OPIM 5894 ADVANCED PROJECT MANAGEMENT
VERTEX PHARMACEUTICALS CASE
Team 2
April 5, 2012
http://users.business.uconn.edu/snair/opim5894.html
Team 2 - Vertex Pharmaceuticals case
2
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
Team 2 - Vertex Pharmaceuticals case
3

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
Team 2 - Vertex Pharmaceuticals case
4

Which of the 4 project portfolio options currently facing Vertex do you favor?
Our favorite is VX-765 to treat
Rheumatoid Arthritis and
Osteoarthritis
Team 2 - Vertex Pharmaceuticals case
5

Specifically, which two projects would you advance in
development? Why? Show analysis.
VX-765
VX-950
Team 2 - Vertex Pharmaceuticals case
6
Criteria
Sales Potential
Financial Return
Risk
Time to market
Wall Street Reaction
Breadth of Potential Applications
Follow-on opportunities
SUM (select the two highest)
Probability of success
Probability of two being successful
Probability of two failing
VX 148
VX 702
2.5
8.5
5
9
5
4.75
3
37.75
.38
7.75
6.25
2
7
6
2
4
35
.35
.133
.403
VX 765
VX 950
10
4
4
5
7
9
8
47
.47
5.25
6
5
5
8
6
4
39.25
.39
.1833
.3233
Team 2 - Vertex Pharmaceuticals case
7

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.
Team 2 - Vertex Pharmaceuticals case
8

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