The Death of Large PhRMA

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Two news items filtered out over the past several weeks that inspired me to write this blog.  I liked these stories since they agree with things I have been saying for the last several years.  Not only is the big pharma model no longer sustainable, but it is killing innovation and losing our invested money. 

IMS Health reported that US spending on pharmaceuticals rose an anemic 2.3% in 2010 – the second lowest annual increase in 55 years of data tracking. Major contributors to the slow growth rate included a lack of innovation with the meager supply of new drugs entering the market being unable to compensate for the large-selling drugs losing patent exclusivity and becoming generic. Other contributing factors included the economic recession and high unemployment causing some consumers to lose health insurance coverage.  Consumers turned to generics or simply chose to forgo medications altogether in many cases. Spending on generics rose over 27% while spending on branded drugs shrank by almost 1%. 

I spelled out the situation for antibiotics in a previous blog. The US antibiotic market has shrunk to only 25% of the global market. The Asia-Pacific countries (Japan excluded) now have greater antibiotic sales and market share than the US. This situation will only get worse with the FDA making development for the US market ever more difficult and expensive.

Around the same time as the IMS report became available, another report from Steve Burrill appeared.  I haven’t read the actual report – its even more expensive than my book!  But Burrill notes that the combined market cap of big pharma shrunk in the decade from 2000 to 2010 by around 50% or over $500 billion. This combined with the value of big pharma acquisitons of over $400 billion leads to a total loss of almost $1 trillion over the last decade. Big pharma is spending more and more on R&D and producing less and less.  Most of them have already abandoned R&D in antibiotics.  I am sure there is a good reason for people to invest in these companies – but I don’t know what it could be.

For antibiotics, and perhaps for other therapeutic areas, the next decade will be the era of the small company.  Companies like Forest, Cubist, Actelion and Shire will thrive.  Why?  Because they are small.  They are not weighed down with the large pharma bureaucracy, They have deep enough pockets that they can partner or even acquire biotech and therefore serve as the biotech exit driver of the future. They also have the opportunity to enter into more imaginative partnerships with biotech than most of their large pharma counterparts.  Finally, because they are small, their sales goals are also smaller.  Therefore, a company like Cubist can be thrilled with a drug with $200 million in peak year sales.  Such a compound would never even be considered by large pharma.  But if we want new antibiotics, especially ones active against the resistant strains we face today, companies need to think smaller.  They need to think about slower sales growth curves. But for small companies, this all makes good strategic and financial sense.

So – I say let Pfizer go to China.  They won’t be taking my money with them. 

Related articles

• Burrill: Pharma's M&A strategy has failed (fiercebiotech.com)

Nabriva announces positive results in a phase II ABSSSI trial

     Finally I have some good news to share.  On a personal note, I have been working with Nabriva since 2005, well before they were spun out of Novartis’ Sandoz in Vienna in January 2006.  I feel like their products are partly my children.  Nabriva recently announced the completion of their phase II clinical trial in acute bacterial skin and skin structure infections (ABSSSI, as the FDA now says).  This is the first such trial to be completed using the FDA designated guidelines as a template.  Their data, when fully made public, will allow a comparison of the proposed FDA early endpoints to ultimate clinical outcome for the first time.  (Hint – it might not be so straightforward).  If you can’t tell – I am very proud of their achievement.


BC-3781 is the first pleuromutilin antibiotic to be efficacious in humans.  Pleuromutilins were discovered around 1950 at Columbia University in New York.  A pleuromutilin was approved for use in animals around 1979.  In spite of many years of effort within many pharmaceutical c0mpanies, no one was able to identify a pleuromutilin that could be used systemically in humans prior to Nabriva’s program. This, by itself, is a remarkable achievement.  BC-3781 is, in fact, the second pleuromutilin Nabriva has studied in clinical trials. BC-3205 was studied in a number of phase I trials in an oral formulation, but BC-3781 was taken all the way through phase II trials.

In their Phase II trial, Nabriva studied seriously ill patients with a variety of skin infections.  Patients with abscesses were required to have a large area of cellulitis around the abscess and even so, such abscesses were limited to 30% of the study population. 50% of the study population had cellulitis with an average area of over 160 sq cm.  Those with wound infection were also required to have cellulitis. All patients had at least two signs of systemic infection (e.g. fever, raised level of white blood cells, C-reactive protein or lymphadenopathy).  60% of treated patients had a pathogen isolated and almost 70% of those were MRSA.

     Following the recent FDA guidance, the early clinical response was assessed using a composite endpoint (cessation of spread of erythema with a lack of fever) at day 3:

83% of patients achieving this endpoint with 150 mg BC-3781

86% of patients achieving this endpoint with 100mg BC-3781

80% of patients achieving this endpoint with Vancomycin

     The results show that both doses of BC-3781 were comparable to Vancomycin in terms of clinical response at the primary end point, test-of-cure:

90% of the patients (54/60) treated with 100mg of BC-3781,

89% of the patients (48/54) treated with 150mg of BC-3781,

92% of the patients (47/51) treated with 1000mg of Vancomycin.

     The safety profile of 3781 was excellent.  BC-3781 has a bacterial spectrum which would include a broad spectrum of respiratory pathogens including atypicals and Legionella.  Therefore, 3781 would make a good choice for empiric monotherapy for community-acquired respiratory infection as well as skin infections.  Nabriva has plans to pursue both indications in Phase III trials.

     So – I offer my congratulations to Nabriva and to those of us who desire new antibiotics for our arsenal against resistant infections.

Related articles

• Nabriva Reports Positive Results From Phase II Trial Of Pleuromutilin Antibiotic BC-3781 In ABSSSI (medicalnewstoday.com)

Public-Private Partnerships for Antibiotics - by Brad Spellberg

David, you’ve written extensively over the years about the egress of industry from antibacterial discovery, research, and development.  Economic incentives are needed to bring industry back into the R&D game, and hopefully meaningful incentives will be passed in a strengthened Generating Antibiotic Incentives Now (GAIN) Act.  Meantime, another concept needs to be acted on.  In IDSA’s recently released policy paper (http://cid.oxfordjournals.org/content/52/suppl_5), non-profit public-private partnerships (PPP) are proposed as a means to complement for-profit industry.

The advantage PPPs would have from a public health perspective is the ability to prioritize R&D expenses on molecules that address a critical public need, irrespective of market size.  Thus, PPPs could fill a gap in the public health need by addressing molecules that are critically needed but simply not of sufficient profit value for for-profit companies to focus on.  In addition, because they would not need to maximize sales/profit, PPPs would be able to seek small market indications and more selectively market their drugs than for-profit companies, resulting in slower development of resistance and a longer effective lifespan of the drugs.  In this way, PPPs could converge society’s need to simultaneously promote antibiotic stewardship and promote new antibiotic development, two concepts that may be in conflict in the for-profit setting.

The singular issue regarding PPPs is how to fund them.  All companies, for-profit or non-profit, only exist if capital is available.  From where does the capital come in the PPP model? Public sources of capital could include direct appropriations (very difficult in the current environment, but still should be discussed), via grants or contracts from currently existing federal programs that already have annual appropriations, by philanthropic donation, or by an Antimicrobial Innovation and Conservation (AIC) fee, as discussed in IDSA’s newly released policy paper.  The AIC fee is particularly attractive because it would result in stable, long-term funding, and also because it is funded directly from sales of antibiotics, without draining existing appropriations or requiring new appropriations.

Private assets may come in the form of molecules or technology moved into the PPP from industry.  Industry’s motive to do this would be to “de-risk” their early stage molecules without having to financially support them through the riskiest stages of development.  The originating company would have “claw-back” rights, such that if the PPP successfully developed the molecules through phase II clinical trials, the originating company would have right of first refusal to partner back with the PPP in phase III.  The originating company would then fund the phase III trial and, if the molecules were approved, would manufacture and distribute the molecules using a revenue-sharing license from the PPP.  In this way, the PPP complements and has the potential to greatly assist the originating companies to reduce their up front R&D costs and de-risk their technology all the way through phase II trials.  Other forms of private capital could come in the form of milestone payments from industry attached to their molecules, as well as investment from VC into virtual start-up companies built to house individual technology either developed internally within the PPP, or in-licensed to the PPP from other sources (academic or industry).

Ultimately, the goal is to create PPPs that serve as long-standing public health entities, whose mission is to develop critically needed new antibiotics irrespective of market size.  The PPPs should become self-sustaining from royalty streams, milestone payments, grants, contracts, and any other potential funding source.  The PPPs would have at least three pathways for R&D and discovery: 1) the PPPs would conduct their own internal discovery programs to find their own technology, filling the void in this area left by exiting big pharma; 2) the PPPs would serve as ready access vehicles for translation of molecules from academia (offering far friendlier terms than traditional venture capital, as well as a goal of completing development to commercialization, rather than a short-term goal to build substantial value/wealth before cashing out prior to commercialization); or 3) transfer of IP from industry for the explicit purpose of de-risking molecules and reducing R&D costs but allowing industry claw-back rights as discussed above.

Finally, the PPP would hopefully provide more stable employment opportunities to retain scientific talent in this field, and could even begin to rebuild the talent base shattered by massive brain drain from antibacterial R&D as experts have been forced out of the field by the massive egress of industry from antibacterials.

We are at the beginning of exploring this concept.  PPPs may be a critical pathway to the long-term future of antibacterials.  We need political leaders to fund the PPP concept for antibacterial agents, and we need industry, academia, and philanthropy to draw together around the concept.

Antibiotics - World Health Day 2011

Tomorrow is designated World Health Day by the World Health Organization.  This year, appropriately, it targets antibiotic resistance.  WHO Director General Dr. Margaret Chan says,

 On this World Health Day, WHO is issuing a policy package to get everyone, especially governments and their drug regulatory systems, on the right track, with the right measures, quickly. Governments can make progress, working with health workers, pharmacists, civil society, patients, and industry. We all can plan and coordinate our response. We can expand surveillance efforts. We can improve drug regulatory and supply systems. We can foster improved use of medicines for human and animal health. We can actively prevent and control infections in health services and beyond. And, we must stimulate a robust pipeline for new antimicrobials, diagnostics and vaccines. 

Of course, number one on my own hit parade to fix the antibiotic pipeline is the FDA.  Clearly, companies will continue to abandon the area if the FDA follows its current course of releasing trial design guidelines that are infeasible. But number two on my hit parade is providing incentives designed to make it possible for biotech companies and academia to develop new antibiotics all the way to market if necessary.  We need incentives that will take the need for the deep pocket large pharmaceutical companies out of the equation since there are now so few that are actually pursuing new antibiotics either from a discovery or an in-licensing standpoint.

The perfect storm swirling around antibiotic R&D and incentives that might work to ameliorate the situation are discussed in an article that just appeared in the journal Nature today - Fix the Antibiotics Pipeline – by Matt Cooper and me. We recommend the push-pull package of incentives proposed by the London School of Economics which is currently being considered by the European Commission. In the LSE’s proposal, the push includes funds to support development.  We believe that this must include the expensive phase III trials required for registration.  This push essentially de-risks late stage development and makes the earlier funding well within the reach of venture capitalists and even some government grants like those obtained through NIH and BARDA. The pull would come from some guaranteed market such as a purchase of government stockpiles upon approval.  The size of this purchase would probably have to be several hundred million dollars spread over the first year or two post-launch.  Such an investment provides an immediately positive NPV, especially when combined with the push.  The pull will also help attract larger investors such as the large pharmaceutical companies and even possibly private equity investors into the mix. The availability of new, effective antibiotics to treat serious and deadly infections caused by highly resistant pathogens will save lives and will provide a significant economic benefit to governments therefore providing a rationale for the push-pull approach.

It seems likely that, here in the US, given the current political climate, such incentives will not be forthcoming in the near future.  That leaves us dependent on the European Commission to bail us out.  Further, the push-pull is not viable if the European regulatory agency, EMA, goes the way of the FDA.  In that case, even if one could provide a push-pull incentive, no new antibiotics will be approved since the trial designs required for registration will still be infeasible. I have to say that I never thought I would see the day when the world was depending on Europe to save us from the scourge of resistant bacteria we now face.  But here we are.

Related articles

• RAPatton: Resistance to antibiotics: The spread of superbugs | The Economist (economist.com)
• When The Drugs Don't Work (huffingtonpost.com)