Vertex verges on big time
But hepatitis drug faces competition and some investors wary of stock
By Stephen Heuser, Globe Staff | June 21, 2006
Earlier this year, Joshua Boger , chief executive of Vertex Pharmaceuticals Inc. , stood before several hundred scouts from the country's top mutual funds and drug companies and delivered a piece of news that could make his 17-year-old Cambridge biotech firm profitable for the first time.
An experimental Vertex pill, he said, had dramatic effects in a group of eight patients with hepatitis C, a virus that infects millions of Americans and can lie dormant for years before destroying the liver.
``It's a tremendous responsibility to live up to a molecule like VX-950," Boger told the crowd at the JP Morgan Healthcare Conference . In the shorthand of biotechnology, he meant that he had a drug on his hands that wouldn't just make large amounts of money, but would change society.
In the audience, an investor leaned over to a reporter and whispered: ``He certainly doesn't lack for confidence."
Since news of Vertex's hepatitis drug emerged last year, this company known for its expert chemistry has found itself among the highest fliers in the biotechnology world, soaring from less than $1 billion in market value in early 2005 to nearly $5 billion in March. Yesterday, value had slipped back to about $3.4 billion, after shares closed at $31.18.
Vertex now plans to test its drug in hundreds more people and hopes to file for federal approval in 2008 . If the drug works as well in the larger trial, analysts project it could bring in as much as $2 billion to $3 billion annually -- making it a global blockbuster and vaulting Vertex out of its research-driven niche into a prominent new role carrying the banner for the idea that new science can turn into real profits.
``There's a lot of excitement about Vertex's drug, and rightly so," said Dr. Nezam Afdhal , a liver specialist at Beth Israel Deaconess Medical Center in Boston who helps run one of the company's clinical trials.
But Vertex faces sharp competition from some of the biggest drug makers in the world, who are racing to develop their own hepatitis C treatments. And some investors are eyeing Vertex's stock price warily and asking: Haven't we seen this before?
Hatched in 1989 to exploit the new analytical tools that chemists and biologists were starting to master, Vertex -- like many biotechnology companies -- has survived years of red ink on the promise of a future payday. The company attracted early investors with stories of how its smarter, faster approach to attacking diseases would lead to a rapid flurry of new drug applications. The company was even the subject of a book, ``The Billion-Dollar Molecule," which highlighted the relentless scientific salesmanship of its founder, Boger. Buoyed by a bull market and a biotech boom, its price crested near $100 a share in 2000.
But by 2003, with no significant drugs on the market, its share price had dropped by a factor of 10. The ``billion-dollar molecule," a potential immune-suppressive drug, never materialized. The company has racked up more than $1 billion in losses, and its hepatitis pill won't come to market till 2009 at the earliest.
``I think there are a number of investors who've been burned in the past on Vertex shares, and that's going to make some investors nervous," said stock analyst Joshua Schimmer of Cowen & Co.
Vertex kept itself afloat, however, with a series of science deals with big pharmaceutical companies, helping to defray $200 million in annual research spending, and through a pair of timely debt financings in 2000 that added almost $500 million to its bank account.
Today, the value of the company hangs on its next set of trials for the hepatitis treatment, simultaneous human tests in the United States and Europe. As many as 1,000 people with hepatitis will get the drug, and results are expected to emerge later this year .
Meanwhile, Vertex is hiring as fast as any company in Cambridge, planning to grow from about 800 employees at the end of last year to 1,000 by the end of this year. It hires a car fleet to shuttle employees from its Cambridgeport campus to a big chunk of newly occupied lab space in Kendall Square. And in anticipation of a major launch of a product, it has even hired the former marketing manager of Lipitor, the best-selling drug in the world.
It may sound unlikely that an eight-patient test could drive billions in stock-market growth, but that's the nature of the biotechnology industry, in which investors bet not on a company's earnings, but on its potential. One big success can turn a company from a perennial also-ran into a global name.
``I like the idea that Joshua and the management team are really swinging for the fences," said Craig Millian, the former Lipitor marketer who arrived from Pfizer in January.
The hepatitis C virus has emerged in the past few years as a top new target for drug makers. Identified in 1989, it infects people through blood contamination -- injectable drug use and transfusion are the most common means -- and can lurk undetected for years before its liver damage is discovered by a doctor. There is no vaccine.
``When you think about organs you can do without, we still haven't found a way to reproduce the function of the liver," said Raymond Chung , the director of hepatology at Massachusetts General Hospital. ``If you're out of liver, you're pretty much out."
Currently, the disease is treated with a year's worth of injected interferon, which boosts the immune system enough to help about half of those treated with it to clear the virus on their own. It costs $18,000 and has unpleasant side effects, which doctors describe as a terrible flu that can trigger anemia, mood swings, and depression as therapy drags on.
Vertex's pill, by contrast, takes a leaf out of the playbook that was developed to fight HIV: It shuts down a protease, a key enzyme the virus needs to infect the body. Without the protease, the hepatitis C virus can't make the set of protein tools it needs to reproduce itself and hijack other cells.
In the test results disclosed in January, the drug appeared extremely effective in knocking the virus below detectable levels when used in combination with interferon. (If patients' viral levels stay undetectable for long enough, they are considered cured.) In four of eight patients who took Vertex's pill late last year, the hepatitis virus was undetectable within two weeks.
If it shows similar results in the longer trial, it could open the door to a treatment that helps more people, and takes less time, than the current therapy.
It could also open the door to huge growth for whichever drug company gets a product to market first. Global drug giant Schering-Plough is also testing a protease inhibitor, although Vertex's appears to be ahead in effectiveness. Behind them, several other companies have similar drugs in the pipeline, including Bristol-Myers Squibb Co.
It's uncertain whether Vertex's larger trials will replicate impressive early results. Drug resistance and side effects can always crop up in larger and longer trials; an earlier protease inhibitor was pulled by a German drug company after heart problems showed up in animal tests.
But analysts believe that the first company to bring a drug to market will have a chance to set the price -- up to $30,000 for a course of treatment -- and claim a big share of the estimated 8 million patients in the United States and Europe.
``There are obviously no guarantees in drug development, said Schimmer, but Vertex has ``never had a drug that shows such efficacy before. Few companies have."
Vertex does have other products in the pipeline, including a possible pill for rheumatoid arthritis, a cancer treatment being developed with Merck, and a cystic fibrosis pill. But for now it is the hepatitis C pill that has transfixed both doctors and Wall Street.
``This is a drug that we believe is not going to launch quietly. There's going to be worldwide demand, and it's a disaster if you have spectacular results but limited supply," said Boger.
In anticipation, Vertex has already contracted out large-scale manufacturing of the pill, and promises to have produced two tons by the end of the year.
Boger said he is pleased at the prospect that the company he founded could turn the corner to profitability around the time it turns 20.
``To me it's not a surprise that we're 17 years old and in this position," he said. ``That's about how long I thought it would take."
Stephen Heuser can be reached at sheuser@globe.com.
By Stephen Heuser, Globe Staff | June 21, 2006
Earlier this year, Joshua Boger , chief executive of Vertex Pharmaceuticals Inc. , stood before several hundred scouts from the country's top mutual funds and drug companies and delivered a piece of news that could make his 17-year-old Cambridge biotech firm profitable for the first time.
An experimental Vertex pill, he said, had dramatic effects in a group of eight patients with hepatitis C, a virus that infects millions of Americans and can lie dormant for years before destroying the liver.
``It's a tremendous responsibility to live up to a molecule like VX-950," Boger told the crowd at the JP Morgan Healthcare Conference . In the shorthand of biotechnology, he meant that he had a drug on his hands that wouldn't just make large amounts of money, but would change society.
In the audience, an investor leaned over to a reporter and whispered: ``He certainly doesn't lack for confidence."
Since news of Vertex's hepatitis drug emerged last year, this company known for its expert chemistry has found itself among the highest fliers in the biotechnology world, soaring from less than $1 billion in market value in early 2005 to nearly $5 billion in March. Yesterday, value had slipped back to about $3.4 billion, after shares closed at $31.18.
Vertex now plans to test its drug in hundreds more people and hopes to file for federal approval in 2008 . If the drug works as well in the larger trial, analysts project it could bring in as much as $2 billion to $3 billion annually -- making it a global blockbuster and vaulting Vertex out of its research-driven niche into a prominent new role carrying the banner for the idea that new science can turn into real profits.
``There's a lot of excitement about Vertex's drug, and rightly so," said Dr. Nezam Afdhal , a liver specialist at Beth Israel Deaconess Medical Center in Boston who helps run one of the company's clinical trials.
But Vertex faces sharp competition from some of the biggest drug makers in the world, who are racing to develop their own hepatitis C treatments. And some investors are eyeing Vertex's stock price warily and asking: Haven't we seen this before?
Hatched in 1989 to exploit the new analytical tools that chemists and biologists were starting to master, Vertex -- like many biotechnology companies -- has survived years of red ink on the promise of a future payday. The company attracted early investors with stories of how its smarter, faster approach to attacking diseases would lead to a rapid flurry of new drug applications. The company was even the subject of a book, ``The Billion-Dollar Molecule," which highlighted the relentless scientific salesmanship of its founder, Boger. Buoyed by a bull market and a biotech boom, its price crested near $100 a share in 2000.
But by 2003, with no significant drugs on the market, its share price had dropped by a factor of 10. The ``billion-dollar molecule," a potential immune-suppressive drug, never materialized. The company has racked up more than $1 billion in losses, and its hepatitis pill won't come to market till 2009 at the earliest.
``I think there are a number of investors who've been burned in the past on Vertex shares, and that's going to make some investors nervous," said stock analyst Joshua Schimmer of Cowen & Co.
Vertex kept itself afloat, however, with a series of science deals with big pharmaceutical companies, helping to defray $200 million in annual research spending, and through a pair of timely debt financings in 2000 that added almost $500 million to its bank account.
Today, the value of the company hangs on its next set of trials for the hepatitis treatment, simultaneous human tests in the United States and Europe. As many as 1,000 people with hepatitis will get the drug, and results are expected to emerge later this year .
Meanwhile, Vertex is hiring as fast as any company in Cambridge, planning to grow from about 800 employees at the end of last year to 1,000 by the end of this year. It hires a car fleet to shuttle employees from its Cambridgeport campus to a big chunk of newly occupied lab space in Kendall Square. And in anticipation of a major launch of a product, it has even hired the former marketing manager of Lipitor, the best-selling drug in the world.
It may sound unlikely that an eight-patient test could drive billions in stock-market growth, but that's the nature of the biotechnology industry, in which investors bet not on a company's earnings, but on its potential. One big success can turn a company from a perennial also-ran into a global name.
``I like the idea that Joshua and the management team are really swinging for the fences," said Craig Millian, the former Lipitor marketer who arrived from Pfizer in January.
The hepatitis C virus has emerged in the past few years as a top new target for drug makers. Identified in 1989, it infects people through blood contamination -- injectable drug use and transfusion are the most common means -- and can lurk undetected for years before its liver damage is discovered by a doctor. There is no vaccine.
``When you think about organs you can do without, we still haven't found a way to reproduce the function of the liver," said Raymond Chung , the director of hepatology at Massachusetts General Hospital. ``If you're out of liver, you're pretty much out."
Currently, the disease is treated with a year's worth of injected interferon, which boosts the immune system enough to help about half of those treated with it to clear the virus on their own. It costs $18,000 and has unpleasant side effects, which doctors describe as a terrible flu that can trigger anemia, mood swings, and depression as therapy drags on.
Vertex's pill, by contrast, takes a leaf out of the playbook that was developed to fight HIV: It shuts down a protease, a key enzyme the virus needs to infect the body. Without the protease, the hepatitis C virus can't make the set of protein tools it needs to reproduce itself and hijack other cells.
In the test results disclosed in January, the drug appeared extremely effective in knocking the virus below detectable levels when used in combination with interferon. (If patients' viral levels stay undetectable for long enough, they are considered cured.) In four of eight patients who took Vertex's pill late last year, the hepatitis virus was undetectable within two weeks.
If it shows similar results in the longer trial, it could open the door to a treatment that helps more people, and takes less time, than the current therapy.
It could also open the door to huge growth for whichever drug company gets a product to market first. Global drug giant Schering-Plough is also testing a protease inhibitor, although Vertex's appears to be ahead in effectiveness. Behind them, several other companies have similar drugs in the pipeline, including Bristol-Myers Squibb Co.
It's uncertain whether Vertex's larger trials will replicate impressive early results. Drug resistance and side effects can always crop up in larger and longer trials; an earlier protease inhibitor was pulled by a German drug company after heart problems showed up in animal tests.
But analysts believe that the first company to bring a drug to market will have a chance to set the price -- up to $30,000 for a course of treatment -- and claim a big share of the estimated 8 million patients in the United States and Europe.
``There are obviously no guarantees in drug development, said Schimmer, but Vertex has ``never had a drug that shows such efficacy before. Few companies have."
Vertex does have other products in the pipeline, including a possible pill for rheumatoid arthritis, a cancer treatment being developed with Merck, and a cystic fibrosis pill. But for now it is the hepatitis C pill that has transfixed both doctors and Wall Street.
``This is a drug that we believe is not going to launch quietly. There's going to be worldwide demand, and it's a disaster if you have spectacular results but limited supply," said Boger.
In anticipation, Vertex has already contracted out large-scale manufacturing of the pill, and promises to have produced two tons by the end of the year.
Boger said he is pleased at the prospect that the company he founded could turn the corner to profitability around the time it turns 20.
``To me it's not a surprise that we're 17 years old and in this position," he said. ``That's about how long I thought it would take."
Stephen Heuser can be reached at sheuser@globe.com.
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