David's New Book

Sunday, February 1, 2015

Obama and Antibiotics

The President’s Council of Advisors on Science and Technology (PCAST) issued a report last fall. This report recognized the clear threat of antibiotic resistant infections to the public health of the US and for populations around the world. The advisors made a large series of recommendations for dealing with the problem.  These included increase in surveillance capabilities, improved regulatory pathways, improvements in our ability to carry out clinical trials in seriously ill patients with resistant infections and solutions for the market failure of antibiotic R&D. The market failure is related to the fact that the industry does not believe that they will be able to achieve an appropriate return on investment for their research and development dollars in new antibiotics for resistant infections.  This week, the President released his budget request for dealing with antibiotic resistance.

In this blog, I want to explore two facets of the PCAST report and the President’s budget (as far as I understand it). The first is the industry view that they will never achieve a return on investment for antibiotics targeting very limited populations – those with highly resistant infections. This belief is based on two pillars of logic.  (1) Antibiotics have traditionally been low priced commodities within a generally saturated and satisfied market. High priced drugs in this environment will simply not be used regardless of their potential utility. (2) The numbers of patients available for treatment with these antibiotics are so small, that even very high prices ($20,000 per course of therapy) will not be sufficient to provide the required return on investment. 

First – a disclaimer.  I am not a commercial or marketing expert – but I have spent a lot of time with these experts and a little of their knowledge has rubbed off. So take the following with an appropriate grain of salt. In order to come up with their conclusion (1) above, companies carry out interviews with payers – in this case, frequently, pharmacy managers.  They are already burdened with high-priced oncology drugs.  The physicians in their hospitals are already dealing with resistant infections with toxic drugs that are less expensive and that might not work very well – but as pharmacy managers – do they see the downsides of this practice within their own budgets?  I think not. So their natural response to a $20,000 hypothetical antibiotic is a seizure of panic. Physicians are also interviewed – but in my view they are notoriously ignorant when it comes to pricing considerations. In the hospital where I work, the physicians have no idea how much the antibiotic they are ordering costs.  Furthermore, the byzantine billing system results in charges for an antibiotic that are completely unrelated to the cost in any case. So why speak to physicians?  Because they influence formulary decisions in hospitals. So when asked, physicians do pick a price point at which they think that the antibiotic would not be justified.  But, of course, they have no idea whether that is true or not.  They require education since it has clearly been shown that for certain resistant infections prices up to $50,000 per course of therapy can easily be justified. My conclusion for the commercial groups of companies that reject the idea of high-priced antibiotics is that they should rethink.

On assumption (2) above, one need only look at a real commercial expert’s evaluation of a hypothetical antibiotic for resistant Acinetobacter infections.  This analysis was only for US patients.  If I expand it to the world, assuming conservatively the same percentage of highly resistant infections, I can easily double the number of patients.  Therefore, at only $5,000 per course of therapy, capturing 50% of the potential market, my peak year sales will be $500 million.  At $10,000 per course of therapy assuming 25% market penetration I maintain that peak year sales figure. This kind of analysis should be attractive to large and small pharma alike.

I would argue, that if pharmaceutical companies would have some guts and push these therapies forward at risk, they would be rewarded. But guts are not to be found in today’s big pharma. Cubist, one of the gutsiest pharmaceutical companies, has just been gobbled by a less courageous large company, Merck.  Will this make things better or worse?
This brings me to Obama’s budget and the PCAST report.  President Obama has called for an additional $650 million for both Biomedical Advanced Research and Development Authority (BARDA) and the NIH. BARDA is the HHS group that has been funding antibiotic R&D within industry – providing a so-called push incentive.  Here the idea is to decrease the investment required to get needed antibiotics to market thereby increasing, by definition, the return.  The PCAST report called for an $800 million increase in the  investment in BARDA alone for both push incentives and for so-called pull incentives.  The latter incentive would be some sort of guaranteed market for the first few years of commercialization of a new antibiotic for resistant infections.  Again – this is designed to provide an immediate uptick to the company’s return on investment. The investments championed in the PCAST report would do the trick.  Those in the President’s budget fall short. 

Of course, it doesn’t matter since funding any of this would require a congress willing to invest in the health of the American public – and we still don’t have one of those.