The Antidote: Inside the World of New Pharma (33 page)

JANUARY 12, 2009

Boger had chased investors for two decades. He’d endured depressing periods before. At his first JPMorgan H&Q cavalcade in San Francisco eighteen years ago, it seemed Wall Street had simply abandoned the sector. “The mood of that conference was that there will never, ever be another biotech IPO again in the history of the world,” he would recall. Four months later, he took Vertex public during a bubble that hyperinflated after Amgen won a five-year patent fight to market epoetin alpha—Epogen, or EPO—a protein drug that stimulates the production of red blood cells. Notably, it was the promise of more billion-dollar drugs and the first Gulf War in 1991 that led Wall Street to finally rebound from the crash of 1987.

The mood at the Morgan conference now was equally grim. “If people don’t want to buy bonds in General Electric,” a CEO grumbled, “what’s going to make them want to invest in an early-stage biotech company?” It was a fair question. According to BIO, 45 percent of the country’s 370 publicly traded biotech companies were operating with less than a year’s worth of cash; of those, two-thirds had less than six months’ worth on hand. Nineteen companies had recently pulled IPOs, and eight went bankrupt. In the post-Darwinian, post-meltdown economy, a new order had taken hold. “Too big to fail” was surpassing “survival of the fittest” as a measure of selection in business.

As chairman of BIO, Boger was characteristically stalwart and upbeat. What fueled the industry—what had always fueled it—was “the
fundamental optimism that there are great things happening,” he told the
Wall Street Journal
. He made no general predictions about the year. Not so with Vertex. He believed that the time to sell a company’s sizzle was when it delivered on its steak, and he sought to take advantage of his last appearance as CEO, using his standing as a spokesman to drive home its message. Having been ousted in secret by his board, he nonetheless remained the public face of the company.

In his slide presentation, Boger likened Vertex to Genentech in the 1970s, when it developed the first genetically engineered biologics, and Gilead in the 1990s, when it advanced AIDS medicines that made it possible for patients to take fewer pills per day. “Ever the showman,” the website Xconomy reported, “he accompanied those historic examples, respectively, with the Bee Gees hit ‘Stayin Alive’ and Nirvana’s classic ‘Smells Like Teen Spirit.’ ”

Veteran CNBC medical correspondent Mike Huckman caught up with Boger in a hallway. Bristol-Myers Squibb had just announced a global collaboration to find a cure for hepatitis C with ZymoGenetics, a Seattle company with a unique interferon that BMS hoped would fit with its emerging portfolio of small-molecule antivirals. The studio anchor from New York, introducing the segment, called the conference a “who’s who of the health care field. It’s where investors look for the next big thing, not just these days in biotech, but what might be the next big thing for innovation and technological development overall, to get us out of the crisis.” Boger, looming over Huckman, who stood a head shorter than him, seemed entertained.

H
UCKMAN:
So, speaking of the partnership with Bristol and ZymoGenetics, you’re already partnered with Johnson & Johnson, is that correct?

B
OGER:
For Europe and ex-China and Japan. We have North American rights.

H
UCKMAN:
So in a year when many are predicting a record year in M&A in biopharma, could you take that to the next level? Could J&J buy you, or could somebody else take you out?

B
OGER:
Well, Mike, you ask me this question every year, and we’re
still here. We’re moving forward on our business plan to become a major pharmaceutical company, and we think we have the product to do that.

H
UCKMAN:
You’re in a duel now, primarily with Schering-Plough, which is also in the late-stage development of a hepatitis C drug. What makes yours better?

B
OGER:
I think that from the data that they’ve reported and the data we’ve reported that telaprevir is more potent. They reported that their drug is not effective in people who have not responded to previous therapy, and we’ve reported dramatically positive results in those nonresponding patients. Every naïve patient is a potential nonresponder. This is a cure, so I think patients will choose the best shot they have.

H
UCKMAN:
A Bernstein analyst recently said you guys could potentially charge seventy-five thousand dollars for a course of treatment of your drug. Is that accurate?

B
OGER:
Well, we don’t set the price until the very last thing right before the drug goes to the marketplace. The basis of that report, I will endorse. There’s an enormous value to curing the patient with hepatitis C. Infected hepatitis C patients really have a pretty grim outlook, for very expensive chronic liver failure and premature death.

Boger walked viewers through Vertex’s immediate goals to complete the late-stage trials, finish the scientific analysis, and assemble all the data for a new drug application. Huckman, noting Vertex’s industry-leading stock performance, asked, “What catalysts are there to drive the upside in 2009?”

“We’re looking to 2010 to file an NDA,” Boger said. “So we’re in the last strokes, and I think investors are paying attention to that.”

Huckman pivoted to face the camera. “Joshua Boger, the CEO of Vertex Pharmaceuticals, thanks again for talking with us,” he signed off. “And coming up, the CFO of a company that is taking a stop-smoking pill and an alcoholism pill, mixing them together, to potentially make . . . a
diet
pill. Can it work?”

A week after Inauguration Day, Pfizer agreed to acquire a rival, Wyeth, for $68 billion. The deal was the first big merger backed by Wall Street in several months, financed by the surviving investment banks with federal bailout money sent to recharge the economy. It challenged the drug industry to contemplate the potential for a combined “Pfyeth”—“a pharmaceutical behemoth . . . a rarity in the current financial tumult: a big acquisition that is not a desperate merger of two banks orchestrated by the government,” the
Times
reported.

Not to say that Pfizer wasn’t desperate, facing a void in many ways as ominous as the giant lenders’. Its blockbuster Lipitor, acquired when it bought Warner-Lambert Company earlier in the decade, generated $12.5 billion in sales, or a quarter of its total revenues. The drug would go off patent in 2011, to be replaced by cheaper generics. Along with other patent expirations, Pfizer faced a loss of more than 70 percent of its 2007 earnings by 2015. Despite an annual research budget approaching $7 billion, it had no equivalent earners in its pipeline. Its net income for the fourth quarter dropped 90 percent because of charges for resolving settlement claims in off-label marketing prosecutions.

Buying Wyeth gave the company revenue, a potential new portfolio in biologics, and an opportunity to restructure while Congress began to grapple with health care under President Obama. Facing patent cliffs like Lipitor’s, all large pharmaceutical companies hunkered down against rising threats making it tougher to market their products. Congress was widely expected to restrict direct-to-consumer advertising, on top of stricter new restraints on how the industry sold to doctors. Universities and hospitals were starting to limit what their researchers could accept from companies for promoting their drugs.

On February 5 Vertex announced Boger’s retirement and Emmens’s succession. In Cambridge, as at the other sites, the news dropped without warning. Boger had been tight-lipped for months, betraying no hint that he was leaving. A few nights earlier, he’d taken a group of a dozen of those who’d started at the company in 1989 out for a ceremonial dinner, giving them all inscribed Swiss watches and regaling them until after midnight. None of them had a clue of what was coming. All day, more
than a hundred scientists, many of whom Murcko didn’t know, traipsed up to his book-lined office in Fort Washington II, loitering in his doorway, trying to get his bead.

He was as startled as any of them. Murcko had expected “it was a real possibility” that Boger would leave Vertex at some point, but not so soon. He listened to the researchers’ questions, distilled their concerns, and then responded at five o’clock the next morning with an email blast that focused on three worries in particular:

• What do I know about Matt Emmens? Not much except by reputation, which is good: straight shooter, good listener, respects the science, lots of experience, has lived through all kinds of situations (i.e., “battle tested”), knows about commercialization. Peter likes him a lot. Obviously, Matt does not equal Josh, so in a sense it will be a “shock,” but different doesn’t mean worse. Matt won’t be around until March, I believe, so it will take a few months to get to know him and see what he’s really like; but in the meantime, no worries.

• Does this mean we’re for sale? Again, just a personal opinion, but I would say no. We have two drugs to launch in the next few years. The potential value of that is huge, and the board understands that. And Emmens doesn’t have the track record of one of those “dress-it-up-and-sell-it” hired guns. And Josh will still sit on the board . . .

• Is this the end of Vertex as a unique organization? This is the most important question of all. Well, it’s kind of up to us now, isn’t it? Or as a colleague rich in wisdom put it yesterday afternoon, “Do you still live with your parents?” This day had to come sooner or later. Do we really believe that the ONLY thing that made Vertex unique was Josh? . . . My response to the news (after shaking my head a few times to clear it) is exactly what Josh wrote: the mission continues. The best way to honor what he’s built is to rededicate ourselves to that mission. That’s what it means to say
Vertex transcends any one individual—you, me, even Josh. I’d like to think that five years from today, Vertex will be an even MORE amazing place—that we’ve kept improving our game—that we are tackling even harder problems. It’s up to us now—as in fact it has
always
been up to us.

Garrison considered the board’s decision a monstrous mistake. He didn’t think the directors understood or appreciated what Boger had done in building Vertex and what lost opportunities lay ahead while Emmens tried to fill his shoes. “If you did a study,” Garrison says, “Josh Boger is a complete anomaly. Nobody—nobody—starts a company, goes through angel [investors], goes through venture [capital], goes public, and then goes twenty years, never makes a dime, only loses money. Nobody. Only a guy with Josh’s incredible ability to learn and listen to others. There’s nobody like Joshua Boger. Ned Johnson at Fidelity—spectacular. But he’s no Joshua Boger. Jim Ranier at Honeywell? Josh is in a class by himself. They got him at the wrong time. The war was won, and they shot him. The board thought, ‘Now we’re gonna go commercial; he hasn’t got the experience.’ But he never had the experience at any point along the cycle. They weren’t worthy to fire him, in my opinion.”

Most Wall Street analysts cheered the announcement. They had their own ideas about what Vertex could become, and Boger’s disdain for their role was no secret. Geoff Porges especially felt that Boger was holding back the company from delivering on its promise. “I think this will be viewed positively,” he told the Reuters news agency. “He is perceived to have been an obstacle to the sale of the company.”

Investment analysts believed that the only way ahead for pharmaceuticals was aggressive consolidation, and Porges had strong opinions about how he’d like to see the future shake out. He thought Vertex would be an excellent fit for Gilead, which was finding little success in trying to buy its way toward new therapeutics for respiratory and heart diseases. In a note to investors, he also proposed that Vertex buy Pharmasset, which had a market value of $300 million, to add nucs to its stockpile. Porges didn’t know Emmens, but his intelligence about Vertex was reliable enough for Smith to worry that he might have an inside source.

The ninety-day overlapping transition was Boger’s idea. It said to the company and the world that Vertex was on an orderly trajectory. Emmens took the opportunity to listen and learn. He had his own urgency: “Do we have enough time and money to get to commercial?” He also had major concerns about the psychology of the organization. Being unprofitable for so long afforded Vertex the luxury of adhering to its virtue while its stockholders tolerated almost $2 billion in accumulated losses. Patience was running thin. The pressure to perform was mounting. “My biggest worry was whether introducing commercial thinking would meet resistance. The day you become profitable changes the world,” Emmens says. And so while Boger still ran the business, Emmens studied the people and operations of the Cambridge site—1,300 employees spilling across eight buildings and desperate for more space—putting his ear to the engine, so to speak.