The Antidote: Inside the World of New Pharma (18 page)

As the annual Liver Meeting concluded at the Hynes Convention Center, Vertex began to reposition itself as a fully committed player in infectious liver diseases, no longer one that would just report research breakthroughs but one that aimed to become a dominant company: a rival to Schering, Roche, and Merck. Kwong couldn’t make the case that Vertex had a better compound than Boehringer Ingelheim, still the leader among those chasing protease inhibitors, but she presented compelling preclinical data, including experiments suggesting that VX-950 could knock down replication ten-thousand-fold in forty-eight hours and could clear the virus in less than two weeks. Ken Boger settled the company’s five-year-old patent troubles with Chiron, which dropped its lawsuit and granted Vertex (for an undisclosed sum) a nonexclusive license to develop VX-950. The company announced that it would be able to start testing the drug in people in early 2004.

In December Vertex held its annual investor day in New York. The occasion gave Boger, Sato, Alam, Smith, and others from the company their last forum before next year’s Morgan conference to make their case to Wall Street. Of the biotech analysts who attended, only Bernstein’s Porges reacted positively. The next morning in his note to investors, he wrote that although Vertex was among the worst-performing stocks in the sector in the two months since he’d started coverage, and was terminating three of its most advanced pipeline programs, “much of the portfolio and financial uncertainty we identified has now been resolved, and, we believe, in aggregate, that the company will benefit from more
positive news flow going forward, as well as a more aggressive and realistic commercial strategy.”

Porges noted that the launch of Lexiva was ahead of expectations, already having surpassed three other drugs and Agenerase itself in prescriptions, and that it would be likely to generate significant income to pay for clinical trials. Smith, he wrote, had signaled clearly that the company was committed to changing strategy and lowering its burn rate while it actively sought more partners to out-license programs and bring in more cash. More crucially, Porges identified hepatitis C as a sizable commercial opportunity, suggesting that if Vertex won approval for merimepodib in 2007, the market potential for the compound could rise to $1 billion before newer agents arrived. Porges kept his $10.60 target price but, as the stock was trading 20 percent lower than that, upgraded his recommendation to “market perform.” He now thought the stock would do as well as the Standard & Poor’s 500 and other leading indicators.

In Porges’s estimation, Vertex had done much of what it needed to do to regain its footing. But his endorsement also contained a disclaimer, saying, in effect, caveat emptor—buyer beware—as well as a blunt challenge to Boger, Sato, and the executive team. He wrote:

The risks to our thesis about Vertex are scientific, financial and operational. Scientifically any setback or delay on merimepodib would be disastrous for the company, given the singular focus they have now given the product. Financially, failure to achieve a meaningful reduction in expenses in 2004 and beyond would be a disappointment to investors and could compromise the company’s ability to secure additional financing. Operationally should the company fail to advance one or more meaningful product outlicensing/collaboration in the first half of 2004, the outlook would again turn negative. Each of these initiatives, and their associated risks, is essential to the financial survival of this company and deserves laser-like focus and complete commitment from management.

Game Worth the Candle

FEBRUARY 14, 2004

VX-950 had been revived—barely. It remained the darkest horse in the portfolio race: the molecule that Lilly had rejected, eclipsed by Boehringer’s compound, a distant follow-on to merimepodib in Vertex’s strategic arsenal. HVC research in general had crept steadily forward, a study in frustration. More than ten years after Deb Peattie flew to Saint Louis to enlist Charles Rice to help solve the structure of the protease, Rice, now a world leader in infectious liver disease at Rockefeller University, gave a grim accounting to virologists at a meeting in San Francisco. No one had yet been able to grow the virus, he said. As a work-around, scientists had devised a so-called replicon system in which pieces of the genome were used to produce particles of HCV, which served as a model for testing drug candidates. Boehringer’s pilot candidate, BILN-2061, had toxicology problems, and the company was going back to the drawing board. As ever with HCV, breakthroughs were halting and elusive.

The larger problem was to understand—and then show—how a drug or combination of drugs could achieve sustained viral response (SVR): in other words, a cure. The key with killing off viruses is not how to exterminate them (you can use bleach) but how much of a substance to dose people with that will be both effective and safe. To rate the effectiveness of a molecule, researchers traditionally test how much of the substance it takes to knock down a targeted biological activity by half (IC50). Since trillions of HCV particles are made daily in infected people, numerical
drops are measured in “logs”—each log being a power of 10. A 2-log drop is a 100-fold decrease; a 4-log drop, a 10,000-fold decline.

Inside Vertex, there were well-founded qualms about VX-950’s potency, and Kwong made it her mission to dispel them by developing a better test of effectiveness. “The reason that we were in trouble is that BILN-2061 was 350-fold more potent than we were in a certain assay,” she recalls. That assay compared effectiveness at a 2-log drop. But when Kwong ran a multi-log drop essay comparing 2061 side by side with VX-950, “we weren’t in spitting distance of each other,” she recalls.

Kwong and Vertex now realized that the longer you incubate with the drug, and the more drug you put in, the more effectively you could clear the virus. While the hepatitis C team pressed ahead with animal studies to establish an optimal range of dose regimens for human testing, Ian Smith and Ken Boger launched timely financial and legal maneuvers aimed at reducing the company’s exposure while squeezing more value from its assets. Smith went back to some of Vertex’s significant bondholders and proposed a private restructuring of their notes, offering, essentially, a 6-to-1 split. “Typically, if you’re a bondholder, you hold the company hostage,” he says. “You don’t go, ‘Yeah, I’ll take a risk on your equity.’ They say, ‘Give me the damn cash. I’ll take sixty cents on the dollar instead, as opposed to taking your stock, which might be worthless.’ ”

Since the crash of pralnacasan, Vertex had seen perhaps its most precious asset among investors—the benefit of the doubt—dry up. “We were being treated like everyone else,” Boger recalls. Of sudden and equal concern was brewing internal doubt. John Alam, in particular, was facing the realization that Vertex’s target-based discovery engine might be steaming down the wrong track: that outside of anti-infectives, a few cancers, and some rare genetic diseases, the idea that you could inhibit a single target with a small molecule to stop a disease was “a false belief.” Still, Smith found that there remained sufficient hope in Vertex’s business. He was able to round up enough investors willing to convert their shares, removing $320 million in debt from the balance sheet.

Ken pressed to retrofit the terms of the Novartis partnership by arranging for an earlier, more rapid stage transfer of Vertex’s drug candidates to Novartis for clinical development. So far Novartis
hadn’t accepted any of Vertex’s molecules, claiming that Vertex hadn’t shown sufficient clinical relevance. Ken, after persuading Sato and Boger that the present arrangement was unsustainable, convinced Novartis to come to terms, splitting the research efforts to give Novartis first-option rights on Vertex compounds, while allowing it to push ahead in kinases on its own. He recalls:

I proposed a way to redo the deal to knock out this proof-of-concept stuff, and that said to Novartis, “You have to pick the compound when we propose it for development, and if you don’t pick the compound that we propose, then we not only get the compound, we get the whole target.” I was pretty sure that I could get Novartis to go along with it, because I knew they had a problem that was ongoing.

They were violating the agreement, big-time, and I had made a decision from a business development and legal standpoint not to call them on this. I was in a “Don’t ask, don’t tell” mode. I knew they were breaching the agreement by doing work on the side with kinases that were supposed to be exclusive to us, and the people who were doing the work were really influential inside Novartis. They were the people who were supposed to be killed off by the deal with us, but they didn’t get killed off, they grew. I figured, let’s just let this sit out there and use this someday.

Novartis agreed to the amended deal in early February. Vertex now was free to shop those kinase projects that Novartis had rejected, and Boger approached an old friend at Merck who’d just been put in charge of a new cancer effort, proposing a collaboration in Aurora kinases, a group that Vertex had first shown to be a potentially important class of targets. The company had a potent inhibitor that profoundly reduced tumor growth in cancer models. At the same time, Sato, Kwong, and Tony Coles’s business development team took Kwong’s data on the road, meeting with dozens of potential partners in HCV. As Porges had warned, the company had until June to line up another collaboration, or the view on Wall Street, still scraping near its nadir, would again turn negative.

Boger had told the Harvard Business School team, “A lot of biotechs are founded on the German academic model, with a couple of principal investigators and their closest troops. As the firm expands, later employees are considered less important. In contrast, we believe that the last person in the door is just as important as the first. We consciously reject the German model for the Silicon Valley model.” But what if the last person in the door is an actual German academic? And what if he’s handed the keys? The gradual immersion of chief scientist Peter Mueller into Vertex’s social experiment was bound to roil Boger’s hypothesis.

At an off-site, all-day Saturday meeting—on Valentine’s Day—Mueller proposed a new strategic vision for the company, attempting to galvanize Boger’s and Sato’s fervor for hepatitis C into action. Sizing up Vertex’s situation from the perspective of getting a drug out the door and becoming a sustainable pharmaceutical company, he argued that it first had to free itself from its dependence on Big Pharma. “With those types of arrangements, there are some obligations linked to it, and you have not the freedom to operate that you would otherwise have,” he recalls. “You’re more or less a slave of those partners. They provide development support, but at the end of the day it doesn’t drive a small company to the next stage of evolution.

“The other thing was we had in the pipeline molecules that I would say were so-so. We had to maintain those activities, but to move forward, you have to demonstrate that you can do something on your own. Given the small amount of dollars that we had, those activities were very, very limited.”

The issue was how to advance the company. The group was restive and large—maybe fifty in all—more or less the same body that had conducted the portfolio review. The turbulence, shocks, reversals, and doubts of the previous nine months lingered, and feelings were raw, conflicted. More than a few regarded Boger as not quite the same Pied Piper he had been, a casualty of his own inflated expectations. Merimepodib was advancing but was “crippled,” Alam says—the best of an uninspired lot.

Mueller made his case. “I strongly came forward with the idea that we have to develop the anti-infective drug VX-950, because it was probably the highest chance of success from a
clinical
development point of view,” he says.

There was a huge debate. Can we afford that? It’s very difficult. It’s long trials because standard of care is forty-eight weeks. Cost of goods of the molecule were outrageous, when you have to produce a couple of kilograms, and a kilogram costs $2.5 million, and it’s cumbersome to make. People get nervous because it takes away money and capacity from other projects.

It also meant that we had to make a commitment to build a development organization. That was actually the more significant piece, because then you have to go and do financing. We didn’t have the development capabilities that you need to make a drug all the way through the end. You had to basically build this more or less from scratch, with all the functions that are needed underneath. There is chemical development, analytical chemistry, formulation development, a quality environment. We also had to think about a manufacturing buildout, because we couldn’t afford to put a plant in the ground for a couple of hundred million bucks. The clinical end was the same thing. You need a set-up in clinical that has all the components that you need. We’re going to need a strong regulatory environment, strong clinical development environment, strong clinical operations that can handle bigger and complex trials across the globe.

Boger agreed with Mueller that VX-950 was Vertex’s best hope for a medicine that transformed the lives of patients. This was a decision he had positioned himself to face ever since he’d committed Vertex to getting as many projects as possible out of the lab and into patients. He was not without other options, which complicated his choices. He told the group that Vertex would mount a full-scale development effort with VX-950, effectively freezing some IMPDH projects that were further advanced. “That was a tough call,” Boger says: