Hbr Vertex Case Critique

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Josh Boger – R&D Portfolio Management in October 2003
Analysis of Pharmaceutical Industry:
As mentioned in the case, Pharmaceutical industry was experiencing a significant growth between 1993 and 2003. New technologies and approaches such as Rational Drug Design, High Throughput Screening, etc. were advancing drug discovery process to a new level. There were many drugs being approved and commercialized during this period and some of them have become blockbusters in the market. As companies have increasing sales revenues, they were able to invest more in R&D, which resulted in high R&D budgets and many external research partnerships. However, as the industry was entering 21st century, it was also facing couple of challenges: Firstly, companies started to experience a declining productivity in their R&D pipelines. Secondly, there were concerns being raised about the increasing cost of health care in recent years. Lastly, new laws and regulations are being introduced in patent protection and clinical testing areas. As a result of these factors, big Pharmaceutical companies were switching their preferences from entering early stage research partnerships to alliances for drug candidates that have more and promising clinical data. Analysis of Vertex Pharmaceuticals:

Vertex is in a strong position in terms of its R&D portfolio as of October 2003. Their largest programs, caspase and kinase, are already partnered, which provides the company necessary funding to progress in these areas. The company’s culture is shaped around the idea of discovering and developing novel drugs for important diseases with unmet needs. Furthermore, senior leaders are open to listen to different opinions and ideas from every level of the organization. Although Vertex is focused on small molecule research, the leaders of the company believe that they can compete with Big Pharma with a greater efficiency due to its smaller size. One of their capabilities to achieve higher efficiency was to utilize rational drug design/research. When it comes to comparing and evaluating different research projects, they have a Real-Option Valuation (ROV) model in place, which provides an ROV value for the research projects based on a set of assumptions to facilitate further analysis and interdisciplinary conversations. During the last decade where Pharmaceutical market experienced a significant productivity in introducing new drugs, Vertex, with its ‘research boutique’ approach, has been quite flexible and was able to identify a range of promising drug candidates to advance into clinical development. With the industry’s demand declining for early-stage partnerships, Vertex started building clinical development and commercial capabilities since 1997 that will enable the company to move one or some of their drug candidates to the market by themselves. They have the opportunity to create a company reputation in the market if they launch a novel drug for a certain disease where they can significantly improve patients’ lives. Although it has worked quite well since 1989, Vertex’s business model is highly dependent on industry’s demand for early-stage research in-licensing deals. Even if they have a promising drug candidate, they were not to be able to more it into clinical development unless they have a partner to fund it. Similarly, they have four promising drug candidates that they can move into clinical development in 2003, they do not have enough resources and capital to do so and they have to choose one or two of them to go forward with. When it comes to make decisions, it sometimes took a long time for Vertex leaders to decide the path forward, which left employees in the dark as to which direction the company would take. As of 2003, Pharmaceutical industry is experiencing a shift in R&D from small molecules to large molecules in addition to focusing partnerships for drug candidates in later stages of development. Vertex, being mostly focused on small molecules and...
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