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.
