More than any biotechnology company, Vertex Pharmaceuticals Inc. has symbolized the industry’s explosive growth in the Boston area. Over the past two years, it won back-to-back approvals to sell drugs for hepatitis C and cystic fibrosis, emerging as a Wall Street favorite.
But on Tuesday that momentum stalled. Less than two months before Vertex plans to move 1,300 employees from Cambridge into a gleaming, new $800 million headquarters on the South Boston Waterfront, the company acknowledged it misjudged the market for its lead drug, a hepatitis C pill called Incivek.
With the drug’s sales dropping sharply, Vertex said it is cutting about 17 percent of its total workforce, or 370 jobs — including 175 in Massachusetts — and will return $4.4 million in state tax incentives it received for promising to create jobs.
The company may yet become an anchor of the state biotech sector. But to do so, executives will need to make good on their plans to build a multi-drug pipeline — something few in the high-risk biotech business have done. The first test will be winning approval for a portfolio of cystic fibrosis drugs.
“Vertex has clearly emerged as the world leader in developing new drugs for cystic fibrosis,” said biotech analyst Mark Schoenebaum, senior managing director for the investment research firm ISI Group in New York. “However, they have just as clearly lost their leadership position in hepatitis C. Thus, it makes sense for the company to focus on cystic fibrosis.”
But the new focus didn’t lessen the blow Tuesday when the Incivek-related job cuts — Vertex’s first major round of reductions in a decade — were announced to employees. The move “represents perhaps the most difficult choice for a company to make,” Vertex chief executive Jeffrey Leiden told analysts in a conference call. “The hepatitis C market, however, has changed very rapidly.”
In particular, sales of Incivek — which has treated over 100,000 patients worldwide and generated more than $2 billion in sales since it was introduced in May 2011 — have fallen faster than the drug maker anticipated. That is because doctors have encouraged many patients to wait for a new generation of treatments that work better and are easier to take. The drop fueled a wider-than-expected third-quarter loss and prompted Vertex to lower its revenue forecast for the year.
That sent Vertex shares down $1.74, or 2.2 percent, to close at $76.09 Tuesday.
Much of Vertex’s hiring in recent years has been tied to promoting Incivek, considered a pioneering treatment for the hepatitis C virus. Despite the Incivek setback, Vertex leaders took pains to stress that their mission of building a sustainable pipeline of drugs is not changing.
“What you’re seeing is rapid innovation leading to the reshaping of the company,” Leiden said. “But the overall trajectory is one of growth.”
After the job reductions, Vertex will have about 1,800 employees worldwide, including 1,300 in the Boston area. Despite the downsizing, executives said, they still plan to go forward with their long-planned move to the Fan Pier, starting in mid-December.
They also said Vertex will still have created about 1,000 jobs, including 800 statewide, since it started development of Incivek. But the company failed to meet the job targets set by the Massachusetts Life Sciences Center, a state agency charged with expanding the biomedical sector, which awarded Vertex tax credits of nearly $2.2 million in 2011 and more than $2.2 million in 2012. Vertex said it will reimburse that money to the state.
Life sciences center president Susan Windham-Bannister said Vertex did hire the number of employees it promised, but did not retain them for a required five-year period.
“We recognize they’re in a competitive environment, and the environment changed,” she said. “We applaud Vertex for being proactive in coming to us and returning the money. For us, this is evidence that this (tax incentive) program has teeth.”
Other companies have also been forced to return state aid linked to hiring. Cambridge drug maker Genzyme Corp. and two smaller biotechs refunded a combined $6.6 million in tax incentives in 2011 because they did not create the number of jobs they promised. And early this year, battery firm A123 Systems paid back $3 million to cover part of a loan it received to expand operations and hire hundreds of workers.
Going forward, Leiden said, Vertex plans to refocus on cystic fibrosis therapies as well as drugs in earlier stages of development to treat multiple sclerosis, cancers, and other diseases.
Vertex last year won approval for its second drug, Kalydeco, which treats roughly 4 percent of the 75,000 patients worldwide suffering from cystic fibrosis. Vertex is working on new versions of Kalydeco and combination medicines that, within three to five years, could be available for up to 90 percent of cystic fibrosis patients.
All told, the market for cystic fibrosis drugs could be $5 billion a year. Vertex already is the market leader and stands to reap the largest share of sales when its experimental drugs are approved, analysts believe. But that will happen in stages over the next few years.
“At this point, it’s very much a clinical development story for Vertex rather than a revenue growth story,” said biotech analyst Howard Liang, managing director at health care investment bank Leerink Swann.
Leiden said Incivek, the first drug developed solely by Vertex, has been a commercial success. But Vertex hired its Incivek sales force anticipating revenue would remain strong for several more years, he said. Instead, many doctors are advising patients to hold off taking Incivek, a pill used in combination with another drug that has to be injected, because a new generation of all-oral hepatitis C therapies could become available as early as next year.
“It absolutely makes sense to wait,” said Sue Simon, president of the Hepatitis C Association, a patient advocacy group in Scotch Plains, N.J., who said today’s drug combinations often cause side effects ranging from rashes to fatigue to muscle and joint pain. “The new drugs will be a walk in the park compared to the ones out now.”
The market for all-oral drugs is projected to be $10 billion to $20 billion annually. But rivals, such as Gilead Sciences and AbbVie Inc., appear to be ahead of Vertex in clinical development. While scientists at Vertex are working on an all-oral drug regimen to treat the hepatitis C virus, it is still in trials and won’t be ready for several years.
“We built the organization assuming Incivek was going to be an important market for at least three to five years,” Leiden said. “It’s turning out to be more like two to two and a half years.”