Vertex R&D portfolio Decision
Joshua Boger, CEO of Vertex has to decide on two out of four R&D portfolios that are to be fully funded by Vertex and to decide on the fate of the other two portfolios i.e. whether to partner or hold them as backups.
In order to decide on the R&D portfolio, an objective quantitative analysis might not be suitable considering the high levels of uncertainities and consequently the risks involved in pharmaceutical research projects. It is important to have a qualitative analysis of the situation as a whole that includes Vertex’s own financial position, strategic implications, a quantitative analysis of its Portfolios with realistic estimations and a risk analysis of the portfolios.
1. Vertex finacial analysis
As per Vertex’s income statement(exhibit- 2B), it is clear that Vertex R&D expenditures in most of the preceeding years until 2002 has exceeded its revenue to the tune of 120% of its revenue in 2002 . The net income has been negative for all these years and the company is yet to prove itself in the stock market and gain investor’s confidence (exhibit-5). As per exhibit-2a, though Vertex’s cash position is strong, most of it (~50%) is through convertible debt and unless Vertex creates a breakthrough in the market through block buster drugs or substantial revenue it is unlikely that Vertex can attract funds or generate interestes in the market for additional funding for its projects. Also in oder to scale its operations e.g. sales and marketing, additional infrastructure it is impeartive that Vertex has to curtail its spending on R&D. Vertex’s market perception can be observed in its stock position (exhibit-5). Vertex’s shares have been underperforming vis-à-vis the market for the last 8 years except 200-2001.
The implications of this financial situation mandates that Vertex, at this stage should chose projects that have a