OPIM 5894 Advanced Project management Vertex Pharmaceuticals: R & D Portfolio Management

1. OPIM 5894 Advanced Project managementVertex Pharmaceuticals: R & D Portfolio Management Team 3 • Richard Buskey • Jonathan Weiss • Daniel Mahzonni • Prashant Mishra • Vijay Gadigeppa • Jonathan Koenig

2. Vertex Pharmaceuticals • Which of the 4 projects portfolio options currently facing Vertex do you favor? • VX-148 • PROS • It had the potential to treat a number of important diseases with unmet medical needs such as psoriasis, multiple sclerosis and even cancer • Market is established; psoriasis drugs already exist • Remaining development costs = $100 mill. • Already in Phase II • CONS • More competitors in the market

3. Vertex Pharmaceuticals • VX-702 • PROS • Cheap and easy to make • 75% of the drug stays in the system for therapeutically attractive periods. There are manageable side-effects • Oral drug instead of injectibles • Supported by management • CONS • Prone to toxicities • Many companies had tried without success • High mechanism risk

4. Vertex Pharmaceuticals • VX-765 • PROS • As a small molecule, VX-765 could be taken orally and was thus thought to have excellent market potential • VX-765 was fully owned by Vertex; • Believed to play an important role in chronic inflammatory diseases • Largest potential for sales and profit margins • Completed the Phase I • CONS • High production costs • Uncertainty with the Dosages • If Vertex went ahead with another ICE inhibitor, with respect to pralnacasan (VX-740) it would • lose rights to a subsidized sales force in US/Europe and • sacrifice certain financial benefits of copromotion

5. Vertex Pharmaceuticals • VX-950 • PROS • Billion $ drug • Current treatments for the disease were only effective in roughly 40% to 60% of chronically ill HCV patients. Most of these treatments were associated with significant side effects and none was a direct antiviral therapy. Potential for a significant breakthrough leading to boosted image. • Sell the drug to doctors thru’ a specialty sales force. • CONS • VX-950 was complex and costly to make. • For regulatory and medical ethical reasons, the company would be required to test VX-950 in combination with α-IFN. Acquiring adequate supplies of α-IFN significantly increased the cost of testing VX-950. • Decreasing number of new infections. Long Time to market (YR 2010)

6. Vertex Pharmaceuticals • Decision: • Top 2 Products: VX-148 and VX-702, since they were in Phase II. • Keep VX-765 and VX-950 as backup OR keep VX-765 as backup and partner with some other company for VX-950 since it was involved higher costs.

7. Vertex Pharmaceuticals • Specifically, which 2 projects would you advance in development? Why? Show analysis.

8. Vertex Pharmaceuticals • Would you license out the two others not chosen or keep them as backup? • Keep VX-765 as backup and partner with some other company for VX-950 since it was involved higher costs. • VX-765 is in Phase I, highest remaining dev costs, highest potential peak sales • VX-950 is in pre-clinical stage; the company would be required to test VX-950 in combination with α-IFN. Acquiring adequate supplies of α-IFN significantly increased the cost of testing VX-950.

9. Vertex Pharmaceuticals • How much should Vertex management rely on quantitative methodologies (such as real option valuation) versus qualitative approaches? • Qualitative Approach has higher buy-in • Quantitative Analysis is based on expert assumptions with all products having a high likelihood of failure. • Boger would need • Information on the existing products in the market and their comparison to the drugs in question • May need insight into the adverse events on VX-148 and VX-702 which are already in Phase-II • Significance of the results from Phase-I for the products