Founder Stories: Joshua Boger, Founder and CEO of Vertex Pharmaceuticals

Okay, everybody. It may be a little non-traditional to start exactly on time, but I know we've timed this sort of between class periods and we also have a reception afterwards for— so I thought we'd get started. First of all, welcome to Bentley. Thank you all very much for coming. This is our fourth installment in our Innovators Business Series to try to get the community all the way out here to Waltham and really think about the, the role of science and business and innovation. We are extremely excited to have Josh, Joshua Bogle here tonight. Joshua Bogle probably needs no introduction. Personally, I've admired Josh since I moved to Boston and had a little tiny startup and looked up at what could be accomplished. And having him out here is really, I think, for the students here, for my students who I've really insisted on coming, I think the kind of experience that they need to see about what the business world is, what it can be, and probably more importantly what it should be. So just formally, Josh is best known as the founder of Vertex, is now the chairman of Alkais Pharmaceuticals. I think even more impressive is the list of boards that He is contributing to— now to ranging from chairing the board at his alma mater at Wesleyan to being vice chair of the board of the Museum of Science to serving on many boards and visiting committees at MIT and at Harvard. And perhaps my favorite, being chairman of the board of the Celebrity Series, the music festival. And I really do appreciate that. And we do that very frequently. So without further ado, the topic tonight is managing imbalance. For those of you who don't know, the 28th is Rare Disease Day. I'm sure that's on everyone's calendar. And for me, the rare diseases and the Orphan Drug Act is really a model of what industry and science can do when it really works, when these things come together and you find a way for companies to contribute, be profitable, and do the things that really matter. I don't know we'll hear about Rare Disease Day, but clearly one of Vertex's lead products is a drug for cystic fibrosis. Which is very much a product of the very creative business thinking that's gone on there. So with that, I will introduce Josh Bogle.

Thanks. Well, it's great to be here. For the next 45 minutes to 50 minutes or so, I'm going to talk about— I hope to do two things. I hope to give you a little bit of inspiration, and maybe some— I hope to kill some of your incorrect beliefs about business. And then instead of just haranguing you for 45 minutes, I'd try to also give you some tools to actually put in place a balanced view to managing a business. And I also am gonna talk right at the end about that none of this applies just to business.— and so there are many very interesting social entrepreneurs out there, some of them indistinguishable in what they're doing from, quote, business entrepreneurs. They've just decided to fund their activities in a different way. And I don't think there's much difference between a business and a charity. It simply is where you get your capital. So everything I'm going to say applies to businesses and so-called nonprofits. But I am gonna talk mostly about a business, Vertex Pharmaceuticals, some of the methodologies we use to manage that business in what I'll call in balance. Because of that, I need to protect myself from going to jail. The top statement says that if you have the inclination to buy or sell Vertex stock, God forbid sell Vertex stock, then you should go to the, our website and look at the SEC documents that we have filed that list the risk of that business. And then being in academia, I have to tell you that according to most academics, I am irretrievably conflicted and therefore you should ignore anything I have to say. Now, if you're interested in building a business, you've got lots of decisions to make. And there's no more important decision than what kind of business you're gonna be. And there's a lot of misunderstanding and wrongheadedness about what a business is. And a lot of that wrongheadedness about what a business is is due to this Nobel Prize winner, Milton Friedman. This is Milton Friedman on the front of Time magazine in 1969. No one has done more damage to the notion of what a business is than Milton Friedman. He's the guru of the so-called— and I'm probably not a fan of his either. He's not a fan of mine either. But no one has done more damage than Milton Friedman. And he's done it so well that Milton Friedman's idea of what a business is is the man on the street's notion of what a business. And it's told no more clearly than in one of his most famous books called Capitalism and Freedom, where he said very clearly, "Few trends"—this is 1982—"Few trends could so thoroughly undermine the very foundations of a free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their shareholders as possible." That's the Chicago School of Economics theory. So, the man on the street bought this completely and believes— and this was, by the way, not a viewpoint that was widely accepted or even known before about the 1970s. It's a relatively new concept that the purpose of business is solely to make money for shareholders, but it's been so pushed into our brains that most people think that this is the law, which I'll get to in a minute, that the only responsibility of a business is to make money for shareholders. Shareholders are the only people that count, and therefore you have to make some convoluted argument about shareholder benefit to do anything other than make them the most possible money. Now, it turns out that this is completely wrong. And I don't have a Nobel Prize in economics, but this is completely wrong. And contemporaneous with Milton Friedman, there were numerous economic thinkers, some actually more successful than Milton Friedman in many cases, who were saying just as loudly that this was wrong, but people weren't listening. So, he won the debate in society. One of my favorites actually goes back before Milton Friedman. Is a virtual mentor of mine. I actually never met the man, but this is George Merck. This is George Merck on the front of Time magazine 17 years before Milton Friedman got on the front of Time magazine. And George Merck is famous to all people who ever worked at Merck for a quote that begins, "We try to never to forget that medicine is for the people." It's not for the profits. The profits will follow, and if we've remembered that, they have never failed to appear. Now this was in a speech he gave in 1950. 1950. For most of you in the room, that was before dinosaurs. So this is a long time ago where the CEO of one of the top corporations in America said, our business is— we're not in our business for profit. We're in our business for people. And oh, by the way, he said in this speech, which I think you should look up and read. Everything is findable now. This is an easy findable speech. He said, "There's nothing wrong with making money, and in fact, making money is required to run our business, but that's not why we're in business." And this statement by itself is the one that most people remember. And it is, through the years, has gotten sort of tossed aside as a Well, he was speaking at a university and he really was talking about, well, once you become as powerful and rich as Merck, you can afford to be benevolent. I've heard that interpretation. But the very next sentence puts a lie to that interpretation. So he says, "The profits will follow and if we've remembered that," the "that" meaning medicine is for the people, "they have never failed to appear." And here's where he attacked Milton Friedman head-on. The better we've remembered it, the larger they have been. So he's not making a qualitative argument here. He's saying to Milton Friedman, I trump you. You want to make the most money for shareholders? The way you do that is to run your business for the people. So that's a very different notion than I have to somehow make a convoluted social argument around my principal responsibility for shareholders and, oh, by the way, somehow I have to fit in this other part of society. He was saying it is actually the way to make the most money for shareholders. Very radical notion. Now, it turns out that we are all in one of the states in the union that has the clearest laws around the responsibilities of directors of corporations. And every corporation is incorporated in a particular state. It doesn't always correspond to where they're physically located, but you have to be incorporated in a particular state. A Massachusetts corporation, and I'm proud to say that Vertex is a Massachusetts corporation, has to follow something called Massachusetts Chapter 156D Section 8.30, which I have here in its key points. And it is the responsibilities of a director of a corporation, and it says that whenever directors of a corporation make decisions in determining what a director reasonably believes to be in the best interest of the corporation, a director may consider the interest of the corporation's employees, suppliers, creditors, customers, the economy of the state, the region, the nation, the community and societal considerations, and the long-term and short-term interest of the corporation of its shareholders. Now, if there was ever a clear legal retort to Milton Friedman, it was that. In Massachusetts, if you're incorporated in Massachusetts, you should, as a director— they don't say should now, I'm extending this— you're certainly allowed to, a regular old corporation, you're allowed to consider quite a bit more than how much money you made for shareholders this quarter. In fact, you're encouraged to. In fact, most states have what are called non-stakeholder interests built into their incorporation laws. One of the states that does not, by the way, is that liberal bastion of California, where California, the only thing directors are allowed to consider is stockholder interest. That bastion of freedom, Arizona, actually has incorporation laws very similar to Massachusetts. You can't always tell by looking at the rest of the state, but it is true in Massachusetts. It's true in Delaware. Delaware is quite similar to Massachusetts in allowing non-stakeholder interest in corporations. Except, and this is why companies incorporate in Delaware, except when a takeover, and whenever a company is bid to be taken over, all other interests have to drop away and only shareholders matter. In Massachusetts, all these other people still weigh into a director's decision. So legally there's no barrier, and the state of Massachusetts and about 35 other states don't see any barrier to considering the interest of society in the principal responsibilities of directors of corporations. So, there's nothing radical about George Merck in 1950, and New Jersey, by the way, has non-stakeholder interest in corporation laws. So, when I was considering establishing Vertex in the late 1980s, I wanted to be a company more like George Merck thought about a company than about Milton Friedman. And I wanted to do something important and get out of the red water where all the other fish swim and get into the blue water where life is better. Skipping 25 years, it's worked out okay. Vertex is a large corporation centered in Massachusetts. We have about 1,800 employees. Went public very early. That was an interesting experience. We're a member of not only the NASDAQ 100, the top 100 companies on NASDAQ, but the top 500 companies in the United States, and we have substantial operations around the world from Geneva, Switzerland, Quebec, and UK, as well as offices in lots of other places. If you're down in Boston, this is a snapshot that I took a couple months ago of Vertex's new headquarters on the right behind, between the Mokely Courthouse and the ICA. If you're wondering why all those news cameras are there, it isn't because Vertex was almost finished, it's because Whitey was getting sentenced when I was down there, but, at the courthouse. Now, this is the last really Vertex-specific thing I'm going to say. I'm just trying to give you context. We've tried to focus on drugs that make a major difference to patients. And I know that sounds like an advertising slogan, but it is just, it is a fundamental decision about what you do as a pharmaceutical company, whether that's actually your major mission or whether your major mission is to figure out how to sell a lot of drugs. It's just a fundamentally different mission. So I said quite famously when I had hair that we would never, never have a hair growth drug that we would never have a toenail fungus drug. And by the way, there's nothing wrong with companies that have toenail fungus drugs. There's nothing wrong with it. There's nothing wrong with being a Milton Friedman company. I just don't want to be one. So, we decided not to be a Milton Friedman pharmaceutical company, but to be a George Merck type pharmaceutical company. So, our first two, our first two major products Our Inciveq, which was the first drug to really compel people with hepatitis C to get cured and was also the fastest drug to a billion dollars ever in the pharmaceutical history, probably soon to be eclipsed by a follow-on drug from another company. And Kalydeco, the CF, our first CF drug in our mission to make CF an annoyance and not a disease. Now, how do you do that though? How do you, quote, balance these interests of society and business? Because we do have shareholders. And, oh, by the way, to build Vertex, we had to raise about, in the public markets, about $2.7 billion. And so I had to tell a lot of shareholders that I was gonna return money that they were giving me. And I was honest about that, but I also told them that the mission of the company was to make transformational medicines, not to focus on shareholders alone. So how do you balance that? Now there's a couple of methodologies to do that. The one that I hear most often, and that does actually trickle down to the to this Main Street is the so-called triple bottom line where people say, "Well, I manage my company with a triple bottom line. Yes, I look at the economic output, but I also have another spreadsheet where I'm looking at the social output. I have another spreadsheet where I'm looking at the environmental output." Those are the triple bottom lines. Nothing wrong with that construct. I just don't know how you manage a company with 3 different sets of books. So, that never appealed to me as a practical way to balance these interests. And I kind of went back and was looking for a way that was more like, that would reflect more of what George Merck meant, which is it's a false choice. There are not 3 bottom lines. It's 1 bottom line. You just have to have enough factors in the bottom line. And oh, by the way, when you measure, if you do this properly, here's the— here's the hope. If you do this properly, you optimize all of those triple bottom lines. You're not giving up one for the other, which is what the triple bottom line philosophy tends to suggest, that you're sort of compromising. George Merck said, "There's no compromise. I look after the patient and the profits are the biggest they possibly could be." I kind of liked both of those ideas. But I was looking for a practical methodology to sort of think about that and actually manage the company. I stumbled upon some books by some clever Harvard Business School people, Jim Collins and Jerry Porras, called "Built to Last." And if you haven't read this book, you really should. It's the only business book— it was the first business book and one of the only few now still that's actually based on data. Business people ironically write books without data in them, which I find amusing. But as a scientist, they actually wrote this book based upon data. And he actually exploited tens of graduate students to write this book whose names are somehow accidentally left off the COVID And it's all about companies— it's all about how— what distinguishes companies that are, quote, "built to last" from companies that aren't built to last. So he's not interested in who makes the most money in the next quarter, who makes the money in 5 years, but if you look 10 and 20 years from now, who are the companies— what were the characteristics of the companies that survived? And what he found out in this was The distinguishing feature of the companies that survive decades and actually grow faster than the average company— they just don't survive like a rock survives or that a turtle survives. They survive because they grow faster. The key characteristic was the way in which they inculcate values into the company. Whoa, does that sound weird? I mean, This is an analytical guy at a business school employing a cadre of graduate students. He didn't start out with that hypothesis. This is what the data told him. And so he actually looked at how companies did that and embodied some of that in what is called the Collins Vision Model. And you can get these articles online now, expurgated from the Harvard Business School. Or you can buy them for $12 a copy from the Harvard Business School. And the Collins vision model really is painfully obvious, as all profound things are, which is at the core of every company is a dynamic tension between two things. One of them is what he called the core ideology. The core ideology is the values of the company and the purpose of the company. I started this talk saying, what kind of company do I want to be? What's the purpose of the company? It's an incredibly important question to answer. And it's not about the name of the product that you wanna make. It's about what kind of company you wanna be. And then what kind of values— and I'll talk about where these values come from. And he said the companies that survive the longest preserve their core. They do not let the core values or purpose ever change. They just protect that. The tension is that there's a vision of the future, which you call the envisioned future, that's embodied in, that sort of pulls you forward. We could be better. We could do this. We could do that. And that always pulls against your values because it actually tempts you to do things against your values. And the tension between those two things is what keeps companies moving forward. The nomenclature here is people that follow the Collins model create something called a BHAG, a Big Hairy Audacious Goal. It's sitting out 10 to 30 years. If we're successful, what do we look like 30 years from now? That can be a big, hairy audacious goal. And describe that in vivid ways so that all the company understands what the 30-year picture looks like. And that stimulates progress. Now, where do you get these things? Do you go to a consultant to get your goals? Do you go to a consultant to get your values. Well, it turns out that doesn't work. What you have to do is get people together who have similar thoughts about what kind of company they want to have, but they haven't enunciated them. But they get together because they like each other. And they don't even know why. And they get going, and then you discover what those values are. So it— actually, you don't do this at the start. You don't make this model at the start. You do it after you get going a little bit. But not when you're ossified. And so you sit down and say, "So on our best day, what, who are we? How do we act on our best day? Are we generous? Are we not generous? Are we innovative or are we copycats?" Again, none of those are value statements. You have to be honest about who you are and the group of people you like to hang out with and the people you like to devote your time to. And you start to codify that not by who you ought to be, but who you are. So you discover your values and your purpose. And every company I've ever seen, more than about 2 people, has already coalesced around values and purpose, even if they've never written down a word, because they wouldn't be together. They wouldn't get past the second month. The vision of the future is totally created. And your sort of goals out there 30 years from now, what you look at 30 years from now, as long as you maintain the core is gonna stay the same, your vision of the future is gonna change as the facts change. Now, turns out for Vertex, our core purpose and our big, hairy, audacious goal is the same thing, which turns out to be coincidence The people who run seminars on how to do this say this is rare, but we didn't care if we broke the rules. And our core mission is to innovate to re— core purpose is to innovate to redefine health and transform lives with new medicines. Now that sounds like an advertising slogan, but it actually came from the employees. And every word means something a little bit different than what you think it means. The one that's the most radical and hard to understand is this redefine health. What we mean by a drug that we want to be associated with is a drug that changes the very definition of what it is to have that disease. So we were fortunate enough, our, our first drug was one of the first HIV protease inhibitors. And when we went into HIV, HIV was literally a death sentence. If you were diagnosed with HIV, you're going to die and you're going to die pretty soon, even if you were newly diagnosed. I don't want to change anyone's behavior later this evening, but HIV is just kind of a bummer. It's not really, for 95% of people that have it now, it's just kind of an annoyance and you probably won't die of it. And that transformation, changing the definition, was not only changing the definition— the disease didn't change. We changed the definition of what it was to have the disease with drugs that turned it from a fatal disease into a chronic manageable disease. So every time we go into a field, we want to change the definition of what it is to have that disease. So in cystic fibrosis, for example, kids are born with cystic fibrosis, their parents find out about it, they find out about the disease, And then the parents stop thinking about things like college because their kid isn't going to go to college. Or if they go to college, they're going to die in college. And they certainly don't talk about marriage and they don't worry about their kid's social life because they're not going to have one. And it defines their purpose. The kids we're treating now with our— with Kalydeco have changed the definition of who they are. They're going to die of something else. In all likelihood. So we're transforming lives, we're redefining what it is to be healthy, and we like new. Now the core values of the company again came completely from the employees. And we kind of overdid it. We actually had about 600 people involved in this process of discovering our core values. And they were Three, a fearless pursuit of excellence. It's not pursuit— every company is for excellence. Who's not a company that's for excellence? But it's a fearless pursuit of excellence. There's a little bit of danger there. If we're not scared, we're not trying hard enough. And this repels some employees. They end up not applying and certainly not getting a job at Vertex because You have to live constantly on the edge. Because if you have a great idea that's easy for you to implement, go back and get me one that's harder for you to implement. Because I'm not interested in you being comfortable. I'm interested in you being on the edge. Let somebody else handle that one that you just solved. I want you to take something that you're scared of and be excellent in it. For us, innovation is not just something that's a business principle. We need to innovate because that's our products. At Vertex, Vertex employees believe that if we didn't innovate, we would die. Lifeblood came up multiple times in conversations or things like it. It's an essential feature of who we are. And then this last one, which is the most misinterpreted, and sometimes even inside the company, is what we call "we wins," which is not cooperation. Cooperation is boring and is even boring when they try to teach it in kindergarten. It's interdependency is what I'm talking about. And the story I like to tell about "we wins" is— and this happens over and over again at Vertex— if there's a way to solve a problem and 3 people can solve the problem. One of the first things those 3 people think about is, "Can I involve 6 people in that problem? Can I bring 10 people into that problem?" Now, I don't want to bring 3 people times the same effort that 3 people were gonna do it. But the more people that I can bring in to my problem, the better off the company is in because I'm gonna embed the solution of the problem in more people. So, solving the problems is the innovation. How you solve them is just as important. And so those are the core values. Now, that's great. A lot of dials there. You still gotta fly the airplane. How do you convert values and purposes into actually now the nitty-gritty of managing a company? And thankfully, there's strategies to do that. One of them— ways to do that— one of them is by understanding what a strategy is and what a plan is, what the difference is between a strategy and a tactic. So, I'm gonna give you some of my own definitions. Strategy is an hypothesis based upon cause and effect relationships. I'm a scientist, sue me. So, a strategy isn't a philosophy, I was talking about philosophy before. A strategy is actually understanding the cause and effect relationships in your business. And you can divide a business strategy into two halves, really. The drivers of the strategy, which in a lot of businesses are people and internal processes, and the outcomes in most businesses are financial perspectives and customer perspectives. This diagram fits, in general, almost every business and every nonprofit in the world. In order to actually use this perspective to actually make decisions on a day-to-day basis, some other Harvard— clever Harvard Business School professors came up with something called a balanced scorecard, which is just putting this— these cause and effect relationships into more of a one-page understandable diagram, which they called a balanced scorecard, in which they just make the connections. Doesn't matter whether you can read that, but they're the same 4 categories. The connections between the inputs and the outputs. So does the business understand what the connections are between the inputs and the outputs? It's as simple as that. Then you can actually attach measurements to every one of those. Don't overmeasure. Overmeasuring isn't all that important. You can have one measurement that measures 5 things if it's a really good measurement. But attach a metric that will eventually measure each one of those inputs and outputs. And create goals for those. And once you do that, you can create action plans to change, to change those outputs. Now, 70% of businesses in America use something that's related to the balanced scorecard even if they don't pay the Palladium Group or other balanced scorecard advisors and call it that. How is it different if you're managing a business in which you believe your core purpose is more integrated with society than the average business's core purpose? Well, it turns out you construct a balanced scorecard that looks a little bit differently. This is only the second place that I've ever gotten permission to show the Vertex balance scorecard that was developed for the company. It starts rather conventionally. It has at the base are the values. The base are the immutable values. That doesn't change ever. At the top, you have your core purpose. Everything has to play into that. And you have to be analytical about some connections all the way up the line. And we start off fairly conventionally with the inputs that are the most important to the business at the base are people. We describe some things about those people that a lot of companies don't measure. We put a lot of stock with what we call emotional intelligence, which is the most effective predictor of success in wherever you are in a business, whether in the technical side or the non-technical side of a business. It actually isn't a very good predictor of your success to measure your skills. A lot of companies overmeasure skills and think that they're measuring something that's important. It turns out— this is data— not theory, turns out that measuring skills doesn't predict outcome very well. What does predict outcome is emotional intelligence, how you interact with people, how self-aware you are of your own shortcomings. Do you know when to ask somebody a question because do you know yourself? It's mostly about knowing yourself and being able to communicate. We put a lot of metrics around that. We put a lot of metrics around enhancing the whole experience of being at Vertex. People like to stay there. And we're not interested in maintaining your skill set. You gotta grow every day as a person and your emotional intelligence skills have to grow every day. That's pretty normal. Then we get to some of the more technical internal inputs. And this starts up from drug discovery. I'm not going to go through all of these analytically. From the earliest drug discovery through development and through the kind of real internal work you need to do to get a drug to the marketplace and to get it to the patient. And all of these things are internal processes Everything on here is affected by every other box on here. And it's very important to understand what the connections are between those boxes and to have a way of measuring when you make a change how you're affecting other things. So if you change the experience in the company, how do you expect it to be changing your ability to build a scalable organization. That's a question that you should ask as a manager even if your job description says I'm in charge of development. You don't go to the HR person and say that's your job. These things are all connected. So you make a decision about how to scale the development organization. You've gotta take into account every other box on this. Everybody in the company is responsible for every aspect of the strategy. You can't outsource the decision-making around the strategic interactions to somebody else. It's not the sum of parts. It's a hologram. And then at the top, the output that we're looking for from all these internal processes are in fact to transform lives. We're looking to make unprecedented medicines that are significant that are usable. It doesn't matter how good they are in the Nature paper if they're not usable. It doesn't matter how good they are in the clinical trial if the patients can't afford to get them. That's our problem. It's not somebody else's problem. Because if we can't, if we make a medicine that people can't afford to take, then we haven't transformed the lives. So, why do we care about getting patients access to drugs? It's not because we're benevolent. It's because our mission is to transform the lives. And we can't transform the lives of a patient with a drug, no matter how good it is, unless we get the drug to the patient. It doesn't get to the patient just by sitting on the shelf of the pharmacy with a price tag. It's not somebody else's responsibility, it's our responsibility. Not because we decided to be benevolent, but because our mission was to transform the lives. Now, this is the guts of our strategy map. Now, what's missing that you might have thought would have been in the strategy map? Well, there's— money hasn't been mentioned here yet. Nothing about a financial model. And like George Merck, we're not ashamed of the fact that we can and do and will make money. And we hope to make piles and piles and piles of money. Unbelievable amounts of money. But we're not doing it because that's the mission. We're doing it because the financial aspect is actually a driver to the side. It actually is a derivative output of our main— our output is to make the drugs that transform the lives. If we do that, we are ensured of having the financial wherewithal to do it again. And if anyone asks you, why is that drug so expensive? The only accurate answer is because the next one is going to be expensive. It has nothing to do with the one you just produced. That's the law of sunk costs. So, the reason we want to make money, the reason we care to make money is not because we're measuring that as an independent variable. It's because we have lots of plans to have lots more people making lots more drugs to transform lots more lives. So, we care about this a lot. It's just not an independent variable. It's not an independent output. And we believe, like George Merck believes, that if we attend to this one, this will be the biggest it could possibly be. So this is an unusual strategy map, to say the least. It's the only strategy map of a company, I believe, we've verified this with experts, it's the only strategy map of a company where money isn't at the top. But it better reflects the fact that there isn't a conflict between the social responsibility and the financial impact. Now, if a lot of these words up here sound like they're epigrams— what in the hell does that mean? I can assure you that all those epigrams have detailed explanations. And beneath all of those are— each of those are attached to a series of very objective measurements in which the interactions between the variables is as known as it could possibly be. And we always ask ourselves, could we do better about the interaction variables? But it's all there. The whole strategy of the company is there. So, if you make a decision, no matter what decision you're making, gee, I wonder what, what should the price of this drug be? In most companies, that's a decision between the CFO and the head of marketing. The CEO gets told the answer. At Vertex, it's still made pretty high up, but it's taking into account every other effect of that on the rest of the system. So you say, well, gee whiz, would it make our— and this I will tell an anecdote that I've never told in public. As we set the price of of Kalydeco at $200, initially at $290,000 a year, there were, for a drug that people are going to take for life, there were people in the company who started crying because they said, this violates our mission. They were really upset. But that's because they didn't understand that we had, we had in place processes so that they're in— the cost to patients was actually as close to zero as we could possibly make it. Please do not be one of those people who conflates price and cost. The price was $290,000. It's now over $300,000. But the price was $290,000, but the cost to patients was essentially zero. How did we do that? We established a program in the United States where, where people do see the cost of their healthcare so that everybody with insurance of course gets the drug covered by the insurance, but insurance plans sometimes have very big copays, especially for quote specialty medicines. The copays can be up to 25%. Of the cost. So, we decided that if you have, if you make under $150,000 a year, we pay all your copays. So, we're not going to keep the medicine out of people's hands because it's somebody else's problem that they have a bad insurance plan. And why do we do that? Is it because we can afford to do that? No. It's because it's our mission to get the drug to the patients. And because had we not done that, our employees would not have a good experience. There are other interactions there that, that, that are relevant. Why did we set it at $290,000? It's because we need the money to make more stuff. So you have to be very explicit about the interaction of these variables and be willing to actually ask very tough questions, some of which are very comfortable questions of financial analysis and other ones that are not. Is it reasonable that my employees are crying that we set the price at $290,000? Well, it wasn't unreasonable until they understood, they understood and we understood each other about the interaction of those facts. So we had a lot of dialogue inside the company to make sure we were making that decision correctly. So that's how we use the strategy map. It's not, it's not only the maximization of the financial dimension that happens when you attend to patients. George Merck said, "The more we attend to patients, the greater the profits have been." It turns out a lot of other things get— are maximized as well. And that makes sense in the theory, but it's nice to see it come about. People are very important to the process. Drug discovery and development and commercialization is a people business, not a technology business. And so we're really proud of the fact that we drive people really hard. It's a really scary place to work. I could not get a job there anymore. And yet we're rated for the last 4 years— this is our 4th year of being rated in the top 10 science employers in the country by Science Magazine and in top places to work in Boston. Top places to work in San Diego, where we have a large laboratory. And these are all polls of employees and employee managers and HR people, not Vertex. This is not a Vertex voting, stuffing American Idol ballots. Is it perfect? No, it's not perfect. But we care about this. Not because we're benevolent and we're rich and we can afford to have a nice environment, we can have a nice building in Boston. It's because it makes better drugs to have people happy as employees. It's all connected. I'll talk a little bit more about employees because it's one of the areas that turns out to have the most profound benefits on the company. There are a number of ways in which as a company now we support a lot of health initiatives around the country related to diseases that we're working on and the diseases that we have drugs in the marketplace. Those initiatives are important to deliver on our mission, but they're also very important to employees who say, why aren't we helping more with the cystic fibrosis patients? Why is it, why is our medicine the only thing we're doing? So we do more. With health initiatives around the patients that we're addressing. People in the present, employees in the present, thankfully this generation really wants to volunteer. And if a company doesn't give you a way to do that or makes it hard to do, you're actually not, you're not going to build a company that employees care about because they're going to have to fill that part of their life in some other way. And we'd rather at least acknowledge that that's important to employees. So we support volunteering all kinds of ways, including an entire day a year where every employee fans out for an entire day and does basically whatever they want. It's organized by employees into cadres of employees. Everything from building houses to food banks to things unconnected to our business. Why are we doing that? It's because employees want to do it. Why do I care as a business manager? It's because employees are important to the creative process. And if I'm— I want employees to feel that business is integrated with their life. Because it is. And then we do a lot in science education. And that's mainly about recognizing that we're in trouble in this country in science education. We're in trouble for two reasons. First of all, we don't have enough employees that are well enough educated across the whole industries that need science. And that's impinging on our ability to actually grow. But even worse, we don't have the general population that has enough science knowledge to understand how to use our products. They can't tell the difference between a scientific paper and a food supplement ad on cable TV. Clinically tested. For, you know, erectile functions. They don't know the difference between that because they're so poorly educated. That's an incredible strategic threat to what we do. And so we're very invested in, in education, including a section of our new building which is approximately the size of our original laboratory in Cambridge which is devoted completely to high school education. We have a full-time staff there in which high school students— wish you could see these students. I was there yesterday. High school students, they were running a CSI project whereby one of them in the group had put their finger on a beaker and all the group was going to figure out who did the crime, whose finger was on the beaker. They were taking the DNA off, amplifying it with their own— each group of 2 high school students had their own little PCR machine that was computer controlled that they wrote the programs for. These are 2 of the worst high schools in Boston. They're in there every day. Real science. These kids are not going to be stupid consumers and some of them are gonna be great scientists. And we're devoting a lot of resources to that and we wish we could be in 10 high schools in Boston. Right now we're, have adopted 2 of them. For patients, I talked a little bit about our patient support system. It's just fundamentally different than other companies. We really not are trying to, you know, get them on drug, keep them on drug so we can sell more drug. Trying to solve their problems. Because our mission doesn't end until their problems are solved. And if their problems don't have anything to do with our drug, we'll listen to whatever their problem is about getting this, getting this, to the extent that we're allowed to by law, by the way, to, we'll listen to whatever they have to say. Lastly, is this integrated, integral management philosophy, how's it hurt us in the financial dimension? Not so bad. If you invested $450, you'll see why I chose that number in a second, in Vertex on the 24th of July, 1991, which was the first day we were on the stock market. If you invested $450 in a number of places. If you invested it in Merck, it would be worth $1,150 now. That's 150% increase. It's not horrible. If you invested in the Dow Jones or the S&P 500, you'd have $2,000. So Merck over that period dramatically underperformed both the Dow and the S&P 500. If you'd gone to jazzy old NASDAQ, you'd have gotten $3,800 or 740%. And if you invested in 100 shares of Vertex, which would have cost you $450 in July 1991, you'd have $8,400 for a 1,770% increase. I don't see the downside. I'm not seeing the downside here. I'm not seeing Milton Friedman vindicated by the facts here. It didn't seem to hurt us financially. Um, we've got transformational medicines that change lives and we're going to have a lot more of them. In the last 5 minutes, I'm just going to mention because, again, I'm running into a lot of entrepreneurs who are doing things like, I'm interested in asthma. And yet I'm gonna do it through a nonprofit. And they're actually not, that's great because everything doesn't have to be a company. You probably need to think about if you need a lot of capital, how are you gonna get capital? But you can get a lot of capital and still be a nonprofit. You can't get billions of dollars worth of capital and be a nonprofit. So don't try to be a drug company and be a nonprofit. But it's not because drug companies have to be a profit-making company, it's because they need too much capital.. But if you don't need a lot of capital, don't necessarily become a profit-making enterprise if you can get the capital elsewhere, like donated. And I'm involved with a number of nonprofits, and I try to manage them to the extent that I have any say over how they're managed at all using some of the same techniques. And you can do this at a university. And I'm chairman at Wesleyan, and I haven't changed anything about the management, but I definitely put the same structure in place about understanding the progress of the university and the management of the university using the same methodology, which I'll show you here. Core purpose and core values. This core purpose will not, will not seem strange to you at Bentley University. The core values, critical and creative thinking, creative and critical thinking for life, inspire teaching and scholarship that matters, committed to citizenship and service. I'm sure you could adopt those here without missing a heartbeat. The strategy map then, you start forming it the same way. You put the values at the bottom, you put the core purpose at the top, and you start thinking about inputs and outputs. And when we did that for Wesleyan, we turned out, surprised ourselves, Because the output that our initial inclination was, well, of course our output is students. Our output is education. Turns out that's not the output that matters the most. The output that matters the most is actually recognition. Because if you turn out the best students, you will get recognition. But if you turn out the best students and don't get recognition, they're getting gypped. Because the value of their education is not just— education is not about skills anymore. What's gonna save the higher education model, if anything is, and I'm not quite sure anything is, but if anything is gonna save it, it's gonna be because of this virtual cycle. It's the certification. I know you're a Bentley University student because I've had another one. That's the value of it. You have to be as good as the normal one if you go there, or if you go to Harvard, or if you go to MIT, or if you go anywhere else. But it's the recognition of that. So at the top of this strategy map is actually recognition. Delivering an exceptional stakeholder experience is another output. And the stakeholders are not just students. The faculty is a stakeholder. The staff is a stakeholder. Those are all stakeholders in the enterprise. All of that is an output, but that output is wasted if it doesn't get recognized. And then finances for a nonprofit are a core, are an underlying core. The finances have to not be at risk, because that has to be a solid core, as solid as the employee base of a for-profit company. So we put finances at the bottom, meaning it's the sustaining input, not an output, that drives the opportunity to have an educational experience and to deliver a stakeholder experience which then can be recognized. And we did the same sort of detailed description of those input metrics all over this map. And I can tell you it's enormously useful to have your strategy on one page. Doesn't matter how smart you are, a 100-page strategy document for the next 5 years is a total waste of trees. Don't do it. But if you have your strategy on one page, it's hard to escape it. So that when we discuss something at Wesleyan now, if we start talking about gee whiz, should we increase the faculty in the economics department, everything here has to be looked at. You can't escape anything on the map because it's right in front of you. You can't just say, well, let's just think about the economics department. It's all interrelated. It forces you to make decisions where you have to accept the interrelationships of everything you do. Now ultimately, you can't drive a car just by looking at stoplights. So you need judgment. This is an actual traffic intersection in Sweden. I swear it is. This is not Photoshop. So the purpose of having metrics is not to get confused about them, but they do help, especially the stoplights. The stoplights in a well-run strategy, balanced scorecard-based strategy map, cause you pause enough to stop making rash decisions. The green lights only caused me to look around and say, what red lights or yellow lights was I missing before I made that decision? But you can't— you have to use judgment and come back to your feel for it. But in the end, I think if you take an integrated approach to management where you're not trading off one thing against the other in terms of money versus people, it's all about what is the interrelationship of all these things and how do they drive a singular purpose and drive it through the values that are discovered and eternal in the organization you're talking about, then I think it's clear that, you know, you don't follow the book of this guy, but you follow the book of this guy. And my last slide is if you want to read a little more texture about this, I'm only slightly embarrassed to tell you that you can do that. Because there are two books now written about Vertex, one in 1995, which is a— I like to read it because I was much younger then, and that reminds me that I was much younger then, called The Billion Dollar Molecule. And the same author has published another book in the last few weeks called The Antidote, which takes the Vertex from its startup days into the marketplace. The basis of this book, The Antidote, is the— there are no new stories in the world. This is the story of David and Goliath. Vertex goes up against Merck in the hepatitis C market. And for those of you who don't know how that tale turned out, I can send you to the relevant Bible verses. But it is a good read and it will The basis of the second book is the author's thesis that there is another way to run a pharmaceutical company and it's the way that I just described to you. And I'll be happy to take questions. Thank you very much.

Well, thanks a lot. And anyone who's taken my MBA classes know you have to read "The Billion Dollar Molecule." And now they have another book to read. So, thank you very much. So let's take a couple of questions here, and then we will adjourn next door for a reception.

Uh, Peter, correlate what you're saying to the particular periods of time in which Vertex has existed. For example, in the very beginning when you took institutional venture capital, how does it— how does their Does their mission and their focus on developing the company literally from a return to limited partners conflict with this analysis? And did in fact Vertex have this approach and this kind of work from its core beginning or later on? So the question is, how does this ex post facto analysis comport with the timeline of Vertex. Did we actually have this system or values? We didn't have it written down as well as it is now, but the fact that we were able to do it meant that it was in fact in place. And your particular question example is, for instance, how did you square this with the values and the required outputs of VCs who have 10-year limited partnerships and your money comes out of year 5 and therefore you gotta get cracking to get them returns. I mean this in the nicest possible— First of all, we only took one round of venture capital. We only took an A round. That was it. We went public after that. I didn't have to deal with them very long. I tell this to my venture capital friends with all the nicest possible treacle in my voice. You're not my friend. You don't have my mission. We are travelers that touch each other at one point in time. I do not accept your mission. I'm not in charge of your mission. As long as you understand my mission, I'm not misleading you. So, my very first, one of my very first presentations for venture capitalists who ended up not investing in the company, much to their chagrin, and I pointed this out to them a number of times, I gave my lecture about the vision of the company. It was all vision because I had nothing. I had no employees. Zero employees. I had no location. I had a post office box in Harvard Square. And I titled the first whiteboard "The First Decade" and the second whiteboard I entitled "The Second Decade." And I spent 3 hours talking about the first 2 decades of the company. At the end of the second decade, we were profitable. That was my talk. So you can imagine how that went over at Kleiner Perkins in Embarcadero. They gave me a tuna sandwich and sent me out the door. And the only thing I changed in the presentation the next time, I was advised never use the word decade again. I didn't change a single thing except I took decade off the board. I described the same process. And if they said, "How long is this gonna take?" I would go, "You know, I'm really good at it. Fast as I can." It's not my problem. I can't build a business for their business. So we're not friends in that sense. We have different mission. As long as I'm honest about it, that I have no no compunction. Now, I don't know how companies do it with, you know, round A, B now, or round Z financing. I don't understand how they live with themselves. But it's possible. It's possible to find people who have the same vision you do. One of my favorite investors— and I'll stop talking— my favorite investors is a private investor in in Canada who I met very early, in the early 1990s, and he came up to me and grabbed me and said, "I love your story. I will never sell your stock." I just said, "I'm in love with you." Because you're my investor. Everybody else is a trader. So you're an allied spirit. We are on the same mission. So I could talk to that person in a very different way because we're on the same mission. I can't talk to traders who are trying to figure out which quarter they should buy in and buy out. I'll give them all the information, but I don't identify with that. It's not my problem to solve their problem.

Good. Can I, if any of the students have a question, anybody brave? No brave students? No brave students. OK, well, otherwise, why don't we adjourn next door? And we'll have a discussion. We'll continue having questions in a somewhat more informal thing. I want to thank— before everyone leaves, thank Donna Connor for putting this all together. And thank you again for coming out to Bentley.