2006 Interactive Annual Report: Building Vertex
Joshua Boger, Ph.D.
President & Chief Executive Officer“ We made substantial progress across our business in 2006 and are today an exciting, fast-growing company with the opportunity to change the treatment of serious diseases. We are honored to be part of the Nasdaq-100 Index, a significant recognition of our progress over recent years. We expect to build on momentum generated in 2006 as we move forward to build Vertex on telaprevir.”
Dear Shareholders,
Vertex is growing up. Since my last shareholder letter just a year ago, Vertex began an evolution into a much different and more mature company, yet still rooted in our vision of developing innovative drugs for serious diseases. We grew larger and gained important clinical data across our pipeline. Today, we have an unprecedented opportunity to change the treatment of hepatitis C. But I don’t want you to stop reading just yet.
In the next few pages I will tell you more about our recent progress, and you will hear from members of key teams that will drive the Company in 2007. Most importantly, I hope to express what is different about Vertex. It defies a simple description. It’s a way of thinking and working that is deeply ingrained within our organization. You might say it’s in our DNA.
Vertex Defined - At Vertex, we seek profound change. Today, we are working on investigational drugs that may transform how serious diseases are treated. For example: a pill that addresses the fundamental genetic defect driving the progression of cystic fibrosis (CF). A new drug for cancer that attacks treatment-resistant forms of leukemias. A once-daily pill for rheumatoid arthritis that targets underlying drivers of inflammation in patients. These investigational drugs, if successful, could bring new standards of treatment for serious diseases. We’re not there yet, but everyone at Vertex is working to make this happen. And by everyone, I mean everyone.
We set aggressive goals for ourselves. We start our projects believing that the impossible can be achieved. We don’t give up easily. Persistence has helped us to overcome many hurdles and push forward the frontiers of medicine. Inventing and developing transformational medicines is hard and uncertain work. But it is deeply satisfying. And we think it’s fun too.
Perhaps nowhere is this relentless effort more visible than with telaprevir, our lead investigational drug for the treatment of hepatitis C virus (HCV) infection. The discovery and development of telaprevir has been hard work, and we’re not finished yet. Today, we are fortunate to be where we are.
The first clinical results for telaprevir were seen by many as a dramatic overnight development in the HCV field. In truth, it was a development milestone more than 10 years in the making. I’ll give you the short version here:
An Important Decision - In 1995, I sat with a group of Vertex scientists around a small table to discuss potential new projects. It was a group with varying backgrounds in science and business, but we met with a common objective: choose the disease areas where our research and drug discovery could have the greatest impact. One idea rose to the top.
That day, we made a commitment to hepatitis C. Specifically, we began efforts to discover oral drugs that could block the HCV protease, an enzyme critical for the virus to reproduce. We chose this area despite what appeared to be nearly insurmountable technical and scientific disadvantages. Among the challenges: there was no way to grow the virus in the lab. There was no assay to measure whether our molecules would block the protease. Further, we thought the piece of the protease we would have to target was little more than a shallow dimple on the protein’s surface. We also did not yet have the atom by atom map that we believed would be necessary to engineer a drug with the right amount of specificity. This was beginning to look like our hardest project yet, and we were just getting started.
The Need in Hepatitis C - Against these challenges, we weighed the medical need, which was then, as it is now, as great an unmet need as any other disease on the planet. Public health officials estimate that 170 million people have chronic hepatitis C virus infection around the world. 3.4 million are infected in the U.S. alone. That’s almost four times as many than are infected with HIV – a surprising figure to most. This is a major global health problem.
The current treatment – which has improved since 1995 – is a combination of two drugs often taken for a year or more. The result? The flip of a coin. For the most common form of the disease, only approximately half clear the virus and are considered cured. The half not cured receives little or no benefit. Whether or not the treatment clears the virus, the side effects of treatment are often life-altering. Patients have told me that treatment can be similar to the worst day of the worst flu they have ever experienced. Imagine that feeling for a full year.
We entered the hepatitis C research field with the belief that therapy could be shorter, more tolerable and more effective. We also knew it would be a long, hard road to bring a compound into the clinic for development. But we persevered. We knocked down scientific and technical barriers, and by 2004, we were ready to begin clinical testing of our lead molecule.
In 2005, the first clinical results for telaprevir dosed as a single agent in 34 patients showed a 25,000-fold viral reduction over just 14 days, a result never before seen in this disease. In January 2006, we reported the first results for telaprevir when combined with standard HCV therapies. Since then, we have conducted additional clinical trials that showed even more robust reductions in viral levels that were sustained through 28 days of therapy. We are encouraged and excited by these early results, but realize there is much work ahead, including a comprehensive evaluation of telaprevir’s safety and efficacy profile, to further assess telaprevir’s potential role in HCV therapy.
With the clinical data we have today, our aspiration is clear: demonstrate that telaprevir can eradicate the virus in most patients with short course therapy.
Moving Forward - A major Phase 2 clinical development program for telaprevir is now underway and is expected to involve more than 1,000 genotype 1 HCV patients. We believe it’s the largest Phase 2 program ever run for an investigational agent in hepatitis C. Two trials involving 580 patients were initiated and fully enrolled in 2006. A third trial in 440 patients who failed prior standard of care treatment is expected to complete enrollment in the first half of 2007. We plan to conduct additional trials in other patient populations – in patients with different genotypes, for example – to further define telaprevir’s potential to treat this disease. We will consider all major patient sub-populations.
Changing Vertex - 2007 is about more than just clinical development milestones. It’s about transforming Vertex to be ready for the challenges and opportunities of developing and commercializing breakthrough drugs for years to come. We are in the midst of building new competencies and expanding our skill set to build Vertex on telaprevir.
We have assembled a global supply chain that is designed to provide efficient processes for commercial manufacture of telaprevir. By the end of 2006, we had manufactured more than two tons of telaprevir. The sheer size of our manufacturing efforts reflects our belief in the potential market size in hepatitis C. In 2007, we expect to invest more than $110 million to ensure adequate drug supply for Phase 3 trials and to begin building inventory for a potential launch for telaprevir.
Simultaneously, our Customers and Markets group is working to develop expertise in the human and structural dynamics of this opportunity. We must understand how the market functions inside and out today, from patient to payor to doctor and beyond, and how to interact with that system around the potential introduction of telaprevir.
Driving this activity is our belief that we could file a New Drug Application for telaprevir in the U.S. in the next two years.
That may sound like a long way away, but in this business, it may as well be tomorrow.
Bringing a major drug to the market is no easy task, not for the largest pharmaceutical company nor for the most nimble biotech shop. It takes time, money, an eye for developing innovative processes and, the most important part, the human talent to move our efforts forward. We are readying the Company for this progression, and in some way it involves every person at Vertex.
Growing Up - While our values and mission are the same as they were at that table in 1995, Vertex is today a much different company. Last year, we hired more than 200 people, many related to the development of telaprevir, some not. We hired from biotech and pharma, and from leading academic and medical institutions.
In 2007, we expect to hire more than 250 people. Hiring approximately one person per business day will not be an easy task. An even harder task may be finding people who are passionate and committed to changing medicine and who possess the collaborative spirit inherent in the Vertex culture. But they are out there. We aim to find them and encourage them to also reach out to us.
Beyond Telaprevir - While telaprevir has captivated the attention of many, we are more than this one opportunity. Vertex is committed to developing new drugs – that’s plural – for serious unmet medical needs.
We expect to initiate soon a Phase 2 trial with VX-770, an oral tablet that may partially restore the defective protein known to cause cystic fibrosis, a fatal genetic disease, and we continue to work on other approaches to this disease as well. Today, most CF treatments work by physically breaking up the mucus that clogs the lungs of patients or by treating lung infections associated with the disease. Treating the underlying defect in CF with a pill would represent a major advance for thousands of patients. Our collaborator Merck has advanced into a pivotal trial MK-0457 (VX-680), an investigational drug for patients with treatment-resistant forms of leukemias. These are patients who have exhausted other treatments and have few, if any, options for further therapy. We are working on a novel, once a day pill for rheumatoid arthritis, VX-702, which could represent a significant advance over current injectable therapies. Later this year we expect to begin clinical trials for a new antibiotic that may treat so-called “superbugs.”
Supporting our pipeline, we have a research engine that drives our innovation and continues to create small molecule drug candidates for serious diseases. It allows us to find the next innovative compound for development with the potential to change medicine. Our strategy is such that the output from research exceeds our development capacity. We designed it this way and as a result have flexibility in our development efforts. Today, thanks to progress in our development-stage collaborations, we have the ability to control more of our research output. That is a new and positive development.
The Year Ahead - 2007 will be a critical year for Vertex. We have directly before us an extraordinary obligation to bring telaprevir forward to patients as a safe and effective treatment for HCV. We are working hard to live up to that obligation.
I will keep you up to date on Vertex and our development programs as we move forward, as I believe there will be much to talk about.
We thank you for your continued interest and support.
Joshua Boger, Ph.D.
President and Chief Executive
Officer
Safe Harbor Statement
This annual report contains forward-looking statements about Vertex and
its drug development candidates, including statements regarding: clinical
trials, development timelines and regulatory authority filings for telaprevir,
VX-702, VX-770, MK-0457 (VX-680) and other drug candidates under development
by us and our collaborators; our expectations regarding the future market
demand and medical need for telaprevir and our other drug candidates;
and our planned investments in our drug development and commercialization
capabilities and telaprevir. While Vertex believes that the forward-looking
statements contained in this annual report are accurate, there are a
number of factors that could cause actual events or results to differ
materially from those indicated by such forward-looking statements. These
risks include the risk that any one or more of Vertex’s internal
or external drug development programs will not proceed as planned for
technical, scientific or commercial reasons or due to patient enrollment
issues or based on new information from clinical, nonclinical or other
sources, and other risks listed under Risk Factors in Vertex’s
reports on Form 10-K and Form 10-Q filed with the Securities and Exchange
Commission and available through Vertex’s website at www.vrtx.com.