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How Vertex’s Long-Term $500K Gamble Paid Off with a $30 Billion Return

Written by: | | Dated: Tuesday, November 17th, 2015

How Vertex’s Long-Term $500K Gamble Paid Off with a $30 Billion Return
November 17, 2015
By Mark Terry, Breaking News Staff


Boston-based Vertex Pharmaceuticals (VRTX) presents an unusual business model one that has been the focus of a Harvard case study. In short, in 2001 the company took a relatively small grant from the Cystic Fibrosis Foundation and spun it into a highly successful development program.

In 2001, Vertex acquired California-based Aurora Biosciences for $592 million. Josh Boger founded Vertex in 1989 and was the company’s chief executive officer from 1992 until May 2009. He was also the chairman of the board from 1997 until 2006. Boger started his career at Merck & Co. (MRK) in 1978, where he eventually was senior director of Basic Chemistry at Merck Sharp & Dohme (MRK) Research Laboratories.

Aurora had a $300,000 contract from the Cystic Fibrosis Foundation to develop a laboratory test for CF. “I knew that this cystic fibrosis assay work was being done,” Boger told the Boston Business Journal, “but frankly it wasn’t even in the top 10 things we were interested in the company for.”

But shortly after the acquisition was completed, the CF Foundation offered to increase the contract to $500,000 to stimulate the company to look for a CF drug. Apparently the Foundation had shopped the idea to other big pharmaceutical companies and was rejected. For the most part, the industry felt that the expense of developing a drug for CF would far outweigh the number of people with the disease and the unlikelihood of having a drug price that would make it profitable.

As Don Seiffert writes, “Boger says his business people all told him not to do it, because at the time, the highest price anyone had ever paid for a drug was less than $100,000 a year. There were simply too few CF patients in the world to ever make any money off the drug.”

Boger decided to take the money anyway, focused on the idea of the challenge as opposed to making money. “It was a scary problem,” Boger told Seiffert, “because the kind of drugs that we and the Cystic Fibrosis Foundation knew we needed was a type that had never been seen before…. Perversely, the difficulty of the problem was a huge attraction for us. If we were successful, it would be hugely transformational. Scary as hell, scientifically.”

In 2012, Vertex launched Kalydeco, its first treatment for CF. In July of this year, the company announced that the U.S. Food and Drug Administration (FDA) had approved Orkambi (lumacaftor/ivacaftor) for CF. It is the first drug approved that treats the underlying cause of CF in patients with two copies of the F508del mutation.

Kalydeco is used to treat a rare form of CF patients with a specific G551D mutation. Of the approximately 30,000 U.S. patients with CF, about 1,200 are believed to have the Gff1D mutation. Orkambi is expected to be able to treat 8,500 CF patients in the U.S.

Thinking back to the fact that in 2001 nobody had paid more than $100,000 per year for a drug treatment, it’s notable that Orkambi’s price tag is $259,000 per year.

Vertex also announced in October a strategic research collaboration deal with Cambridge, Mass.-based CRISPR Therapeutics. The two companies will study if using CRISPR-Cas9 techniques has practical applications across multiple diseases once targets are genetically validated. CRISPR uses a bacterial defense mechanism to program viruses into tools to edit genes. The collaboration will initially focus on CF and sickle cell disease.

As a business model, one of the notable things about Vertex and Boger’s initial decision to accept the funding was he never attempted to convince investors of his approach. He refers to it as “deniability on Wall Street… If anyone were to ever notice—which they never did—that we actually were working in the field, and asked, ‘Why are you doing that? You can’t make any money,’ We could say, ‘Don’t worry about it. It’s not your money.’”


Source: BioSpace

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