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

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

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

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

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)

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.

Vertex Pharmaceuticals Specifically, which 2 projects would you advance in development? Why? Show analysis. Candidate Indication Phase I Success Phase II Success Phase III Success Approval Success Probability Success Probability Fail 1 VX-148 Psoriasis 100.0% 40.0% 65.0% 75.0% 19.5% 80.5% 2 VX-702 ACS 60.0% 50.0% 15.0% 85.0% 3 VX-765 RA/OA 80.0% 21.6% 78.4% 4 VX-950 HCV 70.0% 21.0% 79.0% Candidate Choice Both Successful Both Failing One Succeeding Overall Success 1-2 2.9% 68.4% 28.7% 31.6% 1-3 4.2% 63.1% 32.7% 36.9% 1-4 4.1% 63.6% 32.3% 36.4% 2-3 3.2% 66.6% 30.1% 33.4% 2-4 67.2% 29.7% 32.9% 3-4 4.5% 61.9% 33.5% 38.1%

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.

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