So who is Vertex today?   "It's a 15-year-old startup," says Sean Brusky, current Manager of Business Development at Vertex. Sticking with much of its original vision, the company is committed to becoming a fully integrated pharmaceutical company. But, as for its goal to develop a billion dollar molecule, a drug accruing 1 billion dollars in sales per year, Vertex is still searching. The BDM left off with Vertex trying to improve FK506 for immunosuppression. The company tried for a further two years, a zombie project that virtually no one at the company believed in. Finally, Boger dismantled Vertex's entire immunosuppression program, which never produced a single marketable substance. In the meanwhile, and for the next decade, Vertex refocused its research on inhibiting HIV protease. In December of 1993 they entered into a partnership with GlaxoSmithKline, a world leader in antiviral therapies. Together the companies moved two compounds through clinical trials and FDA approval. Lexiva™ and Agenerase® are currently marked and sold by Glaxo while Vertex receives royalties, as a percentage of sales, in the high teens on the sales of these compounds. These are Vertex's first products on the market and their first revenue stream from sales. Unfortunately for Vertex, revenue enters its wallet indirectly, filtered through Glaxo. Despite changes in science and broader shifts in the biotech industry, Vertex retains many of its original strengths. It continues to be good at integrating technology, adapting business processes and being innovative. Its strategy is to be revolutionary in all aspects of the company, not just in research. The company's core values echo of its early years, including academic integrity and analytic rigor. Says Brusky, who was hired to generate financial data for Vertex, "It's almost analysis paralysis."

Also consistent with Vertex's past is its goal of integrating scientific disciplines. The company's logo, the purple triangle, represents its continuing goal of integrating of biology, chemistry and physics. In fact, much of the technology at Vertex is the same as it was in the 80's and 90's. They still rely on the physics of NMR and x-ray crystallography. The chemical synthesis and biological testing are principally equivalent to what they were doing during their start-up phase.

What has changed in Vertex labs has been the volume of work. Speeding bench science is Vertex's recent implementation of automation. In their early days, all work was done by hand. Now, researchers screen libraries of compounds for activity and investigate only the molecules that work the best. This minimizes time spent on less effective compounds and focuses resources on the most promising of the leads. Automation of the screening process improves efficiency and allows Vertex to shoot for rapid growth.

How Has Vertex's Business Changed?

Such fast-paced expansion requires constant reinvention of the business side of Vertex. Additionally, broader trends in the biotech industry have strongly influenced the company's organization and presentation to the market. The 1980's investor community, interested primarily in the sexiness of a company, has since become much more sophisticated. Initially, with the birth of biotechs, crazed investors drooled over startups and their ideas, blinded by great expectations of an emerging and relatively unknown industry in the investment world. However, now that this initial frenzy has died down and investors have had time to learn about biotechs, companies can no longer ride ideas as the only source of investor attractiveness. Instead, they must actually show profits, or foreseeable profits, much like companies in less volatile industries. Vertex has responded accordingly.

Seven years later, in April 2001, Vertex strategically acquired Aurora Biosciences, adding San Diego as a new office location. With the acquisition, Vertex opened itself up to now cover all of its bases in pharmaceutical research. Technological facilities in California allowed for automation of biological testing and the evaluation of cell membrane-bound target proteins. Kinases and other cascade proteins can be screened for activity in the presence of drugs. These abilities supplemented Vertex's existing structure-based technology, which has since been updated to screen for toxicity. According to a June 8 press release by Vertex explaining the acquisition, the addition enabled them to "increase the flow of novel drug candidates into development", "accelerate the creation of a broad intellectual property estate," and in doing so, "provide enhanced opportunities for major drug discovery, development, and commercial alliances.".

Incorporating new research facilities also reflects Vertex's digression from HIV drugs and its response to new investor demands for immediate financial viability. This, however, is just one example of a new strategic approach; Vertex has evolved a two-pronged business model that diversifies its reliance on profits to provide a more balanced and constant revenue flow.

The first part of this business model is Vertex-only drugs. Vertex, anticipating a big break, retains all or the majority of licensing rights on many promising compounds. This is the core of Vertex's vision for eventually ascending to the top of the pharmaceutical industry. If a Vertex-only compound successfully enters the market, the company will benefit from a constant revenue source. However, due to more stringent demands from investors for constant revenue, Vertex has been forced to look for other sources of income while these Vertex-only drugs move through the pipeline.

Licensing has emerged as Vertex's recent answer to investor demands for a more consistent cash flow, forming the second part of its business model. Their goal is to generate steady revenue sources through carefully picked partnerships and licensing deals. Brusky calls this approach "Vertex Inside," referring to Vertex-developed drugs being distributed inside bottles displaying names of other companies. (See Vertex Funding and Valuation History)

For the near future, Brusky says half-jokingly, Vertex's "focus is single-mindedly on generating revenue to survive." What will generate this necessary revenue, he says, will be "licensing out certain programs- like Hep C." While licensing out does decrease potential financial rewards for successful drugs, it also diversifies Vertex's risk and flattens out its profit curve.

Internally, Vertex has adapted to the changing investor demands by incorporating more business and marketing staff. The company has always been research driven, with its CEO and president researchers by training. But now, it strives to adapt to growing business needs by adding more employees with marketing and financial backgrounds, like Brusky, who had previously worked at Bain Consulting. While newcomers that do not fit the old employee mold could present conflicts, management has been "very selective about setting up dynamics between different types of people," Brusky says. Additionally, "Management will purposefully set up antagonism [between people of different expertise] to establish perspective on an issue at hand." This approach builds a team with a diverse makeup, covering a broad spectrum from marketing types to scientists. The group can then position itself appropriately before a wide range of audiences, catering itself to an audience's particular demands and backgrounds.

The addition of new types of employees also points to Vertex's desire to grow, a goal they broadcast to investors and consumers. But if the company gets big, says Brusky, "There will be a lot of growing pains." In particular, it will be hard to maintain internal adaptability and flexibility. While they have managed to retain a start-up feel thus far, this corporate culture will have to change if Vertex does enlarge. Vertex cannot become a Merck or a Pfizer, as it aspires to be, while maintaining its current cultural and organizational makeup. If its science does take it to the next level, Vertex will have to meet the growth with increased delegation and a more hierarchical structure.

In truth, it seems that the growing pains have already set in. Says Brusky, "It's like herding cats to get anything done. You've got to get the signoff from everyone," including Boger, whose approval is needed on innumerable small company decisions. "They [Boger et al] have always been the rock stars," and hardly seemed poised to renounce that role.

How has Vertex responded to developments in science?

Just as investing trends have shaped Vertex science, recent shifts in the scientific community have shaped Vertex's business goals.

As for structure-based drug design, a pillar of the early Vertex, the company soon saw that strategy as "only one piece of the puzzle," according to Brusky. "Structure-based design was all the rage in the 80s. Analysts gobbled it up." Immunophilins, Vertex's original focus of rational drug design, were a hot topic in the 80's as well. However, once it was discovered that the binding target of FK-506 was calcineurin, Vertex chemists realized they had hit a brick wall. They had already tried and failed to make a compound that was more effective than FK-506, now marketed by Fugisawa as Prograf.

By this time, Vertex was already dabbling in the area of HIV protease inhibition. The AIDS epidemic was spreading, and there was a growing need for new drugs to stop the virus, which continued to rapidly mutate and become resistant to many of the standard treatments. Due to the market demand and scientific need for a new HIV treatment, Vertex transitioned from immunophilins to HIV research.

During the 1990's, HIV continued to be the rage for pharmaceutical development. Vertex pushed ahead with their development of compounds, but they were burning a lot of cash. At this point they still did not have a drug on the market or income from product sales, so it was necessary to sell the marketing rights to their developmental compounds in order to generate funding. GlaxoSmithKline was the logical choice for this partnership. Glaxo had pioneered many of the earliest treatments for HIV, and now that these were becoming less effective, they needed new drugs to improve their portfolio. Vertex received money and research collaboration from Glaxo in exchange for the sales and production rights to its two most promising HIV drug candidates. These molecules were developed, passed through the FDA, and are now marketed as Lexiva™ and Agenerase® for HIV treatment for Glaxo. After years of pushing their pipeline, Vertex had finally created compounds that hit the market.

In face of a vast number of competitors in HIV treatment, and with their two most promising leads already out for sale, Vertex needed a new focus area. For that reason, soon after their partnership with Glaxo, Vertex declared its focus as treatment of Hepatitis C. Vertex had been looking at inhibiting the Hepatitis C protease, and saw a huge opportunity to market their first proprietary drug in this untapped area. Vertex plans to launch several Hepatitis C compounds in the next few years.

However, not every great development in biotech has turned Vertex around. The genomics bubble of the 1990's and the completion of the Human Genome Project led many people to believe that all diseases would be solved with information from DNA. Investors, journalists and casual observers became buoyantly confident about genomic treatments.

However, as many scientists immediately perceived and the public finally realized, DNA cannot be used as a drug, and mapping genetic information is a long cry from understanding the chemical effects a gene has on biological processes and disease states. In order to use genomics to develop drugs, researchers must first have a target disease. Then, they must identify which part of the genome is causing the biological effects of the disease. Finally, they must figure out the complex biological pathways that link the genome to the disease.

This has proven to be too great a task for almost all drug developers. As a result, it is no surprise that Vertex took a look and got out of the genomics business. It is important to know which scientific areas are currently viable and which are still out of reach. Vertex made a wise decision in this regard, because genomics still has rarely translated to therapies in the clinic.

Now, Vertex focuses most of R&D and franchising on drugs for the Hepatitis C Virus, or HCV. As of May 2004, the Vertex pipeline contains two drugs targeted at HCV, a relatively untapped market for pharmaceuticals. There are currently only two FDA approved treatments for HCV, and both are injectable large molecules, or so-called "biologics". This treatment is complex and inconvenient, and shows marginal benefit as the patient gets used to the biologic. Vertex hopes to break into this market with structurally-designed small molecules. When they do, their only competitor will be Roche Pharmaceuticals, whose Pegasys interferon is described above.

Merimepodib and VX-950 are Vertex's two leading HCV treatments. The compounds have been engineered to selectively inhibit an essential protease of the hepatitis virus. These two molecules are particularly appealing because they are ingested orally and exhibit potent activity against the HCV virus in body tissues. The first of these compounds is still a few years away, currently in FDA Phase II trials. Advertising that these drugs have the potential to revolutionize the way HCV infection is treated, Vertex has placed its bets behind these drugs. The company also plans to further its internal capacities in preparation for the marketing and sales of the HCV drugs.

Although HCV is its marketing focus, elsewhere in Vertex's pipeline are a number of anti-inflammatory and autoimmune drugs. Details about these drugs can be viewed at right.

The decision to focus on HCV reflects Vertex's relationship with the market. Says Brusky, "The only thing that gets investors interested is positive clinical results." Unlike large pharmaceuticals, which are highly secretive, biotech companies communicate even their smallest technological accomplishments to the industry. "Every time we've 'VX-ed' a compound, we publicize it," says Brusky, "even at the nomination of a drug to clinical trials. We put it on radar at this very risky stage."

The strongest points of the company lie in its self-conscious, flexible but relentlessly optimistic business strategy. The business side of the company has improved significantly with incorporation of more employees with medical expertise. The majority of Vertex's mission, vision and values have remained intact since its conception, with Boger still trying to fundamentally change the structure of the biotech industry. Out to change how drugs are discovered, developed and sold, Vertex hopes to fundamentally alter the economic dynamics of pharmaceuticals in relation to the health care community.

Vertex literature reiterates Boger's original goals for the company:

"Make better drugs, faster"
"Create the 21st century pharmaceutical company."
"Become Merck, only better."

But Boger also hopes to constantly reinvent the company, to constantly adapt.

What's in stock for Vertex's future?

Vertex's vision is intact, as evident by the fact that many of its BDM-era employees remain with the company. They have believed in the company so much that they continue to hold stock.

But this stock is not worth much today. Despite its goals, much of the Vertex sheen portrayed in the BDM has worn off. Vertex is, as Brusky reminds us, a fifteen-year-old startup company. "There's a certain level of frustration- people who quit the company and sold off stock long ago are now owning million dollar homes and yachts."

Currently, Vertex fears acquisition by another company and overextension through licensing. Vertex, now fifteen years old, is no longer owned by its founders. Consequently, if at any point a majority of its current owners decide to sell Vertex to a larger pharmaceutical company, employees can do little about it. The stock price is also very low, allowing corporate raiders to come in and buy a large chunk of the company's equity at a relatively low price. This threat will remain as long as the company is losing money and hoping for future profits. To employees like Brusky, acquisition would signify a dramatic shift in the structure and culture of the company.

Vertex also has reason to fear licensing overextension. A key success factor for any biotech is to focus on its core expertise, and to execute in this area. Vertex states its strength not as licensing, but as its innovative approach to science. While it is presently necessary to generate a more consistent revenue stream through licensing, Vertex risks taking this strategy too far and losing its most promising future drugs to cash-generating deals.

Despite Boger's consistent portrayal of Vertex as a tiger, Brusky likens the company to a cat chasing a deer. With the publishing of the BDM, Vertex became the model for the vision and reach of American biotech. Now, as one of many biotechs pitching hopeful visions to stay financially afloat, Vertex continues to serve as a model for the industry. As Werth concluded theBDM, "There is no such thing as failure, only suboptimal results that add to one's pool of data, chiding and compelling to go on."

And on they go.

Management Organizational Chart