by Barry Werth
Boger and Sato weighed their decision as dispassionately as they could. Rare hereditary diseases, particularly those caused by lone genetic mutations, represented just the sort of scientific challenge that Vertex and Aurora coveted, far more tractable and open to a highly focused research effort than, say, most cancers, where a dozen things might be happening to make cells go wrong and metastasize. The rewards for groundbreaking science in one such disorder might open up related possibilities in other areas. “We’re always a bit of a sucker for exciting science with a mission,” Boger told the HBS authors. More to the point, the bottom line was, insistently, the bottom line. “Simply and clearly put, without the CFF funding, Vertex would not be in CF.”
No company would be. Not even the richest could afford it.
Many people from around the world would remember the moderate and uneventful summer of 2001 as the fluttering end of a daydream. America stood at a time and place in history where its top news stories for two months running were the mounting suspicions surrounding a California congressman about the disappearance of a young female aide and a spate of shark attacks up and down the East Coast. After the tech-led bust on Wall Street and the disputed election, the national mood was—how to say it?—hungover, postcoital, dispirited.
In August, before heading for his West Texas ranch, George Bush announced a new federal policy governing research that used human embryonic stem cells. It was Bush’s first prime-time address to the nation from the Oval Office. He decided that federal money could be spent on such experiments, provided the cells were already derived from an embryo that was created for reproductive purposes and was no longer needed, and that the donor had given informed consent and held no financial stake in the research. Balancing the resistance of antiabortion forces against urgent calls from those for whom such innovation was a last hope, Bush crafted a careful compromise that opened the door, however slightly, to a new and controversial field of biomedical discovery. His aides hailed the decision as Solomonic, a preview of a humble, temperate White House. Half the country still regarded his presidency as illegitimate.
Dr. John Alam, age thirty-nine, assumed a pivotal role in recasting Vertex from a lab-driven boutique—“a creative group,” as Boger called it—to a prescription drugmaker. As senior vice president of drug evaluation and approval, Alam had overall responsibility for preclinical development, clinical development, and regulatory affairs: that is, the full gamut, from figuring out what toxicological studies to do and determining what doses to prescribe for what indications to having a product approved for sale by the FDA and other countries’ regulators. Within the free-floating group of executives swirling around Boger and Sato, none had more corporate obligations, or access, or sway, than Alam.
He was striking, angular, intense, sharp-featured; slim and dark-skinned with straight black hair and rimless glasses. Thomson had a lot more people reporting to him, Murcko had more strategic influence, but Alam was a company officer, attending board meetings and traveling widely with Boger and Sato to reassure investors that Vertex’s clinical sights were set as high, and in as competent hands, as the research labs. “It was always then Josh and Vicki and some number of senior people,” Alam would recall. “But if there was a two and a half, I was perceived to be the half person.”
Alam focused throughout the summer on the anti-inflammatory compound VX-745, the company’s p38 kinase inhibitor. At his previous company, Biogen, he’d been the sole physician associated with the approval of a biologic molecule, Avonex, another anti-inflammatory now on the market for rheumatoid arthritis. With such drugs, once you got clearance to begin human testing, you determined the pharmacologic effects empirically, based on drug levels. The varied effects of a biologic within the cosmos of the human body—good and bad, wanted and unwanted—are revealed over time by experimenting on sick people. Small molecules are different. You need to be able to predict what they’ll do in humans before you administer them. “Small-molecule drug development is more rational and also just fraught with risk,” Alam says. “It’s toxicology, toxicology, toxicology.”
Vertex had known since 1999, when the company announced it was starting human trials with VX-745, that the compound passed the blood-brain barrier, a semipermeable cellular screen that allows very few substances to cross into brain tissue. In itself, this was no cause for alarm. Short-term studies at ten times normal therapeutic concentrations in rats, dogs, and other species showed no adverse effects. A twelve-week Phase II study in patients with rheumatoid arthritis launched in January demonstrated that the drug knocked down inflammation, was well tolerated, and had no serious adverse side effects on the central nervous system. As Vertex awaited longer-term toxicological results from an outside vender, and Alam prepared to press the FDA for permission to expand the trials, Boger strained to contain his fervor. “Everyone could taste it,” he says. “It was the first kinase drug, and it was outside the Novartis deal. We were getting Novartis to pay for all of our kinase research, yet our lead drug was outside the agreement—it was, like, how can it be better than this? We got early clinical results from arthritis that said it was working. And we were just getting ready to configure a Phase III trial—an approval trial. The drug would have been on the market in 2006, and it would have been our drug, 100 percent, worldwide.”
In August Alam got the complete results of a longer-duration study in dogs. The data, unexpected because the initial studies had been clean, showed irreversible organ damage. Not only did the animals show symptoms of neurotoxicity but histologic changes as well; there was some degeneration in the nerve fibers of the spinal cord. “I said, ‘Wait a minute, this isn’t a go decision,’ ” he recalls.
Boger was stunned by Alam’s report. He expected—wanted—the tox study to show something. Dogs have “leaky brains.” Their blood-brain barrier is more porous than other animals’, including humans’. Though most neurotoxicities found solely in dog brains prove to be harmless in people, they at least give a clue what to look for. And if there’s any possible risk to patients, you’d rather know sooner than later, even if your doubts are based on a famously poor predictor. “Drugs kill dogs,” Boger often said, “and dogs kill drugs.” On September 2 Boger, Sato, and Alam went through all the data and agreed that they couldn’t start the drug in the next cohort: they would submit all the data to the FDA and tell the agency they were stopping the study. Consulting their calendars, they set a timetable. They would take the decision to the board and then announce it publicly on September 12.
Boger recalls: “It’s something in people that’s hard to determine—a bad problem in the brain. You don’t know whether it has cognitive readouts because the dogs ain’t telling. All you know is that their brains look bad when you cut them open—kind of a hard assay to do in the clinic. It’s the only case that I can recall knowing about directly in which there was no way forward. And so we had to stop this thing. And that was not pleasant.”
If 9/11 “changed everything”—as voices from all over began predicting even as the buildings still smoldered—Boger didn’t notice. Anticipating market chaos, panic selling, and a disastrous loss of value in the wake of the attacks, the New York Stock Exchange and NASDAQ remained closed until September 17, the longest shutdown since 1933. When trading resumed, the market declined the first day by 7.1 percent, the biggest one-day drop in history. Vertex shares slid into the upper twenties but held firm. Boger thought the toxicity issue was “extremely bad luck,” but the company was moving ahead with second-generation compounds that didn’t cross the blood-brain barrier. He remained upbeat and confident as Vertex readied a press release announcing the VX-745 reversal.
“Internally, I don’t think that anybody thought that it signaled anything wrong,” he says. “I think it did signal to us that we had to take our own word seriously. If we thought the industry odds were one in three hundred, and we could do one in thirty, then we’d better be prepared for one in thirty. It wasn’t going to be one in two. It just hammer
ed home that design wasn’t going to be the magic key that unlocked every problem, that there still was going to be the unpredictability of whole animal biology.”
After a year of interviewing candidates to fill the holes in Vertex’s executive ranks, Sato hired as chief financial officer an ambitious and handsome, young British expatriate, Ian Smith, a partner with accounting giant Ernst and Young, who had vetted the Aurora acquisition. Smith would try to do for the company what Aldrich had done: finance Boger’s ever-widening ambitions until Vertex made money.
As general counsel, Sato and Boger decided, despite raising some eyebrows, to bring in Boger’s older brother Ken, a senior partner in the national law firm of Kirkpatrick and Lockhart. Ken Boger, calm and genial in negotiations, towered like his brother but was broader and more rumpled; he was a Vietnam veteran with an MBA from the University of Chicago and a law degree from Boston College. He had an accountant’s eye for irregularities, a boxer’s sense for opposing weaknesses, a minister’s calculating gaze, and a deep appreciation for human foibles. Ken had been legal strategist, enforcer, and rabbi on all Vertex’s development deals since 1989. He and Smith were scheduled to start in late September. When Sato called to tell him about the next day’s press release concerning VX-745, she half-joked, “I assume you still want to show up tomorrow.”
Vertex’s most senior corporate lawyer had resigned, apparently to clear the way for Ken’s arrival. “The department was very thin at that point,” he recalls. “So the decision was made by Josh and Vicki to do something that I probably wouldn’t have done, which was to let the chief patent counsel be the guy to sign off on press releases.” As the highest-ranking lawyer on staff, Andrew Marks had primary responsibility for intellectual property issues, but he was also the person employees consulted regarding whether or not they could sell shares under Securities and Exchange Commission (SEC) rules. On September 20 he wrote to Boger in an email, “I guess that I am troubled about any employee-trading prior to that release because it is likely to have an effect on the stock (looks like I can’t sell any shares) and, depending on the degree of that effect, could create the perception of insider trading.”
The next day Marks received a draft of the press release. The timing would be consequential, as on that day he also sold 20,900 shares of Vertex at an average price of $22.81, netting $476,765. “The Thursday before I started was when Andrew saw the press release on the 745 program termination and was asked to review it,” Ken recalls. “Well, Andrew was a compulsive day trader. A lot of people were back then. And he had a big margin account with a brokerage, and he had Vertex stock in his margin account. All of his dot-com shares were falling. So he gets a call from his broker, saying, ‘We’re gonna have to liquidate some of your shares to meet the margin call.’ And he told them to liquidate the Vertex shares. This is when he knew about the release.”
Vertex’s stock price dropped 20 percent on Monday, sliding to $17.74 and tripping simultaneous alarms. The SEC, which flags all stock transactions by employees when shares fluctuate wildly, brought charges against Marks for insider trading. After pleading guilty, he was sentenced to a year and a day in jail. Bells also went off in law offices in San Diego, Detroit, San Francisco, Boston, and New York, where plaintiffs’ lawyers, having discovered a lucrative new opportunity in securities litigation, joined together to bring suit against Vertex in federal court for defrauding investors. The suit claimed that the defendants—Boger, Sato, Alam, Murcko, and Marks—concealed what they knew about VX-745’s neurotoxicity long before the announcement; and that by making “false and misleading” statements, they’d been able to artificially inflate the price of shares. “Delaying making this news public,” the plaintiffs alleged, “not only permitted Vertex to receive milestone payments on VX-745 from Kissei but, as importantly, allowed it to continue to sell the myth of its enhanced drug delivery process and sign collaborative deals with other drug companies and, finally, acquire Aurora.”
Conflating Marks’s desperate trades with two years of optimistic public comments by Boger and Sato and a talk by Murcko at the American Chemical Society about predictive modeling, the case tapped into a new sense of frustration among some longtime Vertex investors: a feeling that they’d been misled, that structure-based design was supposed to anticipate these kinds of risks and fix them, that Boger had sold them a chimera. Murcko recalls in an email: “The argument was basically, ‘Look, you Vertex guys are such geniuses, you know how to predict everything, you give lectures at international scientific meetings on the subject, you’re widely published and cited authorities, yet are saying you had no idea that VX-745 was toxic. Is that what you’re trying to make us believe?’ ”
Within a month after Vertex announced it was terminating its trials in rheumatoid arthritis and a blood disease called myelodysplastic syndrome, the stock regained almost all it had lost in late September. The lawsuit would proceed anyway. Lilly, meanwhile, accepted VX-950 for development against hepatitis C. Though the announcement would be delayed a few months, Boger was already looking ahead, considering what moves would be necessary as he, Sato, and Alam reshuffled the development portfolio in a down capital market. On the day he and Murcko learned they were being sued, they were standing in the open space where Vertex held its beer hour, looking out over the grassy spot across the street where George Washington once ordered his troops to build a battery against the British. Now it was a small, neglected park. In the middle was a towering flagpole, and one of the cement-filled cast-iron cannons had in its trajectory the Prudential Center—the Pru—which, like other skyscrapers, now looked like an eerily easy target.
“I guess we’ve made the big time,” Murcko joked.
“You only get sued,” Boger nodded, “if you have something worth going after.”
For CEOs of small, unprofitable biopharmaceutical companies, the annual J. P. Morgan H&Q Healthcare Conference at the Westin St. Francis Hotel in San Francisco during the first week in January is, as Boger once described another investor cavalcade, “a meat market.” Indeed, it is the meat market, several days of ongoing presentations and meetings and dinners and mingling where five thousand biotech executives and financiers gather to compete, compare, schmooze, drink, and hook up. A CEO with a hot story or stock can’t walk down the mobbed corridors without dozens of people pressing in and proffering their multilanguage business cards.
It’s rare that the announcement of a clinical candidate would merit much attention here. But in the six years since protease inhibitors revolutionized AIDS treatment, expectations that they would soon do the same for hepatitis C had risen—and sunk, thwarted by the grinding pace of HCV research and the scant breakthroughs reported by the companies themselves. Excitement at H&Q about the field had faded, resembling if not equaling the moroseness that poured out of the 1993 Berlin AIDS conference, where the promise of new cures had all but gone out.
And so it was perhaps no surprise that the Times devoted a twenty-inch story to Boger’s routine announcement during his presentation that Vertex and Lilly had chosen to develop the HCV protease inhibitor VX-950, and that Vertex was receiving a $5 million milestone payment for the achievement. Boger was careful to note that the first patients wouldn’t be tested until at least 2003 and that further animal tests were needed before clinical trials could begin. VX-950 was nowhere near being a proven hope against disease, much less a compound that could be put in a pill and swallowed. Yet amid the general pessimism, and joined with the fact that no other company had yet disclosed a clinical candidate, this was something to crow about: a lead public position against a major epidemic for which the existing treatments were grueling and mostly ineffective and where Big Pharma’s pipelines appeared empty. Boger regaled his audience with a new metaphor profiling the scientific challenges and risks posed by the virus.
“Instead of stuffing a bomb in a cave, which is what the HIV protease inhibitor does, it’s like climbing a sheer rock face,” he said. “In my nearly twenty-five years in the in
dustry, this is the most difficult drug design problem that I’ve ever encountered.”
With two landmark successes in designing protease inhibitors—three, if you counted the more easily formulated follow-up to Agenerase that would soon get FDA approval, Glaxo’s Lexiva; possibly even four, if you also included pralnacasan, the new preproduct name for VX-740, the ICE inhibitor that Aventis was testing in almost three hundred patients in Europe to see if it relieved their crippling arthritis—Boger could foresee Vertex’s next expansion. It got deep in discussions with Glaxo about the more than five hundred human proteases. Glaxo might have been an unlikely partner given the ongoing dismay over its corporate diffidence and failure to dominate the AIDS market despite having several strong compounds, but its R&D and business people had bought into the idea. Again Vertex would be getting paid off the top, and Boger professed no worries as long as the checks cleared.
In Wall Street’s eyes, Vertex was one of the few early-stage biotechs to survive the bubble unscathed. It had enough programs in the clinic and cash on its balance sheet to weather sudden downdrafts in its business. Vertex shares climbed back nearly to $30, but once again in April lost a fifth of their value when Aventis announced disappointing results from the pralnacasan study. This time no one sued. The anti-inflammatory failed to ease symptoms significantly. But true to the enthusiasm that had driven the collaboration from the start, both companies said they would continue working on the medicine, since as many as 40 percent of patients in certain groups, including those who took the highest doses, showed some improvement. Although hardly transformational, the molecule was active. Pralnacasan might not stop the body’s joints from breaking down—might not be what was coming to be called almost reverently in the industry an “oral Enbrel,” referring to the breakthrough biologic that was winning the market in rheumatoid arthritis and was well on track to get labeling approval for several other illnesses—but pralnacasan warranted further interest. What else it might do could be discovered only by performing larger, longer, costlier, more varied trials.
