Jeffrey Leiden is CEO of Vertex Pharmaceuticals, a $1.7 billion maker of drugs for cystic fibrosis. We spoke with him at Vertex’s Boston headquarters about how he oversees the company’s R&D organization.Early in our conversation with Leiden, he recounted some of the challenges he faced when he was named CEO of the company in late 2011. At the time, the company’s blockbuster drug for hepatitis C, Incivek, was facing stiff competition from a competitor, Gilead, that brought a better treatment to market.
Developing a New Research Strategy
 was when [our hepatitis C drug revenues] were essentially falling off to zero, and [we] eventually took that drug off the market. It was a great time to come up with a corporate strategy for taking the company forward, and then coming up with a research strategy that would support it.
The corporate strategy was, we believe that science is where you create the value in these businesses, so invest heavily in internal research. We said, “We’re going to invest in scientific innovation to create transformative drugs for serious diseases only — you’ll never see us make baldness drugs or obesity drugs — and in specialty markets.” What was really important about the specialty market part is [that] when you have a transformative drug, like our cystic fibrosis drugs, we sell our cystic fibrosis drugs in the US with 20 sales reps.
We don’t have a big sales and marketing budget, and we don’t do direct to consumer [advertising.] …We can then reinvest 85 percent of our operating expenses in R&D — unlike most companies that are spending 50 or 60 percent of their opex in sales and marketing.
We don’t need to do that. That allows us to take those revenues and reinvest them in R&D. If you look over the last five years now, we have been north of 85 percent every year of opex spend in R&D, and we’ve been able to grow R&D. That’s a very different model, but what it relies on is those investments in R&D have to produce multiple transformative drugs.
As you know, the problem in this industry is it’s hard to make one transformative drug in biotech. The number of companies that have produced two, you can count on two hands. The number of companies that have produced three, you can count on one hand. The number of companies that have produced more than three — there’s one company, Vertex.
We believe the only way you do it over and over is if you have that kind of investment back in R&D.
We have three R&D sites. One of the things that both David [Altshuler, EVP of Global Research] and I really believe strongly in is this decentralized site model. If you look at most big pharmas, the traditional model was to have one site here in Boston, one site in San Diego, one site in the UK right outside of Oxford…Three areas where we know there’s a lot of talent. Each site has between 180 and three or four hundred scientists, no bigger.
If we did another site, we wouldn’t build more here right in this building. Even if we did a site in Boston, we might put it off-site because there’s this tremendous value to have this small group of really focused scientists who are really entrepreneurial, [and who] frankly feel like their survival depends upon their productivity.
Creating a New Innovation Group
We created a group, within David [Altshuler’s R&D] group that’s just about innovation, run by Pat Connelly, who has been at Vertex a long time . It’s called the Vertex Innovation Group. They do all kinds of activities within the company. For instance, they do an event each year which goes on for almost half the year. They solicit ideas from anyone in the company. Not only in R&D, but in finance, legal, etc. They run a competition, just like a venture competition. They have like 400 applicants, then everybody gets a 30-second pitch. …Then they narrow it down to 30, [and] everybody gets a 10-minute pitch. It’s not to me or the executive team; it’s to a group of really innovative entrepreneurs in the company.
Then at the end, we usually pick three to five, and we give them time or money or whatever it is they need to pursue their idea. It just creates this tremendous energy in the company.
We [also] have extra lab space here. One of the things we’re doing is we’re bringing startups right into our lab space. We brought the first company in just recently and we’re going to bring more in. [It’s] not free, because we can actually charge market rates. What they get is lab space that’s all decked out, right in the middle of our group. They can put tentacles out to regulatory, to CMC [chemistry, manufacturing, and control], and they get free advice basically. I’d like to do between three and five at a time. Then hopefully they’ll grow, and they’ll move out and grow up, and that’s fine.
Avoiding Complacency as the Company Grows
I say this at each one of our all-employee web chats: there’s three things that I think negatively affect companies at this stage.
One is what I call complacency. “God, we’ve busted our butts for 25 years and we finally made it. We were working nights and weekends…But now we made it. Let’s just take it easy. We don’t need to keep pushing so hard.”
[Another is] greed. By greed, I don’t mean wanting more money. I mean, we’ve always made decisions here [based] on what’s best for the patient. When push comes to shove, and you have to make a really hard decision, we always say, “Come on, what’s best for the patient?” I think what happens in this transition in big pharma companies is they often make decisions on what’s best financially for their company, what’s going to drive more earnings growth?
Then the final one is arrogance. You get into this mindset of, “God, look how great we are. We’re the only company that’s made five drugs…” Right? “We’re smarter than everybody else,” and so, “We don’t need to look on the outside. We don’t need to interact with small companies. We don’t need to be a good partner.” Just, “We’re cool.” That’s not where you want to be either.
I want to keep the pride [and] I want to keep the confidence, but I don’t want it to verge over into arrogance.