The Antidote: Inside the World of New Pharma
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Boger welcomed the challenge. Ever since seeing the structure of Schering’s compound a year earlier, he knew that boceprevir would be potent and effective. He believed, however, that the features Vertex had engineered into its drug made it superior, and that its trial designs would lead to a simpler and more straightforward treatment regimen. What heartened him most about Schering’s comeback was that he now had a partner crusading on behalf of the disease, another company with a large stake in publicizing hope for hepatitis C. By now Boger relied not just on his partners to propel him toward his goals but also on his rivals.
Back during the early 1990s and their many death marches across East Asia, Boger and Rich Aldrich often stood in the aisle of a United 747, across from the lavatories, where they could stretch their legs, discussing long-term business strategy. Asia was the future. Almost two decades later, Boston, which in the 1830s became America’s second-busiest port merchandising Chinese tea, porcelain, and silk, still had no direct flights to the region. The day after Thanksgiving, Boger flew to Washington Dulles International Airport to board a United flight to Beijing, part of a forty-three-person state trade delegation with Governor Patrick. The comforts and décor were vintage. Boger blogged: “I’ve got almost 600,000 United air miles—not just funny money miles but real 5,280 foot air miles, and I’ve seen a lot of United 747s. This plane looked like it had been playing host as a ‘please touch’ air museum piece since 1991. I glanced around for the eight-track tape player. Oh well.”
At the opening ceremony at Tsinghua University in Beijing, Patrick gave what he called his “China stump speech”: a paean to China’s history as a world leader for thousands of years, the historic trade relations between Massachusetts and China, the state’s leadership in research-driven industry, and a growing partnership. “We see great opportunity in building anew upon the blend of China’s economic dynamism and matchless historical perspective and Massachusetts’s tradition of innovation and joyful engagement with the future,” Patrick said. “Common business and international ventures lead to common ground and, in turn, to a common future. In a world weary of war, scarred by so much suffering and struggle, and in search of reason to hope, we have come in essence to make the world a little smaller, our circle of friends a little wider, and the prospects for mutual prosperity a little brighter.”
Boger picked up on the theme in his own remarks. He told the audience about Vertex’s widening Chinese collaborations, including agreements with Beijing’s Institute of Medicinal Biotechnology and two of the city’s major teaching hospitals in tuberculosis, Thomson’s joint-program development for an antibiotic, and Condon’s agreement with Shanghai-based WuXi (Woo-she) PharmaTech to manufacture two of the Fab Five. “Everything here is more,” Boger wrote. As he apprised the coming tide of pharmaceutical players reaching the Chinese market, establishing franchises, alliances, relationships, and beachheads, he believed as ever that the most effective companies wouldn’t be the biggest but the fleetest, the most emotionally involved, with a long-term vision that could help both sides.
“In this new international network model in life sciences, China will play a major role,” Boger said. “And Massachusetts is a natural partner for China. Both of us have the opportunity to grow up our industries in the new model, without substantial inertia from the old, twentieth-century model. Both of our business cultures are fast moving, innovative, and entrepreneurial. Both of us are playing to win on the world stage. So we at Vertex are happy and confident to say that our success in hepatitis C depends on, and in tuberculosis depends on, network collaborations in China. And vice versa. That’s a formula for success in the twenty-first century.”
The trade mission had broad goals and a crammed schedule, but Boger managed to insert a visit to WuXi, a seven-year-old pharmaceutical, biotech, and medical device R&D outsourcing company that did contract research for nine of the ten biggest drugmakers. Its founder, Ge Li, was a returnee: a prominent member of the rising class of business and political leaders who’d left the country in adolescence to study abroad and were known as haiguis: sea turtles. (Most of Shanghai’s emerging political leaders were haiguis.) Ge had a doctorate in organic chemistry from Columbia University. In Shanghai, Patrick and the delegation met with the mayor. Boger chaired a life sciences forum. After a quick turnaround at the St. Regis hotel, there was a reception at a trendy, alpine-style restaurant in the former French concession. Boger blogged:
Afterward, close to midnight, I ride back across town with the governor in the back of his Audi. He wants to talk about the next morning’s visit to WuXi PharmaTech. This is to be the only life sciences company we visit on the whole trip. The governor particularly wants to know what I think the tone of his remarks should be. When he talks about health care, he says, he can tend to get emotional, focusing on the human needs and the human benefits and the human emotions rather than “the business aspects.” I laugh. “That will be just fine,” I say. “You’ll find, I think, WuXi PharmaTech is run by some kindred spirits. Most of us in the innovative drug business are idealists. It’s too hard a challenge to be in this business for just coldly rational reasons. There are a lot easier ways to make a living. Be yourself. They’ll love it.”
CHAPTER 8
* * *
FEBRUARY 11, 2008
It was an hour after dark by the time Boger, Smith, Graves, and Alam took their places in the windowless conference room for the year-end earnings call with Wall Street analysts. They sat at a large round table, a speakerphone positioned between them. Vertex’s new senior director for strategic communications, Michael Partridge, directed the call. On a whiteboard he printed the names of the dozen analysts listening in, prepping for questions. Self-effacing and soft spoken, with a nuanced view of the business of science and a deft knack for the care and handling both of ET members and fund managers, Partridge had worked his way up in the company, joining a decade earlier to write press releases after a stint in market research. Now he was in charge of the complicated Kabuki of providing information to those who regarded Vertex not as an experiment in New Pharma but as a stock: VRTX.
All publicly traded companies must disclose material information to all investors at the same time under the 2000 SEC ruling Regulation Fair Disclosure, better known as Reg FD. Hence the ritual of the quarterly call and the after-hours timing. Whatever trading advice the analysts would provide for their clients, management’s presentation would be the same to each of them—operational results, earnings outlooks—delivered while the stock exchanges were closed and thereby theoretically leveling the playing field between large institutional funds and individuals. Reg FD governed Partridge’s every communication. Opening the call, he delivered the usual cautions about the risks and uncertainties in any “forward-looking statements”—projections of future performance.
Wall Street was in a deep funk, fearing the coming year. The housing bubble had run its course. The credit crisis was no longer just a subprime mortgage problem. It was sucking in all borrowers. As home prices fell and banks tightened lending, even people with good credit histories were falling behind on their mortgages, car loans, and credit cards. Steep losses across the financial industry warned of a crash. The once-triumphalist Bush White House team hoped to leave Washington before it struck. Over the past weekend, Illinois senator Barack Obama swept Democratic presidential primaries in Washington, Nebraska, and Louisiana, while conservative Christian Mike Huckabee won in Kansas, embarrassing Republican front-runner Senator John McCain.
Graves took the lead addressing the analysts, focusing on Vertex’s pipeline, portfolio strategy, and key priorities for the coming year. “First and foremost,” he said, “we aim to execute Phase III policy to fully leverage the differentiated profile and first-to-market opportunities with telaprevir and key telaprevir life-cycle programs.” In other words, the company had designed its large-scale pivotal trials to broaden its FDA label and intended to exploit its pole position aggressively.
“Second,�
�� Graves continued, “now that telaprevir is in the final stage of development, we aim to take definitive steps to build a multidrug HCV portfolio around telaprevir, our second-generation protease inhibitors, and other target external assets to build a leading HCV franchise . . . Telaprevir has set very high hurdles on the two most important attributes of efficacy and duration of care. However, if something can be designed to compete with it or even define a new combination treatment approach, we intend to be the company that brings that to the marketplace through our knowledge and expertise in the area.”
Asserting that the company meant to keep and expand on its lead in hepatitis C was necessary to reassure analysts and investors that it was adequately positioning itself against the arrival of new agents. Graves went on to detail plans to study telaprevir across all types of patients, especially those who failed previous treatment: “null responders,” or so-called nulls. Vertex hoped to prove in a big way early on that by increasing cure rates for the hardest-to-treat patients, telaprevir would be the drug of choice for those high-prescribing doctors who influence what others in the field think. Turning to other molecules for other diseases, Graves briefly mentioned the ongoing trials with VX-770 and VX-809 for cystic fibrosis before alighting on a major new project: a returnee from the Novartis collaboration.
The post-Gleevec stampede after targeted cancer cures and the fever-dream of an oral Enbrel had concentrated tremendous attention on drugs that block Janus kinases, or JAKs. No one had brought a JAK inhibitor to market, but Pfizer led the field. The big question was selectivity. Pfizer’s compound, which it was testing against rheumatoid arthritis, targeted JAK3, a key signaling molecule that helps trigger immune cells to attack, but it also was considerably active against JAK1 and JAK2, which had other basic biological functions throughout the body. It was not a clean drug.
Graves announced that Vertex expected by midyear to start clinical trials of a highly specific oral JAK3 inhibitor for treating a gamut of immune-mediated inflammatory diseases, including RA, psoriasis, organ transplant rejection, and several others. Not coincidentally, it was the same constellation of diseases that Boger had gone after with Vertex’s first project in 1989, when the basic biology of cell signaling remained a black box, and that had propelled the rise and fall of the p38 kinase inhibitor and pralnacasan. If Vertex had a grail, this was it: an all-in-one, safe, effective immunosuppressive pill that wouldn’t raise infection risks and would capture the $10-billion-plus market now belonging to Enbrel and the other follow-on injectable biologics. “A JAK of all trades,” as the journal Nature Reviews put it.
Graves handed the briefing over to Smith, whose job was to explain how Vertex, with insufficient revenues from royalty payments and research collaborations, would pay for everything. Earlier in the day, the company announced two concurrent public offerings of notes and shares aimed at bringing in about $400 million. The stock rose on the news. By now Smith’s strategy of selling the telaprevir story to fund all of Vertex’s efforts except telaprevir had widened the company’s prospects, although it still confounded most analysts. Nearly all of them, accustomed to biotech companies putting all their resources behind one drug, and biased staunchly against dilution, continued to value the company strictly on anticipated revenues from hepatitis C.
“People started to get more comfortable on the data, and so it all begins, we raise the money,” Smith recalls. “But the interesting thing is you’re raising the money based on the HCV data, but HCV is being paid by J&J, and the money we’re raising is being applied to basic research and cystic fibrosis. We could have consolidated down behind telaprevir, allowed the J&J partnership to fund the business, and issued fewer shares. But you’d be a one-drug company. We took more risk to keep the business wider. That’s why we’re so different. I’m sure people in our labs will say it was scientific brilliance. I like to say I was riding that scientific brilliance, and we went and raised money to give the company the runway and the ability to go and invest in its science.”
The gloom in the economy scarcely intruded. Boger, in his brief remarks, echoed Smith’s theme. His concept of what Vertex was worth and his time frames had always differed sharply from Wall Street’s. Weary of arguing, he sounded matter-of fact, even taciturn.
“We are increasing the fundamental value in our business,” he began. “We believe the progress we are making with telaprevir, as well as across our organization, is positioning us to succeed at our corporate and commercial goals . . . We talked about several milestones for you on the call today. We know it is up to us to deliver in order to establish a successful business for many years to come, and we are focused on delivering . . . There are a lot of data being generated from clinical trials across our pipeline. It should be an exciting year.”
Wall Street, where story stocks can float above the churn, imbibed the offerings in a week. Four weeks later, the investment bank Bear Stearns, the most admired securities firm in Fortune’s “most admired companies” survey, known for its tough, overnight-is-long-term trading culture, collapsed. The first major casualty of the financial crisis, it spiraled down from being healthy to being practically insolvent over a long weekend before it was rescued from impending bankruptcy by a deal with JPMorgan Chase & Company. In Washington, Treasury Secretary Henry Paulson conducted a hastily arranged conference call with Wall Street titans. “He didn’t want rapacious trading tactics to further wound a gravely injured Bear,” the Journal reported, “so he decided to put it to the firms straight: I expect you to behave yourselves.”
Eric Olson and the CF team in Cambridge and San Diego remained largely unnoticed by the analysts. VX-770 went unheralded and underestimated even within Vertex—“the well-adjusted second child,” according to Virginia Carnahan, a longtime company manager who in January became vice president of strategic marketing of new products. As in families where parents obsessed with videotaping firstborns almost forget to photograph their younger siblings, biotechs tend to favor their lead programs, celebrating these programs’ accomplishments and convulsing over perceived flaws. For two or three critical years, CF had enjoyed the advantage of flying well under the radar. Olson: “We had a very small army of very committed people who weren’t thinking about HCV.”
Clinical development had advanced smoothly, with few glitches and a strong safety profile. In the fall, the company started a midstage study with VX-770 in twenty patients with the G551D gating mutation. Patients took the drug for fourteen days. Dosages were varied. Expectations were deliberately set low. The company’s chief marker of activity was sweat chloride; if a patient’s perspiration was less salty, it would show that the potentiator was keeping the molecular gates in CFTR open longer and allowing the protein to pump chloride ions across the membranes of epithelial cells just under the skin. Whether that translated also into improved lung or pancreatic function because of a reduction in mucus went beyond the modest goals of the trial. The medical community, as ever, remained deeply skeptical that the compound would work in patients.
At the annual North American Cystic Fibrosis Conference in Anaheim, California, in November, a nurse from one of the trial sites in Iowa had approached Olson and blurted, “I know I’m not supposed to tell you this, but one of the patients in the trial says he hasn’t felt this good in five or six years.” Olson recalls: “I didn’t want to believe it. I said, ‘Listen, I’ve seen this before. People get on drug. There’s placebo.’ ” The brain’s role in improving health during trials is a known clinical effect—often the only effect—of most experimental medicines, and Olson tempered his expectations. In San Diego, most of the attention was on VX-809, the corrector, still the greater hope for the majority of patients.
In late March Vertex received an interim analysis of the study results. After two weeks, the investigators saw an average improvement in lung function of 10 percent in patients receiving the highest dose, compared to no improvement in those receiving placebo. A few of the patients reported breathing better within days o
f starting on the drug. The lung-function data were supported by improvements in sweat chloride and another biomarker, nasal potential difference, a measure of ion flow in the nasal lining. In the executive suite at Aurora, site head Paul Negulescu huddled expectantly with project leader Peter Grootenhuis to hear the findings. On the phone was Dr. Claudia Ordonez, a Vertex physician, who, along with Kauffman, monitored the trial.
“We hadn’t heard anything in months,” Negulescu recalls. “The deal for us was we had to show a pretty dramatic effect in a very small number of patients to get excited about this. So Claudia comes on the phone. The data are streaming on the computer, and we’re listening to Claudia’s voice. Before any of the data came in, I remember the first thing she said—and she’s a very conservative person, not prone to exaggeration. She said, ‘Well, guys, this was an absolute home run.’ We looked at each other. We had no idea what a home run looked like in CF. But we had hit everything we hoped and more.
“It answered so many questions. It said CFTR is fixable in people and that it’s been sitting there like a switch that’s off, waiting to be turned back on. That was one of the other worries: you’re born with it defective, maybe your whole system develops improperly, such that even if you fixed it later, it wouldn’t matter, because all the biology has changed. But no, it turns out the biology is there, just dormant, waiting to be awakened.”