Tuesday, May 24, 2011

Good News for Vertex

Last month I wrote a short note discussing my first encounter with Joshua Boger of Vertex Pharmaceuticals:


After graduating from Wesleyan University in the 1970's, Dr. Boger earned a PhD in biochemistry from Harvard. His obvious talents lead to a job offer from drug giant Merck, and so he started in their research laboratory.

But Boger soon became dissatisfied with the way that Big Pharma attacked drug research, and wanted to go out on his own. So, despite having three small children, he left Merck to go off on his own.

Dr. Boger started Vertex in late 1980's. His goal for the company had been to develop new and innovative research techniques in the process of attacking some of the more difficult diseases. Given that he had been on track to be head of Merck's research laboratory, it was a pretty risky career step, but one that paid off handsomely.

If you want to read about the early years of Vertex, I highly recommend reading The Billion Dollar Molecule, written by Barry Werth. Although the book was published in 1994, it is a fascinating look into the high risk/high reward world of biochemistry research.

Dr. Boger still is on the board at Vertex, but has recently turned his attention to other endeavors in the last couple of years.

Vertex today has a market cap of over $11 billion, despite the fact that it has never made any money in its entire history.

This is about to change.

Yesterday Vertex received final approval for its drug called Incivek, which offers a cure for hepatitis C. Sales for Incivek are projected to be very strong, although it is also expected to receive strong competition from Merck's Victrelis, which also treats patients with hepatitis C.

Incivek treatments will not be cheap. Here's the lowdown from this morning's New York Times:

Vertex set the wholesale price of Incivek, also known as telaprevir, at $49,200 for the entire course of treatment. Merck’s Victrelis, also known as boceprevir, costs $26,400 to $48,400 depending on the duration of treatment. Both drugs would be used in addition to the standard therapy, which costs about $15,000 to $30,000 depending on duration.

Vertex executives defended the price, saying that cures can prevent the problems that can be caused by hepatitis C, like liver cirrhosis, liver cancer and the need for a liver transplant.

“Cure is rare in medicine and that makes the economics very compelling,” said Joshua Boger, who founded Vertex. He stepped down as chief executive two years ago, but is still a director.


When I mentioned the Vertex news last night to a group of clients, they asked:

"Why does it cost so much?"

Instead of giving a flip answer - Vertex is charging what they think the market will bear - I pointed out how long it took for the company to actually get to this point.

Testing on this drug actually started in 1993. Eventually the costs added up to nearly $4 billion, with no certainty of success. Thus, while it is true the gross margins for Incivek will be impressive for Vertex, you could also argue that in some ways they are trying to recoup some of their research costs.

But the issue still remains: who will pay for Incivek?