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Joshua BogerFebruary 10, 2003 | VERTEX PHARMACEUTICALS INC. is having a rare moment for a biotech. The company just delivered the first three prospective "$100-million molecules" promised in the eight-compound deal it signed with Novartis AG in 2000. The three molecules are all protein kinase inhibitors; one inhibits the promising new target, FLT3. All are being evaluated for testing in patients against cancer or stroke. Vertex plans to deliver more such compounds in 2003, and to launch an HIV protease inhibitor. Bio·IT World Senior Informatics Editor Malorye Branca spoke to Vertex CEO Joshua Boger about deal making and success.

Q: What's the outlook for deal making in 2003?
A: Research from some consulting groups indicates that the big pharmas would be better off if they did more early-stage deals. They underpaid for earlier deals, even in the past, and have overpaid for later-stage deals. In 2003, there will be a more balanced approach to deal making than there was in 2002. The emphasis seems to be product, product, product now, but there are companies willing to do earlier-stage deals. The substantial lull in 2002 was largely because most of the pharmas were pretty distracted by their own internal issues. Of course, collaborations will always be hot.

Q: Are deal dynamics changing?
A: I see biotech playing a bigger role in the pharma world. In the earliest days of biotech, very few pharmas were willing to give you the benefit of the doubt. It was very difficult to say, 'This technology will help us to do better than you.' They always used their own success rate to calculate returns on future activity.

You have to think about how the deal you are making will look when the two of you are starting Phase III together. You have to run through the scenarios.
We've had great success with partnering, partly because we were convinced about why we'd do better. We were one of the first breakouts that could say, 'We have been more successful than the industry average, and we will continue to be in the future.' As more biotechs succeed, the industry has a better track record overall, and biotechs will be making deals from a stronger position.

A deal like the recent agreement between Exelixis/Glaxo [GlaxoSmithKline] reflects that trend. Just from the assets Exelixis has now, they've shown a lot of promise. GSK apparently bought the proposition that Exelixis and GSK together will be better than GSK alone. The deal is structured so it is success based, but it's still substantial, particularly for a year like 2002.

Q: With so many companies desperate for cash, aren't there going to be a lot of products for sale?
A: I'm not worried that because there may be a lot of "distressed" products on the market, prices will suffer [as a result]. It always comes down to what you have to sell. And people are very smart about that. They know what good products are worth.

Q: What should biotechs do to get better outcomes from their pharma deals?
A: We pay a lot of attention to a deal's eventualities; it's a business development philosophy. But a lot of companies think about collaborations as a transaction. The only long-term events they think about are the truly terminal ones, such as 'What happens if we break up?' or 'What if there is an earthquake on your continent and not on mine?'

You have to think about how the deal you are making will look when the two of you are starting Phase III together. 'Who will we be? Who will they be? And how will each of us feel about the terms at that point? Will we both be committed to the product in the same way then as we are today?' There is not as much thinking about that as there should be.

I've seen a lot of arrangements that made everyone happy at the moment, and later the two companies' interests misaligned. You have to run through the scenarios. It's not enough to ask if you are happy the day after the ink dries, or in case there is a disaster.

Our partners are glad that we take those steps. Most of them don't broach it with smaller companies, but they do it themselves routinely.

Q: How will technology, tools, and services companies fare in future deals?
A: I think the big pharma companies are much less likely to do significant collaborations around narrow technologies even if the technologies seem to have broad application. There is a tiring with technology as a quick fix, and a much greater appreciation of the value of technology integration.

Companies large and small acquired these genomic technologies and are now integrating [those tools] into mainstream processes. I think a lot of people are wondering, 'Why did I have to take this middle step [of acquiring the technology]? Why didn't I just partner with someone who had done the integration?' Integration isn't just a buzzword, and it's obvious if integration is done well or not, because it touches so many processes.

Q: How is your mega-deal with Novartis progressing?
A: In mid-November, we announced the first drug candidate out of that research. It is a compound against a brand-new target and is now in preclinical development. Novartis also commented in print about the significance of this compound [an Aurora kinase inhibitor]. Mark Fishman [head of Novartis Institutes for BioMedical Research] was quoted as saying they expect to see more products coming out of this deal. It is a fundamentally new approach, not one of the same old cancer drugs. And it fits with the view that cancer will be best treated by addressing the fundamental mechanisms that cause the disease. We will have more compounds coming out of that.

Deal making is an important growth tactic for us, and we expect more collaborations with large and small companies in the future. But we don't make our money on deals — they are just one growth tactic. Our business is developing and selling drugs.*

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