The Antidote: Inside the World of New Pharma (15 page)

“One of the things that Lilly said in their parting shots is: ‘This is not a negative to you, this is not a negative to the program.’ They told us all the things that we could repeat back to our investors,” Boger says. “But they did make it clear that they did think that 950 wasn’t the drug. It was on its way to a drug. It was a good molecule to go in and test a hypothesis. But it would never be a drug because we would never be able to formulate it, and we’d never be able to manufacture it.”

JANUARY 6, 2003

The idiom of the biomedical business shields the user from the grittier realities of the trade. A disease, for instance, is not an illness but a “market opportunity” or else simply an “opportunity.” So is what used to be called a condition, something lamentable but not a sickness: say, erectile dysfunction or wrinkles or baldness. The choicest word in the lexicon is
value
: the full measure of a product’s usefulness to patients and society, although
value
also codes for profits, including obscene ones. Speaking with investors you might tell them, “In the coming year, we will add strong value to our business by enlarging our opportunity in erectile dysfunction” so that you can avoid having to say, “Next year we expect to make billions flogging boner pills.”

The subject on everyone’s mind at this year’s Morgan health care conference in San Francisco was the frenzy in mergers and acquisitions. The M&A cycle in biotech was cresting as companies stepped up their efforts to enhance and expand their pipelines and commercial capabilities and to build up their patent estates. Millennium, hopscotching from gene sequencing to pharmaceuticals, had bought four other companies in the past five years. Boger addressed the trend in his presentation. “As we completed our first decade,” he said, “we found ourselves needing to scale the Vertex discovery engine across multiple gene families. The merger with Aurora Biosciences gave us product buildout capability, cash generation, and additional technology capability. While the deal resulted
in an eighteen percent dilution for Vertex, we will recoup by moving the price-earnings [ratio] when the company becomes profitable.”

When and if Vertex eventually would earn more than it spent remained anybody’s guess. But that only encouraged someone like Boger to make it sound as if the march to profitability was advancing on schedule, firmly under control. “In the year ahead, we are looking forward to continued progress with our late-stage pipeline, including the launch of 908,” he continued. Glaxo had filed for FDA approval on the reformulated version of Agenerase, and Boger remained dimly hopeful that the molecule formerly known as VX-908—delivered in two small pills twice a day—would stimulate Glaxo to move more aggressively in AIDS, where numerous players were jumping in and experimenting with different combination therapies. “We also expect our partner Aventis to begin a Phase II-b rheumatoid arthritis study of our oral ICE inhibitor pralnacasan.”

He went on: “We have set aggressive goals for product development in 2003, which we believe will position us to succeed with our long-term corporate and commercial strategies. Specifically, in the coming year, we will commit to two drug candidates to move forward on the path for approval, launch, and commercialization by Vertex. At the same time, we will focus on maintaining a high level of momentum and innovation in our drug discovery organization to generate a continued flow of novel drug candidates in our pipeline. In addition, we will continue to maintain a strong financial profile as we pursue our goals.”

Boger didn’t discuss what was pressing most on
his
mind: how to build off the progress in chemogenomics; more specifically, the end-stage negotiations for a second gene-family collaboration in proteases with Glaxo. As with Novartis, Vertex had to show that it was ready to hire another couple of hundred scientists and put them immediately to work. It had leased a new six-floor, 300,000-square-foot facility a mile away in Kendall Square, epicenter of what was now called, a decade after Boger’s talk to the state trade group, the Cambridge “biocluster.” Vertex’s cash burn would soon grow notably larger. Part of Boger’s talent was making investors feel that the hugely speculative, tortuous, open-checkbook process
of bringing drugs to patients could be brought under safe, orderly, and predictable restraint.

CFO Ian Smith was by character and training resistant to Boger’s reality distortion field. Someone needed to be “the brake,” as Aldrich had put it, and Smith, thirty-six, managed the company’s business as he had audited others’ as a partner with Ernst and Young, keenly attending to the underlying hydraulics. He was slim hipped, athletic, over six feet. His flashing smile, clipped accent, frequent out-of-season tan, and toned, dark-haired good looks resembled those of the actor Hugh Jackman. Smith had come to Vertex via an accelerated and incongruous route. As a teenager in England, he grew up above the Queen Victoria Pub in a gritty part of Manchester, preferring soccer and cricket to school. A quick grasp of shapes, numbers, and patterns propelled him to a business degree at a polytechnic. Fearing a return to the rough life he’d escaped, Smith became a chartered accountant. By the time he was thirty, he was living in Boston and advising top executives at Reebok and Staples on their expansion plans. E&Y made him a partner soon after.

The high-throughput, gene-family approach was proving to work better on paper than in practice, but Vertex was committed to it, and it was Smith’s job to raise and manage the capital that would enable the company to broaden it. He had no background in science, but, having served as outside manager on Millennium’s four acquisitions and been skeptical regarding the Aurora buyout, he doubted the platform’s sustainability as a business model. Like Aldrich, he recognized that the reliance on Big Pharma to fund the biotech industry was coming to an end, and the gene-family model was more of a hypothesis than a proven method for finding drugs. Boger’s enormous claims for it and his thoughtful arrogance, so winning with investors and analysts, challenged Smith to try to rein him in while also teaching himself to show Wall Street he was Boger’s match for projecting confidence in Vertex’s vision. “It was beautiful working with Josh,” he recalls. “You ask Josh what keeps him awake at night, and he goes, ‘We’re not going to achieve everything I think we should achieve.’ I’d look at him and say, ‘Really?’—because I took care of the contingency planning.”

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.