Vertex Pharmaceuticals (NDAQ: VRTX) stands today as a top 20 pharma company with over a $100 billion market cap. But this biotech beacon has ridden a bumpy path to its current perch and, along the way, just may have authored a new playbook for life sciences R&D.
Founded in 1989, Vertex’s rollercoaster story is most iconically characterized by the rise and fall of Incivek, a hepatitis C drug that reached $1 billion in sales faster than any before it, only to be withdrawn from the market just three years after its launch in August 2014. But Incivek’s failure proved to be the catalyst for a new, and even more successful phase in Vertex’s development: a strategic pivot — and a profound commitment — to serial innovation through relentless, and differentiated, research and development (R&D).
After being out-innovated in the hepatitis C market, with the launch of Gilead’s Sovaldi in December 2013 directly causing Incivek’s commercial flameout, Jeff Leiden, M.D., Ph.D., a physician scientist, who formerly served as CEO and now acts as chairman of Vertex Pharmaceuticals, went back to the drawing board to review Vertex’s options: (1) become a hepatitis C company by divesting all assets unrelated to hepatitis C; (2) become a cystic fibrosis company by divesting all assets unrelated to cystic fibrosis; or (3) become a company that can serially innovate across multiple diseases in a sustained way. Leiden moved forward with (3), which represented the most ambitious – and also seemingly the riskiest – of the options.
Reshma Kewalramani, M.D., Vertex’s current CEO and a former nephrologist and research fellow at Brigham and Women’s Hospital, who took the reins during the start of the COVID pandemic in April 2020, remains indebted to Leiden’s strategic ambition. “If asked to outline the ideal corporate and R&D strategy for a pharmaceutical company, I would sketch out the strategy initiated by my predecessor, Jeff Leiden,” Kewalramani reflects. An event like Incivek is a rare opportunity for a company to redefine itself. Vertex could have aimed small, but Leiden believed Vertex could be more, and that the company could do more for many more diseases, and many more patients.
Kewalramani’s colleague, Stuart Arbuckle, EVP and COO at Vertex, previously worked alongside Kewalramani at Amgen (NDAQ: AMGN) and has been integral to Vertex’s pursuit of this bold vision over the past decade. For Arbuckle, the essence of Vertex’s strategy is to “invest in science for transformative medicines targeting serious diseases across specialty markets with high unmet need.”
The true breadth of Vertex’s ambition, and the R&D engine that powers it, has emerged over time. With the successful approval of two cystic fibrosis products, Kalydeco in January 2012 and Orkambi in July 2015, Leiden – with the support and expertise of new Chief Scientific Officer, David Altshuler, M.D., Ph.D., who joined Vertex in 2015 – began to invest more deeply in the transformative product strategy, divesting assets such as VX-787 for the treatment of influenza, a non-specialty candidate, to Janssen in June 2014.
But perhaps the most consequential pivot began the next year, in 2015, when Vertex reorganized internally to place their R&D strategy under the corporate strategy, making it a central focus. And then, in 2016, the company launched the Vertex Sandbox, an internal Vertex term used to refer to the set of diseases upon which the company will turn its R&D focus. Today, the Vertex Sandbox remains an active space and a key component of the company’s R&D -focused strategy. Vertex’s bold and ambitious focal point diseases currently include: cystic fibrosis, sickle cell disease, beta thalassemia, acute pain, neuropathic pain, type 1 diabetes, APOL1-mediated kidney disease, alpha-1 antitrypsin deficiency (AATD), Duchenne muscular dystrophy, myotonic dystrophy type 1, and others. “We’ve persisted through a lot of skepticism about our R&D strategy,” notes Altshuler. “Including about some of the basic approaches we were taking to drug discovery. But I joined Vertex because Jeff and I shared a vision of what would be possible in areas such as CF and Sickle Cell. And that vision is what we are realizing now.”
Today, after close to a decade of refinement, Vertex deploys a focused, “disease-first” R&D strategy. This disease-first approach – which is a departure from the modality-first or drug-first approach to R&D more commonly employed across the life sciences industry – is one that Vertex is betting will significantly enhance its ability to develop transformative medicines. Vertex is modality agnostic in its R&D investments, meaning it does not limit itself to any specific type of treatment—be it small molecules, cell therapy, mRNA, gene editing, etc. Instead, the company first identifies diseases based on unmet need and biological understanding, and only then does it set about identifying the most effective tool to address the disease pathway. “We meticulously select diseases where the causal human biology is understood and can be effectively targeted,” explains Arbuckle. “In practice, this means that we focus on conditions with validated targets and biomarkers that demonstrate a clear path from research to clinical application.”
As is ever the case, a well-crafted strategy will flounder without a talented and dedicated team capable of effectively executing on that strategy. For Kewalramani, who joined Vertex in 2017 as its Chief Medical Officer, before ascending to the CEO role, it was the Vertex team that was at the heart of her decision to come on board. “I had never met a CEO (Jeff Leiden) of a large pharma company who was a physician scientist at their core, and I had never met a group of executives at that point where out of eight of the executives, three or four were either M.D or M.D., Ph.D scientists,” Kewalramani recalls. “The tilt of the company was so clearly toward R&D, and I thought that was really important. For a company that had these kinds of grand aspirations, that R&D focus was going to be critical to actually execute on that corporate strategy.”
The over-weighting of the team toward medical and scientific backgrounds that Kewalramani noticed then remains true today, and it permeates the company at all levels, not just among Vertex’s executives. Vertex’s specialty disease strategy not only demands this unusually high investment in R&D, it also enables it. By steering clear of areas like cancer, flu, and other mass-market diseases, which typically require high selling, general, and administrative costs (SG&A) to succeed, Vertex is able to allocate proportionately more resources to innovation and fewer to the operational costs typically associated with broader market drugs.
“A key part of our strategy is only working on diseases where among other factors, we know we can commercialize any potential medicines with a specialty sales and marketing infrastructure. This allows us to keep SG&A costs low so we can reinvest the vast majority of our resources (in our case ~70% of OPEX) in R&D. We only develop truly transformative medicines for serious diseases and many times are developing unique/first-in-class medicines, so we can employ a high-science approach as opposed to having to compete for physician mind share or commercial share of voice with other “me too” therapies,” says Arbuckle.
That, in turn, has helped Vertex to produce a string of R&D successes, including significant achievements such as approvals of four cystic fibrosis products, most recently Symdeko (2018) and Trikafta (2019). Additionally, Vertex released the first patient data showing CRISPR’s effectiveness (2019), data on AATD (2021), and crucial proof of concept data in T1D and pain (2022). And earlier this year three Vertex researchers were awarded the 2024 Breakthrough Prize in life sciences for their transformational work in cystic fibrosis.
And that, perhaps, is the most compelling proof point for Vertex’s R&D playbook: despite the vast and at times seemingly haphazard breadth of its R&D efforts, Vertex’s pipeline boasts an impressive 85% success rate of advancing to phase 3 clinical trials—vastly outperforming the industry average of 10%.
Of course, what matters most to both the patient communities and shareholders keeping a close eye on this pharma powerhouse, is how much of that impressive R&D is successfully transitioning to approved treatments. And there, too, Vertex impresses. Under Kewalramani’s leadership, Vertex has successfully launched approved medicines for cystic fibrosis, sickle cell disease, and beta-thalassemia, with Casgevy becoming the first CRISPR-based gene-editing therapy approved for patients in the U.S. in December 2023. “From 2018 to the present,” Kewalramani highlights, “we have introduced therapies for seven new disease areas into the clinic, with six delivering positive proof of concept results.”
Unsurprisingly, this strategic focus on R&D has developed into more than a business strategy; today it is a defining part of Vertex’s corporate organizational culture. Arbuckle, for example, considers himself an R&D evangelist, and begins every internal meeting with the same slide.
“Through our strategy, we have consistently demonstrated our capability for serial innovation,” says Arbuckle. “If we want to keep up that pace of innovation it’s critical we maintain our focus.” Given that the company has pioneered the first medications that target the underlying cause of cystic fibrosis, and is at the forefront of utilizing groundbreaking technologies like CRISPR/Cas9 and encapsulated cell therapies, it’s hard to argue with Arbuckle’s point.
And the R&D investments Vertex is making are hardly slowing down. Like innovative peers across the corporate landscape, Vertex is leveraging AI to support its R&D agenda. Although, as Arbuckle points out, in Vertex’s case AI is hardly a newcomer. “Vertex has been using big data and AI since its founding, originally in structure-based drug design and now across our business. We’ve embraced AI in many areas if it’s the right tool for the particular problem we’re trying to solve and can deliver novel insights or enable operational success. For example, our Specialty Pharmacy analytics are used to monitor shipments of cystic fibrosis medications and identify issues that could cause shipping delays. We have many other active programs dedicated to the responsible use of AI, including generative AI, and expect it to continue to play an important role in commercialization at Vertex and in our industry.”
As Kewalramani sums it up: “We invest most of our resources in R&D and believe that the true value in our industry lies in scientific innovation—so that’s where we focus our time, money, and efforts. We invest in diseases where there is a significant unmet need and we can have a transformative impact for patients, not just an incremental benefit.”
In 2014, Vertex chose just that: bold, transformative ambition over incremental benefit. If the past decade is any indication, the future for Vertex – and the patient communities it is seeking to support – looks promising indeed.
