A Case Study Analysis of the R&D portfolio

management of Vertex Pharmaceuticals

Introduction

Vertex Pharmaceuticals is facing a change in the financial model the company had

existed under. Early-stage deals with big Pharmaceuticals were a key source for

funding for Vertex. Big Pharma companies were no longer interested in early stage

licensing deals, developing drugs from early developments partners was just too

expensive and the market was flooded with early development opportunities. Next to

this funding from capital markets had become more expensive. Vertex has four

promising drugs in various stages of the clinical development and there is only

sufficient funding for two projects. In this paper an analysis is made of the four

drugs and what action to take: which one to develop, to partner or to hold. The

implication of this decision is enormous as the chosen candidates would be the first

products Vertex attempted to bring through development into the market on its own.

Analysis

The following four criteria are used to evaluate the different products:

• Financial criteria (development costs, sales, profit margin, SG&A expenses)

• Time to market (phase the product is in and the expected approval date FDA)

• Portfolio Risk (probability of success of different phases and probability of approval

by FDA, target risk, mechanism risk, molecule risk and market risk)

• Strategic fit (medical and scientific merit, overlapping therapeutic areas, external

image of the company)

Port folio analysis

Based on the evaluation of the different products against the criteria set, the

conclusion is that VX-950 is the best candidate for partnering as the market

opportunity is time sensitive and this drug is still in a preclinical phase, so a partner

needs to be found which will significantly reduce the time to market for this drug.

The probability of approval from the FDA for VX-702 is only 50%, several

companies have tried to develop these types of drugs and have failed due to a toxicity

issue. This type of drug is not covered by Medicare and a new bill needs to pass, this

is a potential risk. Continue with this drug on our own is a too high risk, if we

cannot license this drug via a partnership than we should put the development on

hold.

VX148 has low remaining development costs and an approval date of 2H2007. The

overall risks are relatively low (compared to the other drugs). VX 765 has high

remaining development costs but the market potential is also high. Its approval

date is one year later than the VX 148; this means that VX148 is already generating

sales while we are still developing VX765. Both these two products are the best

choice to develop and to market. Both drugs cover also different areas, so there is

no risk of affecting the external image of the company and the combination makes

sure that the scientists have sufficient scientific challenges.