDA officials asked Vertex to revise the draft materials, which hadn’t been distributed publicly. The company agreed to cooperate.
The next day, the Boston Globe ran a business article conflating the overstated CF data with the FDA letter, calling it “the second setback for the Cambridge biotechnology company in the past week” and reporting that the earlier misstatement boosted Vertex shares by more than 55 percent on May 7, “enabling five senior executives and two directors to exercise stock options and sell shares worth millions of dollars.” No matter that the stock was higher now than then, post-correction, or that the questionable Incivek ad was a draft, the paper abruptly planted and fed a new, circumstantial counter-narrative, the alluring and familiar story of a biomedical company systematically misrepresenting data and overstating claims to enrich insiders. Shades of Martha Stewart.
That narrative instantly assumed a life of its own. The next Monday, San Diego–based Shareholders Foundation, a self-described “professional loss prevention, settlement recovery, portfolio monitoring service”—in other words, a law firm—put out an alert trolling for plaintiffs, announcing it would probe whether Vertex had broken federal securities laws. Later that day, Senator Charles Grassley of Iowa, the ranking Republican on the Judiciary Committee, contacted SEC Chairman Mary Schapiro. “I write to you today to apprise you about a potentially troubling issue for investors in the pharmaceutical industry and for the federal government. I am disturbed by reports concerning the release of clinical trial data by Vertex Pharmaceuticals Inc. and stock sold by Vertex executives.”
Citing the Globe’s reporting, Grassley urged the agency to investigate trades by Boger, Wysenski, Mueller, Sachdev, Kelly, and corporate controller Paul Silva. The largest number of shares—more than 365,300 in total; more than the others combined—were sold on May 7, 8, and 14 by Wysenski at prices ranging from $59 to $64, netting her more than $13 million. Like the others, her stock sales resulted from preexisting plans used by many companies to allow executives to automatically sell shares at regular intervals or set prices. “Despite Vertex’s explanaton,” Grassley concluded, “it could appear that these Vertex executives potentially took advantage of the spike in the stock knowing the news of the clinical data being overstated would be made public eventually, which in turn would negatively affect the stock value.”
Hijacked by the developing story, Vertex’s public posture suddenly resembled damage control, even when it wasn’t. On Friday Vertex announced two executive changes. Both had been months in coming. Howton was replaced as chief legal officer, though he would stay on to smooth the transition. Wysenski, who in the wake of Emmens’s retirement was left without her friend and mentor at the helm, retired. Company spokesman Zach Barber told the Globe that the moves were “completely unrelated” to the jump in the company’s stock and subsequent events. Ten days later, the Globe published a glowing story about a novel $1.45 million partnership between Vertex and Boston to put advanced labs in one of the city’s public high schools and the company’s plans to build a 98,000-square-foot manufacturing plant on the waterfront. Though it had been in the works for months, the timing appeared more than coincidental—an attempt to change the subject.
In late June, Vertex released more comprehensive data from the CF combination study that, although similar to the revised findings, weren’t quite as robust. Some investors again became upset. “I don’t think we lost anybody along the way but all the investors hated the volatility,” Partridge says.
The SEC, apparently finding nothing of interest, ignored Grassley’s letter.
Keith Johnson listened to the CF conference call. He believed on the basis of the company’s explanation that his FEV1 numbers during the 770 trial qualified as “statistically significant and clinically meaningful”—Wright’s, and the FDA’s, classic definition of relative effectiveness. He couldn’t understand why he was being blocked from getting Kalydeco when he had already shown that the drug had changed his life.
He imagined becoming a kind of experimental tool, a guinea pig, not just to aid Vertex’s and the CF community’s understanding of the drug, but also to dramatize an evolving model of personalized medicine, which the FDA was now trying to help accelerate by streamlining the process of clinical testing to allow, effectively, cohorts of one. He considered offering himself to the company, his doctors, and the foundation as a critical addition to their database—a patient with a CFTR folding mutation who nonetheless could be helped by a drug designed to improve gating activity. Johnson realized that by now he was consumed, but in his mental dialogue with the medical community, he believed his militancy was totally reasonable.
He honed his pitch: “This is what’s in it for you. If I’m wrong you won’t hear a peep from me again. If I did two percent, I did two percent. I’ll move on with life. I can’t go to sleep at night because I’m convinced that I’m way better than two percent. I need to take Valium-strength meds to go to sleep because it’s maddening to me. So somebody has to show me: either I’m only two percent—then I’ll leave you alone—or these numbers are meaningful and significant, and let’s agree that they are. I need to know.”
Van Goor had long ago anticipated that when personalized medicines became available, diseases would become more personal too. Since your genes would qualify you as a promising patient, more and more you would need to build a case that a treatment might work for you, then convince the medical world to let you have it, even if a year’s supply cost more than your house. No one knew how this new system would work. Advocating for himself, trying to keep up his health until 809 or 661 reached approval, Johnson was becoming an inadvertent, crusading forerunner on a new medical frontier: the informed genotypic consumer.
On June 27 the Supreme Court upheld Obamacare, removing the issue of its constitutionality from the wider political debate, and giving Obama an unanticipated boost toward reelection. A few days later Glaxo agreed to plead guilty to criminal charges and pay $3 billion in fines for promoting its bestselling antidepressants for unapproved uses and failing to report safety data about a top diabetes drug. The largest settlement ever involving a pharmaceutical company, the agreement came on the heels of a $1.6 billion settlement against Abbott over its marketing of its antipsychotic drug Depakote to nursing homes and as much as $2 billion in fines against J&J for the same offense.
During the next quarterly call in late July, Vertex and VRTX reached an uncommon equilibrium, one of the rare junctures in Vertex’s recent history when Wall Street’s on-again, off-again faith in its talents and its future trumped pessimism and uncertainty. Though Incive
k sales dropped, auguring a lower, truncated revenue curve as doctors and patients awaited the arrival of all-oral regimens, shares surged 5 percent based on promising viral kinetic data from a small human study of Alios’s lead nuc, ALS 2200. The molecule was as potent, and apparently as clean, as Gilead’s lead compound, yet unlike Gilead and BMS the company hadn’t spent billions of dollars to acquire it. “It puts them back in the hep C race,” Garret and Co. analyst Brian Skorney told the daily industry news service FierceBiotech. “It makes them a real player again.”
Not that this was news inside the company. Vertex had never stopped advancing. If the drubbing of VRTX during the previous year’s hep C mania had a major internal effect, it was to incite the ET to step up its offense while forcing its members to impose stricter austerity on their organizations. Lowering the company’s sales forecasts while acknowledging that Gilead was the new front runner meant everyone would have to do with less money than they thought they would have, while accepting the likelihood that things might get worse for a couple of years before they got better. For the sales force, it meant selling harder to fewer doctors, trying to reach those patients who couldn’t wait two years for the next generation of drugs. Near-term expectations dimmed even as the long-term outlook improved. The launch had been a blur. People throughout the company were tired but acted resolved, as usual, not to hold anything back.
“If you go away for a couple of hours,” an industry wag noted, “things change in HCV.” Now that a herd of companies was racing hard to deliver the next wave of treatments against the virus and dominate a possible $20 billion market, this advice became literally true. The shape of the race shifted again in just the next few days. BMS announced it was shutting down the combo trial with Inhibitex’s nuc after a patient who took the drug died of heart failure. By the time the company killed the development program three weeks later a total of nine patients had been hospitalized, raising long-standing safety concerns about nucs and leaving executives to explain the crash and burn in less than eight months of a ballyhooed $2.5 billion investment. The FDA, concerned about similar modes of action, called for a hold on development of the two nucs from Idenix that Adam Koppel believed would have solved all Vertex’s problems.