Vertex Company Analysis

(Circa 2003)


The central challenge facing Vertex Pharmaceuticals is the problem of picking a winner when it can’t predict the future. The company’s own future requires the successful development and marketing of new drugs in order to maintain cash flows and viability.


Vertex’s has achieved Porter’s “difference” by not searching for new drugs through the common scientific procedure of random hit or miss. The core approach it uses is “rational drug design” where research efforts are guided in advance towards a known, previously identified molecular target.


Management has indicated it will develop two new drugs from four candidates, and hold or license out zero, one or two of the remainder. This creates a combination of 24 possible ways for the company to proceed (Appendix A.) One of these ways will be the best, one will be the worst.

Analysis and Directly Related Recommendations

Porter’s Five Forces Analysis


Recommendation 1: The company’s strong in-house R & D must be supplemented by a global search for new ideas and techniques. This will minimize the risk of a surprise and the risk of an under-performing insular R & D dept.



Recommendation 2: Avoiding entangling alliances with potential competitors and tripwires that limit the company’s freedom of action. Partners can slow the drug development process as occurred with Vertex’s first HIV protease inhibitor.


Recommendation 3: Vertex needs to participate strongly in industry lobbying to protect its position and the viability of future R & D in the face of short-sighted attempts to cut drug prices.


Recommendation 4: Vertex should avoid “me too drugs” unless the financial payoff is very large. This means VX-702, which uses “a novel approach”, and VX-765, which unlike other drugs in its class “could be taken orally”, would deliberately sidestep the threat of near- term substitutes.

Monte Carlo Simulation

Recommendation 5: Use the Monte Carlo simulation technique to evaluate all 18 possible decisions from a probability point of view, which is most likely to filter out bias and outperform human intuition.


APPENDIX A: Combinatoric Listing of the 24 Possible Management Decisions

Let A = VX-148, B = VX-702, C = VX-765 and D = VX-950

Unique Decision


Develop These 2


License Out


Hold For the Future




1 AB C D This group achieves maximum
2 AC B D diversification and least risk.
3 AD B C  
4 CB A D  
5 CD A B  
6 DB A C  
7 AB D C  
8 AC D B  
9 AD C B  
10 CB D A  
11 CD B A  




13 AB CD   This group may maximize short-term
14 AC BD   revenues at the price of lost future
15 AD BC   potential
16 CB AD    
17 CD AB    



19 AB   CD This group is the riskiest while maximizing
20 AC   BD future potential.
21 AD   BC  
22 CB   AD  
23 CD   AB  







George Adams
Certified Public Accountant Master of Business Administration
Tel: (207) 989-2700 E-Mail:
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Brewer, Maine 04412-2339

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