1. OPIM 5894 Advanced Project management Vertex Pharmaceuticals case
Team 2
April 5, 2012

2. Team 2 - Vertex Pharmaceuticals case
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

3. Team 2 - Vertex Pharmaceuticals case
Which of the 4 project portfolio options currently facing Vertex do you favor?
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

4. Team 2 - Vertex Pharmaceuticals case
Which of the 4 project portfolio options currently facing Vertex do you favor?
Our favorite is VX-765 to treat Rheumatoid Arthritis and Osteoarthritis

5. Team 2 - Vertex Pharmaceuticals case
Specifically, which two projects would you advance in development? Why? Show analysis.
VX-765
VX-950

6. Team 2 - Vertex Pharmaceuticals case
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
Time to market 9 7  5
Wall Street Reaction 8
Breadth of Potential Applications
4.75
Follow-on opportunities 3
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

7. Team 2 - Vertex Pharmaceuticals case
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.

8. Team 2 - Vertex Pharmaceuticals case
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