OPIM 5894 ADVANCED PROJECT MANAGEMENT

VERTEX PHARMACEUTICALS CASE

Team 2
April 5, 2012
 Team 2 - Vertex Pharmaceuticals
2

Issues Raised
 Drug development issues – selecting a portfolio of products
 In-house versus Licensing issues
 Types of risks – Target risk, Mechanism risk, Molecule risk,
Market risk
 Real options analysis
 Team 2 - Vertex Pharmaceuticals
3

 Which of the 4 project portfolio options currently facing Vertex do you

🞑 VX-148: least scientific sizzle (IMPDH is a ‘validated target’; Vertex wants breakthroughs),
already similar drugs on market, 2.7 million people affected by psoriasis, quick to market
(2007), advanced development (phase II), least remaining development costs ($100MM),
good success probability, low sales
🞑 VX-702: might not be covered by insurance, possible toxicity issues, advanced
development (phase IIa), low probability of success, late to market (2009), many attempts
by competitors have failed, moderate remaining development costs ($300MM), good
profit margin, moderate profits, cheap and easy to make, moderate projected sales
🞑 VX-765: high manufacturing cost, high remaining development cost ($600MM), early in
development (preclinical), moderate success probability, pralnacasan deal with
Aventis, oral not injection, good anti-inflammatory drug has high potential, relatively
quick to market (2008), good profit margin, good projected sales
🞑 VX-950: complex and costly, early in development (preclinical), late to market (2009), low
remaining development costs ($220MM), high probability of success, low profit margin,
moderate sales
 Team 2 - Vertex Pharmaceuticals
4

 Which of the 4 project portfolio options currently facing Vertex do you

Our favorite is VX-765 to treat

Rheumatoid Arthritis and
Osteoarthritis
 Team 2 - Vertex Pharmaceuticals
5

 Specifically, which two projects would you advance

in development? Why? Show analysis.
🞑VX-765
🞑VX-950
 Team 2 - Vertex Pharmaceuticals
6

Criteria VX 148 VX 702 VX 765 VX 950

Sales Potential 2.5 7.75 10 5.25

Financial Return 8.5 6.25 4 6
Risk 5 2 4 5
Time to market 9 7 5 5
Wall Street Reaction 5 6 7 8
Breadth of Potential Applications 4.75 2 9 6
Follow-on opportunities 3 4 8 4
SUM (select the two highest) 37.75 35 47 39.25
Probability of success .38 .35 .47 .39
Probability of two being successful .133 .1833
Probability of two failing .403 .3233
 Team 2 - Vertex Pharmaceuticals
7

 Would you license out the two others not chosen

or keep them as backup?
The license option is advantageous to a small firm in a
rapidly changing market. Licensing Would increase cash
flow which would allow completion of the chosen
projects. This may be difficult to negotiate.
 Team 2 - Vertex Pharmaceuticals
8

 How much should Vertex management rely on quantitative methodologies

(such as real option valuation) versus more qualitative approaches?
🞑 ROV is best for late-stage development compounds, but it doesn’t
handle early-stage development compounds well
🞑 Vertex should rely more on ROV and less on qualitative approaches if
late-stage decisions need to be made; the advantage of ROV making
predictions in an uncertain environment is maximized because the
uncertainties are fewer in late-stage decisions
🞑 ROV is good for starting discussions, but it is relative and not absolute;
very dependent on input assumptions and choices
🞑 Vertex should rely more on qualitative approaches and less on ROV for
long-term strategic analyses and early-stage development compound
decisions