David's New Book

Saturday, January 7, 2017

Funding the New Business Model for Antibiotics - USA.

As we’ve discussed previously, Europe should have an easier time funding new business models for antibiotics.  They already have the structures in place, given their socialized system, to provide insurance payments or market entry rewards (for background – see this blog). But here in the US – the only model we know is – pay a high price.

There are a number of problems with this US price-based model. First, it is not at all clear that it will work for antibiotics.  The test currently being carried out by Allergan has not yet been an overwhelming success. I would like to explore various ways that we in the US could approach new business models for antibiotics and how we could fund such approaches.

First, though, perhaps we could dispense with ideas that won’t work.  The first of those is an extension of patent exclusivity on the new antibiotic.  This has already been accomplished with the GAIN Act. OK – if there are only a few years left on its patent life, such an extension might be of interest.  But otherwise, the out years are so heavily discounted for inflation as to be meaningless. This explains the lack of success of the GAIN Act in terms of financial incentives are concerned.

The most clear-cut model to me is to simply provide a large government purchase of the new antibiotic, a market entry reward or payments along the lines of the insurance model.  All of these could be implemented by a targeted increase in budget for BARDA. The big question is – how would we pay for this. The funds would come from tax revenues.  To avoid increasing the deficit, we could tax high-earners and corporations just a little more.  We’re talking about several billion dollars in additional monies per year – not so much given the size of the US budget ($3.9 trillion in 2015).  This would be the most progressive approach and will probably be shunned by our current and near-future government.  If we tied the new money for antibiotic market entry rewards to allowing Medicare to negotiate drug prices for seniors, the savings would more than pay for new antibiotics.  Again – this is unlikely to see the light of day in congress.
  
Another approach is to tax pharmaceuticals per se. Its regressive since it would be like a sales tax.  Even if we just charged corporations this tax based on their sales, it would be a pass-through to the consumer. The US pharmaceutical market in the US in 2015 was $425 Billion.  To get $4 billion per year to fund new antibiotics via a market entry reward, we could charge a 1% tax on every prescription sold. To make it more fair, we could add nutritional supplements to the list of taxed items. That would add an additional $37 billion to the total making our requirement less than 1% in tax.

My personal favorite would be to pay for the entire expense of a market entry reward or bulk purchase via a tax on only nutritional supplements. This would mean an 11% tax on these items. These products do not have to go through a testing phase like drugs and they can only be pursued for safety concerns if there is evidence that something bad has already happened. They probably don’t really work, they may be mislabeled and they may contain poison.  Lets tax them and bring down their use while funding new antibiotics at the same time!  What could be wrong with that? What are the odds?

The approach that is being discussed currently is that of so called patent vouchers.  We used to call this wild card patent exclusivity. A somewhat similar incentive is used today to incentivize industry to study drugs in pediatric patients and the incentive has been shown to work.  No surprise here.  The way this works is – if you study a drug in pediatrics and get an approval for a clinical indication for your drug in pediatric patients, you get a voucher good for a priority review of the new drug of your choice.  This can accelerate the time to market for that new drug and could be worth billions of dollars.  In the patent voucher, upon approval of your new antibiotic active against key resistant pathogens, you receive a voucher for an additional 6 months exclusivity on another drug in your portfolio of your choice.  Your new antibiotic might sell say $20 million in its first year, but an extra six months on your $4 billion blockbuster before it goes generic is worth $2 billion.  Not bad. When we raised this back in 2004-5, it was dead on arrival in congress.  The generics industry hated it, consumers hated it and congress hated it.  Have things changed?  I’m not so sure.
 
Its time, however, for us to take our heads out of the sand and do something concrete to prevent the antibiotic crisis that will surely
catch up to us if we continue our current course of dithering.