The Antidote: Inside the World of New Pharma

by Barry Werth

  One notable effect of doing everything for the first time with the idea that it can and should be done better than anyone has done it before is to put a premium on the ability of veterans joining from industry leaders such as Merck, Gilead, and Genentech to push and prod selectively. Pace prevailed, in part with received wisdom, in part because she had the faith not just of Emmens but also of Boger and Ken, both of whom believed that, having been at Genentech, she “got it”: the larger challenge of building a pharmaceutical vision into a beacon. Kauffman became telaprevir’s undisputed spokesman and, by extension, its main external champion.

  New Merck CEO Ken Frazier didn’t follow the usual trajectory to get to the top in Big Pharma. His mother died when he was twelve, leaving him in the care of his father, a janitor. Working hard in school and inspired by Thurgood Marshall, he went into the law, excelling as a student at Harvard and practicing in Philadelphia, where he gained a reputation as an aggressive litigator. He won a new trial for an Alabama man who’d spent nearly twenty years on death row for murder; the prisoner was later acquitted. Defending Merck against liability suits, he came to the company’s attention, joining in 1992 and becoming general counsel in 1999.

  Faced with thousands of plaintiffs’ suits alleging that Merck knew about the health risks with Vioxx years before it pulled the drug from the market, Frazier devised a daring strategy. Rather than make the cases, as lawyers say, “go away” by settling quickly and quietly, Merck decided to fight each case to a verdict. The company won eleven of sixteen lawsuits at trial before agreeing to a $4.85 billion settlement fund. The final legal bill was under $8 billion, compared with $18 billion estimated by analysts at Merrill Lynch.

  Value, in drug-making terms, has many metrics, and it didn’t go unnoticed on Wall Street that Frazier’s hard-nosed legal maneuvering created more shareholder value for Merck than its vaunted labs as the company sped toward a patent cliff with its biggest seller, Singulair, for asthma. Frazier rose rapidly to head Merck’s human health business and then became president. On January 1 he took over as CEO, the first African-American to lead a major drug firm. Merck was the world’s second-largest drugmaker measured by sales.

  Less than two weeks later, Frazier got word that a safety panel had shut down a thirteen-thousand-patient late-stage study of an experimental blood thinner, vorapaxar. Analysts considered the drug, acquired as part of the Schering takeout, a jewel of the pipeline, with some annual sales estimates reaching $5 billion by 2015. Frazier and Merck’s board faced a reckoning. Like Pfizer, Merck had hoped to buy its way out of going over the cliff along with its expired lead product by taking out another major drugmaker, imagining that the other company’s R&D would fill the holes in its pipeline. The crash of vorapaxar and Schering’s two other main hopes left only boceprevir to justify the acquisition.

  Meantime, Pfizer, in its year-end-earnings conference with analysts—one day before Merck’s and, coincidentally, Vertex’s—touted a one-third cut in R&D spending and a big stock buyback. Its market value had sunk below what it had paid to take out several competitors over the past decade as it tried to build a broad portfolio of new products that never materialized and that Pfizer’s new CEO, Ian Read, now said was no longer its goal. Read announced a plan to overhaul the company’s research operations to focus on the most profitable programs. In addition, he said the company would increasingly outsource business and disclosed that it would shut its research hub in Sandwich, England, where Pfizer had developed five of its top twenty drugs, including Viagra. Read told the analysts, “At some point, your shareholders and stakeholders demand you have a return on investment in research.”

  Frazier and Merck were under stiff pressure from Wall Street to follow suit: shrink R&D, sell off divisions, goose the stock price by taking cash and giving it to investors instead of risking it on trying to discover new breakthroughs. Frazier doubled down. Torn between Wall Street’s demand for profits and the long-term funding needs of drug innovation, Merck returned to first principles: if not “Drugs for people, not for profit,” the idea that value in drug making ultimately results from dramatic new medical advances. Frazier told the analysts that the company planned to spend as much as $8.5 billion on research in 2011—putting it on a par with Microsoft and Pfizer, the country’s long-term leaders—and he withdrew Merck’s long-term profit forecast. Predictably, investors responded to Pfizer’s plan by driving up the stock the most in six months, while Merck shares fell almost 4 percent. “I am not blind to what investors want us to do,” Frazier told the conference call. “They want us to invest in prudent ways, in ways that actually drive return on investment and productivity. But as a company, we believe that the only sustainable strategy in the health care environment we’re in is real innovation that makes a difference to patients and payers.”

  Here was the grand contradiction that the pharmaceutical industry—and society—had spawned during the golden age before 9/11. Millions of Americans had come to rely on the steady high dividends of drug stocks in their portfolios, making them complicit in Wall Street’s relentless demand for escalating, year-after-year profit; the corresponding proliferation of marketing-driven me-too drugs; and the resulting precipitous decline in productivity. In the Great Recession, dividend-paying stocks were vanishing, while important new drugs were harder and harder to find. The point was: drug discovery, the least certain and longest term of enterprises, had helped prop up two decades of unparalleled prosperity at the cost of its own future. It was to Frazier’s considerable credit that he would defy Wall Street and risk Merck’s stock performance during his own tenure by hewing to George Merck’s original vision.

  Which, of course, inspired Boger’s vision too, and Emmens’s. In his remarks to analysts, Emmens made no apologies for Vertex’s accelerating burn rate and galloping losses. With its research and development costs up 25 percent in the last year alone, the company had lost $180 million, or 90 cents per share, in the last three months of 2010. Revenue had nearly doubled: from an anemic $34 million to $66 million. Shares of Vertex fell 17 cents to close at $38.80, and the company, with a global workforce nearing two thousand as it added hundreds of jobs in less than a year, had a market capitalization of nearly $8 billion. Wall Street forgave Vertex’s ballooning R&D budget, which more and more analysts were coming to regard in their forecasts as less of an enhancement of a company’s worth and more of a “value destroyer,” based on its rosy calculations about telaprevir and the consensus that Vertex remained a choice takeover target. Goldman Sachs biotech analyst Terrence Flynn initiated a “buy” rating, anticipating that telaprevir—TVR, he called it in his note—would capture 80 percent of sales and would so dominate the market that its revenue curve would extend several more years. “We expect the TVR launch to exceed high expectations, as the Street is underestimating the warehoused treatment-failure population awaiting new treatments and [the] pricing power of TVR,” Flynn wrote, adding: “We believe we are more bullish than the Street on the sustainability of the TVR revenue stream beyond 2014, following the entry of next-generation competitors.”

  Smith likened Vertex’s disclosure meetings to “opening the envelope,” a helpful analogy evoking a simpler time when life-altering news arrived—telegrams, say, containing the fate of loved ones—under a protective seal that you had to slice open in a rush of anticipation; or else the Oscars, a glossy ritual of suspense ending in crushing disappointment for most, elation for the fortunate few. In fact, what is distributed around the table is a printed booklet of a PowerPoint, a facsimile of a slide deck narrated dispassionately by a clinician as the others flip through it, absorbing the data.

  The Vertex swoosh, “twelve of twelve,” the Phase II findings showing improvement in CF patients taking VX-770—each had been a key internal milestone, a turning point inducing a heady blend of gratification and terror. In mid-February, heading into the long President’s Day weekend, the results of a pivotal Phase III study of 161 patients with cystic fibrosis who were rand
omly assigned to get a VX-770 pill or a placebo—STRIVE, it was called—outdid them all. With Ken presiding as always, Kauffman presented the findings. The patients in both groups all had at least one copy of the G551D gating mutation.

  The study found that those taking the drug had a 17 percent relative improvement in their FEV1—the amount of air they could blow out in one second—compared with those on placebo. The effect lasted the entire forty-eight weeks of the study. Side effects included headache, respiratory infections, nasal congestion, rash, and dizziness, but they were well tolerated. Smith recalls doing a double take when Kauffman presented the safety data. Remarkably, more patients from the placebo group dropped out of the trial than those on the drug.

  The effect for patients exceeded anyone’s imagining. Before starting on Vertex’s drug, many couldn’t climb a flight of stairs without erupting into a coughing fit; within days of starting treatment, some reported, they were able to breathe better than they had in years. It was as if a light switch had been flipped on, a radical upsurge in energy supercharged by a jolt of hope that they hadn’t imagined was possible and for which they were totally unprepared. Because CFTR is also broken up in the digestive tract, CF patients generally struggle to maintain their weight, but patients on VX-770 put on weight readily and kept it on. Weight gain wasn’t a primary end point of the study, but it was a hugely promising signal nonetheless that the pill worked throughout the body and could further transform the lives of patients by improving absorption, lessening the need for supplemental pancreatic enzymes, and making breakfast less of a painful battle of trying to choke down a few more calories.

  As bacteria and detritus were swept increasingly from their lungs and airways, the patients on the drug had significantly fewer “pulmonary exacerbations”: debilitating setbacks of worsening sputum and cough, shortness of breath, chest pain, appetite loss, weight loss, and lung function decline often requiring long hospital stays. The unambiguous take-home message from the trial was that for the 4 percent of patients most likely to benefit from a potentiator, VX-770 was a dream molecule, something that gave them back their lives by fixing the underlying cause of what was wrong with them. Science fiction made fact.

  Far more than the Vertex swoosh, the STRIVE results opened up new horizons and raised daring possibilities about the future both of the company and of medicine, forcing Vertex yet again to lunge ahead and grow swiftly to keep pace. Everyone around the table instantly felt the impact: here was another blockbuster to build out under, the second in less than a year, an unprecedented repeat performance driving toward another launch, most likely within the next twelve months. Organizationally and financially, the company now had to prepare—while still burning record amounts of cash and preoccupied with building out operations—to emerge in 2012 as a full-service, multiproduct, global biopharmaceutical company.

  The launch of telaprevir, the singular goal around which the company had organized itself for six years, now morphed into something both larger and smaller. It remained the essential driver of Vertex’s near-term future, yet was diminished—if not dethroned—by the onrush of the next critical phase in the company’s evolution. Though the impending launch was all most people in the company cared or thought about, what now compelled senior management was not just to cure as many patients as possible and crush Merck but also to bring in enough revenue from telaprevir to propel Vertex high enough and fast enough to reach a kind of escape velocity—putting it on a trajectory toward long-term sustainability. “The first stage of a Saturn V rocket,” Emmens began to call it.

  Bernstein’s Geoff Porges noted the shift. He, like a number of other analysts, believed that 770 would be rapidly approved, and he forecast, despite the small number of people who would take it, sales of $500 million or more a year. Porges knew the company could price the potentiator at more than $250,000 per patient per year, and that governments and health insurers would pay that much because they believed the benefits justified the costs and because the number of patients was minuscule compared with other diseases. (Some recent biologics for patients with rare genetic disorders were priced as high as $400,000 a year.) He also recognized the magnitude of the findings: that Vertex, miles ahead of any competitors, would redouble its commitment to discovering a cocktail that worked for the other 96 percent of patients and to striking hard against other genetic diseases while the whole area of personalized medicine heated up. After writing a note exhorting investors to buy VRTX and setting a price target of $80, he explained:

  Hep C we’re going from a 35 percent cure rate to a 70 percent cure rate. That’s really impressive. Tens of thousands of patients are gonna benefit from that. It’s gonna save a lot of grief and cost in the future. That’s great. But cystic fibrosis. If you take cystic fibrosis from a universally fatal and life-shortening disease into a chronic illness—you’re on a lifetime of medication but you have a normal life expectancy, and that’s now feasible—that’s breathtaking.

  I think the body language inside the company has transformed from where it was six to nine months ago—because of CF. They viewed themselves the way the Street still views them today, that is, as a company that’s gonna have this short burst of fabulous profitability and maybe has a few other singles and doubles in its back pocket. The company inside now views themselves as having this short burst, and then having just this huge thing beyond that short burst. And the huge thing is this transformation of the most common inherited disease in our society.

  Vertex shares rose 15 percent on the STRIVE data. Amid the ebullience in San Diego and Cambridge, there remained a nagging sense of incompletion, especially among those working in CF, who could not feel that they had done their job until the great majority of patients had access to effective medicine. With two correctors, VX-809 and VX-661, advancing in the clinic, hopes at both sites remained high, but nowhere near as high as on Wall Street. “We got more reflective,” Olson recalls. “We thought, ‘Yeah, this is fine, the four percent. It’s almost like we’ve got the seed corn now. Now we know that plant has germinated, but to get more seeds, the whole thing’s gotta grow. We’ve shown we can grow corn from that seed, but we’ve got to grow a lot more ears.’ ”

  More than twenty years earlier, when Francis Collins and his collaborators located the gene that causes cystic fibrosis—and then a decade after that, when the human genome was decoded, holding out the promise of a new epoch in medicine—no one could foresee the larger societal dilemma presented by an ultraspecific, ultralucrative superorphan small-molecule drug for a narrow genotype of patients. An estimated six thousand of the seven thousand known human diseases are rare, affecting as many as thirty million people total. Yet with industry giants like Pfizer shedding unprofitable programs and struggling to survive, the number of new medicines filed with the FDA dwindling in a year from thirty to twenty-two, and average drug revenues dropping, Porges’s bullishness introduced a new moral calculation. Forbes’s biobusiness chronicler Matthew Herper, writing about the STRIVE findings under the headline “A Big and Dangerous Day for Personalized Medicine,” asked:

  If every drug is only going to work in a few thousand people, what then? One tough reality is that the new methods of studying genetic variation, which look deeply at the biology of relatively small numbers of people, are at odds with the way we’ve been thinking about drugs for years, studying common medicines like cholesterol drugs in thousands or tens of thousands of patients . . . What we’re set up for is a collision between genetics and large-scale studies, between innovation and cost, and between a vision of medicine that is struggling and one that is trying to create itself. It could spark lots of great new medicines for everyone. It could also be a giant mess.

  Keith Johnson knew he was not on placebo. He was forty-two years old, an information storage specialist for a company in Manhattan, married and a father of two preschool-age girls. Since people with cystic fibrosis rarely live to middle age, he was an elder, an anomaly. Eighteen months ago, he developed a res
piratory flu and his FEV1, which is measured by blowing into a plastic tube, dropped to 39 percent of normal—below the cutoff for severe airway obstruction and the point at which patients qualify for lung transplant lists. When Johnson was diagnosed in college with CF, he’d been told his life expectancy was just a few years. His older sister, Jennifer, also born with the disease, died at age thirty-six after receiving a double lung transplant. Even as he beat back his congestion with intravenous antibiotics and was able to raise his FEV1 into the mid-40s, he knew his breathing would continue to decline by 1 percent to 2 percent a year. He worried about how much more he could take.

  What motivated Johnson to recover from his lung infection through late 2009 and early 2010—the fiercest months, as it were, of the health care war in Congress, when Republicans seized on the subject of end-of-life care and conjured a specter of “government death panels”—was the chance to participate in a placebo-controlled study of VX-770 in adults with two copies of the delta-F508 mutation, the largest subgroup of people with the disease. The 120-patient trial was the first to test whether the drug, by itself, might help the much wider majority of sufferers who don’t have a gating problem but instead whose CFTR misfolds so that sufficient protein never gets to the cell surface. The biological rationale was to fix whatever scarce active protein the patient had.

  Johnson’s doctor told him she thought the drug “was a game changer,” he recalls, but he had learned not to raise his hopes. A guarded but intellectually voracious Northern California native, he is a skeptic by nature and training—stolid, medium built, with short gelled black hair, intense hazel eyes, and graying sideburns. Life with CF was endlessly grueling: up to two hours a day of breathing treatments alone. Every morning, he sat for an hour at his computer, taking pills and inhaling drugs and saline solution through a nebulizer. Then he tried to do some work while jacketed by a powerful pneumatic vest that rattled his lungs until he coughed up three and a half ounces of mucus. A die-hard existentialist, he exuded a grim, weary resignation about his ordeal.