David's New Book

Thursday, March 8, 2018

Pfizer, Antibiotics and Incentives

For this blog, I contacted three large pharmaceutical companies and two agreed to speak about how they view antibiotic research and development in light of real and potential incentives. This week, I will discuss my conversation with Patrick Holmes, Head, International Policy, Pfizer Global Policy and International Public Affairs. I have an interview with the second company scheduled for the end of this month and I will attempt to contact other companies as well.

As you probably know, Pfizer recently put their toes back in the antibiotics arena by purchasing the Astrazeneca assets.  They therefore currently market ceftazidime-avibactam and ceftaroline outside of North America. Mr. Holmes explained that Pfizer looks on antibiotics and incentives like they would any portfolio review project. For those of you uninitiated in this, the executives and others compare risks and time to success across all therapeutic areas that compete for resources within the company to choose the most promising projects for funding. One key consideration in the analysis is time.  Companies, including Wyeth when I was there, often apply a discount for the increase in costs that the company expects to incur over the years of the project including during years of marketing. This factor includes increases in inflation as well as increases in costs of research and development, marketing, capital expenses, and, of course, returns to shareholders. Generally speaking, an industry cost of capital of  is about 10% per year (similar to Wyeth’s) (inflation by itself, even in health care, has recently hovered around 3%). This means that without any other factor, by the end of 10 years, no project will provide a return on today’s investment. Therefore, it is nonsense to apply this to any preclinical project like, say, antibiotic discovery research, since that timeline is 10-15 years before there will be a product.

In addition to the overwhelming discount of increasing company costs is the discount assigned to risk of failure or, better, probability of success.  When you assume that only 10-20% of projects entering phase I will succeed in getting to the marketplace, anything prior to that such as discovery research projects again seem overwhelmingly risky. What does this mean for Pfizer? In their model, according to Mr. Holmes, antibiotic discovery research can only be supported with very substantial pull and push incentives. As I thought about this, I realized that, in fact, the time required for discovery research for antibiotics is no different than would be true for any other therapeutic area. Pfizer may simply view the scientific risk of antibiotic research to be prohibitively high. I believe that is what Pfizer has concluded.

On the other hand, the good news is that in the presence of a pull incentive, and perhaps with additional push incentives, antibiotics at a phase 3 or later stage of development look promising to Pfizer.  In other words, Pfizer is still an opportunistic antibiotic supporter. But the pull incentive has to be the right one.  Which one is that?  According to Mr. Holmes, their preferred pull incentive is the transferable exclusivity voucher where they would gain an increased time of exclusivity to market a drug from their portfolio of their choice. There are many reasons why this would be their preference, but a big one is that the reward could be much higher than the $800 million to $2 billion that has been discussed by DRIVE-AB and others. Pfizer would not be in favor of guardrails that would be too limiting in this regard although we did not get into the specifics of what Pfizer’s limits would be here. We did not discuss details of the hybrid market entry rewards or the insurance models that have also been proposed.  But Pfizer’s preference is clear and it fits with my own oft-stated views.

I am disappointed with Pfizer’s view of antibiotic discovery research as I am sure many of you will be as well. But their view is an understandable one.  Let biotech (or rarely academia) and their funders take the risks. This will mean that push incentives will more likely flow to biotech. If the resulting product is appropriate, Pfizer will reward them and, Pfizer hopes, themselves. In this way, pull incentives could actually have a trickle-down effect. Pfizer’s approach should therefore be encouraging to biotech investors.

What about those PhRMA companies that have abandoned antibiotics research?  Of course, two of them have come back into the fold – Roche and Sanofi. But have the likes of Lilly, Abbott and Bristol-Myers-Squibb reconsidered antibiotic research in the light of push and pull incentives? Lets try and find out! If anyone has contacts in public policy departments at these companies, please let me know.

Tuesday, February 27, 2018

Looking Forward

 I wanted to get out a brief blog just to let you know what I’m doing. As a follow-up to my last blog, I am interviewing key executives from large PhRMA to discuss incentives for antibiotic R&D. I conducted my first interview today – fascinating!  The next is in another week.  Stay tuned. We are all going to learn about reasoning in large pharmaceutical companies as far as these incentives are concerned.

For those of you who are not on John Rex’s mailing list, I want to point out a number of key upcoming FDA meetings and workshops.

March 19 - Statistical Methods and Trial Designs in Drug Development for Rare Diseases – https://healthpolicy.duke.edu/events/utilizing-innovative-statistical-methods-and-trial-designs-rare-disease-drug-development

March 20 - Promoting the Use of Complex Innovative Designs in Clinical Trials - https://www.federalregister.gov/documents/2018/02/26/2018-03804/promoting-the-use-of-complex-innovative-designs-in-clinical-trials-public-meeting-request-for

April 16 - Evaluating Inclusion and Exclusion Criteria in Clinical Trials - https://healthpolicy.duke.edu/events/evaluating-inclusion-and-exclusion-criteria-clinical-trials

All of these could be relevant and important for antibiotic developers.


Thursday, February 8, 2018

Who cares about pull incentives?

We do. But no one who actually invests in antibiotic R&D has these incentives high on their priority list or even on their radar screens. They are not yet real, they may never 
come to fruition and they may be poorly devised such that they would stifle rather than stimulate investment.

This week I spoke with three really smart people on the front lines of antibiotic R&D; a CEO of a publicly held antibiotic biotech, a CEO of a privately held antibiotic biotech and an analyst who follows the space closely. I will keep all three anonymous at their request. It is a wonderful privilege to be able to speak with folks like these because you can learn so much from them.  All were unanimous in their responses to my questions.

1.     What is driving investment in the antibiotics space?
The biggest driver is a commercial one.  What are the chances of a successful launch? What is a realistic estimate for peak year sales? When will we achieve peak year sales? Recent antibiotic launches have been dismally disappointing. This lack of commercial success for recent antibiotics has had a chilling effect on mergers and acquisitions in the space. Nevertheless, investors are still willing to support antibiotic start-ups.  They believe that medical need will ultimately drive the market. They are still able to get meetings with large PhRMA. But if current conditions continue, investors will come to understand that antibiotics are not welcome in the pipeline of large PhRMA companies – and we will enter a down cycle of investing.  Some think we have already arrived at that point.

2.     What is the preferred exit strategy for a private investor?
Acquisition! A public market offering is acceptable to some. But the poor performance of recent antibiotic launches is clearly causing hesitation among the few large PhRMA companies still interested in antibiotics making acquisition less likely.  

3.     What kind of product is most likely to lead investors to believe that an antibiotic can be commercially successful?
A product that can be readily used empirically is more attractive.  That is, most likely, a broad-spectrum antibiotic. A narrow spectrum, high priced product or even a broad-spectrum product that has been listed at a high price to encourage use in only resistant infections has not been successful. A broad-spectrum antibiotic that can be sold at a lower price and used empirically but is still active against key resistant pathogens may be the preferred drug at this point. Of course, this may not be best from a stewardship point of view – but there has always been tension between antibiotic stewardship and commercial opportunity for antibiotics. Such a product also has the advantage of a more straightforward development pathway (Tier A/B).

4.     How important are push incentives?
Non-dilutive funding has become an important consideration for investors.  Why?  Because it is real.  There have been a large number of such grants and contracts over the last 5-10 years.  Such grants decrease the investment required to bring a product to a stage where a buyer might be ready to purchase it. This, in turn, increases the potential for investors to achieve a reasonable return on their investment.

5.     What strategies do antibiotic companies need to adopt today?
They need to be ready to launch a product themselves and demonstrate that the product can be commercially successful.  This means raising funds to support phase 3 trials and the subsequent registration and launch of the product. That is, they need to raise $1-300 million. It could partially come from non-dilutive funding as has happened both with the Innovative Medicines Initiative in Europe and BARDA in the US. But investors will also have to kick in a substantial portion of this funding.  It also means that investors – especially private investors like VCs- will have to have a much longer term outlook than they are accustomed to having.

6.     Should small companies merge?
One of the CEOs suggested that mergers among small companies to provide a variety of products might result in a more attractive investment opportunity.  A stable of products decreases overall risk. It would also allow for a more efficient distribution of resources.

7.     Could pull incentives change this calculus?

Possibly. The pull incentive would have to allow for sales and commercial success. Both the transferable exclusivity voucher and a hybrid market entry reward model might meet these criteria. But until these incentives become a reality, investors will not even think about them.

Tuesday, January 30, 2018

Davos and Merck

Its Davos time again – or at least it was last week. During the Davos meeting, the final DRIVE AB report was released where pull incentives were highlighted. A report from the AMR Industry Alliance was also published focusing on the fight against resistance by industry. But at the meeting itself, almost nothing was said regarding resistance and incentives as far as I can tell by looking at the publicly available highlights for the conference.  (Needless to say, I was not there).

The AMR Industry Alliance report was interpreted by some as saying that GSK and J&J are leading the effort in the fight against resistance.  I did not interpret it that way.  The report did say that both companies are opening some of their data to public collaborations – but that does not mean they are ahead in the fight against resistance. In my own view of the industry in this regard, there are companies like Entasis with both strong clinical and preclinical efforts that probably deserve better ratings than GSK and J&J.

One clear message from both Drive AB and from the AMR Industry Alliance was that pull incentives are desperately needed and that, there, no one has seen much progress.  Yes – there has been a lot of writing in many publications, position papers, white papers. Folks like us have been talking among ourselves. My friend John Rex keeps saying that ten years ago we never dreamed we would be having these conversations - and he is right.  But in terms of concrete action – no one is seeing anything.

This brings me to Merck and the recent announcement of the spinoff of many of its preclinical assets in the antibiotic space, Prokaryotics. Wow!  This looks like a good team.  Terry Roemer is leading the science and Keith Bostian is the CEO. I invite you all to look at their website.  BUT – what does this say about Merck? To me it says that with its acquisition of Cubist and its products in the marketplace like ceftolozane-tazobactam, tedizolid and its pipeline compound, imipenem-cilastatin-relebactam, they have had it with the antibiotics space. They do not want to dig themselves a deeper hole. And without clear pull incentives, the rest of the industry is going to follow in their footsteps and of those of the Medicines Company and so many others over the last 20 years.

The AMR Industry Alliance called on all stakeholders to “move beyond statements of intent and to take concrete action to address AMR.”  Amen. Of course, it has not been like there has been no action.  We have a good deal of money for push incentives – take CARB-X as an example. But when it comes to the strategy that will be the most costly and yet is the most desperately needed, pull incentives, we are nowhere.

The antibiotics market is broken. It requires financial intervention in the form of pull incentives to assure the continued availability of new antibiotics active against ever-emerging resistant pathogens. Without this intervention we will all be stuck talking to ourselves on the deck of a very large Titanic.