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The Spark of Innovation at Vertex Pharmaceuticals Incorporated

By Max Macaluso – Mar 7, 2014 at 6:30PM

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Motley Fool analyst Max Macaluso discusses how Vertex Pharmaceutical's culture helped the company develop break-through medications with author Barry Werth.

There's little room for error in the biotech industry. The discovery and development of new drugs is a long, arduous process that sometimes takes a decade to complete, and precision is necessary at every step. From synthesizing a compound in the laboratory to testing experimental drugs in clinical trials, scientists rely on regulatory protocols to ensure their drugs are ready for commercialization. In the face of these challenges, it can be easy to forget that the development of ground-breaking therapies doesn't only rely on data, but also requires creativity and visionary leadership.

Striking a healthy balance between processes with creative thinking is difficult for any company to achieve, but this has been a key factor in Vertex Pharmaceuticals' (VRTX 0.01%) success to date. To gain more insight into Vertex, Motley Fool analyst Max Macaluso discussed the company's culture with Barry Werth, author of The Antidote: Inside the World of New Pharma. In this interview, Mr. Werth offers a glimpse into Vertex's early days and explains how its innovative organizational structure and management helped the company develop ground-breaking drugs. 

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Max Macaluso: Something else you talk about in The Antidote is Vertex's unique culture, and the culture of innovation. I loved a quote from the book. It was said by Dr. Sato, who was president of Vertex at the time: "We didn't have any positions, because we never had any positions."

Dr. Sato was trying to recruit another scientist from a competitor, and they just didn't have a position to offer her, because the company didn't have formal positions. It sounds like Vertex had a very flat organizational structure. Do you think the company flourished because of this? 

Barry Werth: I absolutely do. As I said, many of the people who started out with Boger, who he refers to as the "torchbearers," came from Big Pharma. What they had discovered, more than anything else, is that within pharma there was an immobilizing sludge of middle management; that there were layers and layers and layers, and everybody had to report up the chain of command.

Even at Merck at this time -- now remember, Merck was the most admired corporation in America -- but even at Merck at the time that Boger left, the chemists reported to me, there were benchmarks and goals set; numbers of compounds made, for instance, in a program. It didn't matter whether they were an improvement over anything else. It didn't matter whether they did anything. Because of the management structure, everybody had to meet their metrics, and that will just absolutely kill any kind of innovative thinking or risk-taking.

I'm not sure that Vertex was completely different from other small companies. I think many of them are driven by this spirit of, "Let's take the big chance. Let's seize the big opportunity. Let's go for it."

But two things that Boger did, I think were really instrumental. One was, rather than set up any sort of management structure at all initially, he had scientists from across disciplines co-managing all of the projects. These were project councils. They were like Lenin's soviets; they were set up to democratize and equalize the voices within the organization.

The other was what the scientists themselves referred to as Boger's "social experiment." That is, they craved, many times, more authority, more direction, but he absolutely refused and let them figure it out for themselves. Through that, numerous champions arose, and these eventually became the scientific leaders of the organization.

The quote from Vicki Sato I think is an interesting one, because it comes in the context of a discussion that this scientist that they were trying to recruit had had with a colleague of hers. She was coming from Schering Plough. She was going to be heading up their brand new virology unit, and a colleague of hers said, "How many positions did she give you?"

The woman, who eventually came to run virology at Vertex said, "It doesn't matter to me how many positions. It's are they really committed? Do they really want this? Are they going to do it right?"

What Sato said to her is, "We'll find the positions. We'll come up with them," and they did eventually, and Vertex has a very strong virology group as a consequence.

Max Macaluso, Ph.D., has no position in any stocks mentioned. The Motley Fool recommends Vertex Pharmaceuticals. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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