David's New Book

Sunday, May 27, 2018

Paul Krugman, Nabriva and the Antibiotics Market


What does Paul Krugman, the Nobel Laureate in economics and New York Times columnist have to do with Nabriva and antibiotics?  While I don’t pretend to be nearly as smart as Professor Krugman and I certainly don’t understand economic theory, I do know something about the pharmaceutical marketplace. Krugman recently wrote an editorial where he claimed that any change in drug pricing, such as might be achieved if US Medicare negotiated prices, would simply be made up by a larger sales volume. He argued, therefore, that pharmaceutical companies should not be afraid of this strategy.  

When I worked in the pharmaceutical industry, I remember detailed price-point studies that sometimes would cost a substantial sum to complete.  These studies attempted to determine the best strategy for obtaining the highest return on investment for drugs about to enter the marketplace. They analyzed potential sales volume at various price levels by interviewing physician experts, physicians in daily practice, decision-making pharmacists, insurance company experts and others.  This was performed in various markets but very intensively in the US since it is there that companies have the greatest choice in pricing. These studies would identify an optimal price-volume point.  Of course, since these were just marketing studies, they did not always turn out to be so accurate when the drug would actually hit the market.  Companies would then make adjustments on pricing as needed. But clearly there is no given specific ratio of price to volume for any drug.  This relationship appears to be a complex one with thresholds. 

Therefore, for the first time since I have been reading Krugman’s editorials, I think he is wrong. But I agree that the US should be negotiating drug prices.  I agree with those that argue that the US has been subsidizing pharmaceutical innovation for the rest of the world.  I do not agree with Trump that the rest of the world will change their behavior.  Why would they do that? If we did negotiate lower prices for drugs in the US, there is likely to be a lower investment in pharmaceutical R&D since companies usually reinvest a relatively fixed percentage of profits in R&D. 
 
Getting back to Nabriva . . . .Nabriva was my first client when I started my consulting business.  I helped them spin out of Sandoz.  They are developing a novel pleuromutilin antibiotic called lefamulin.  It is available in both intravenous and oral formulations. It is active against Gram positive pathogens including MRSA and respiratory pathogens like the pneumococcus, Moraxella and Hemophilus. As I remember it, the oral dose is 3-4 times higher than the intravenous dose because of limited absorption from the GI tract. Before I retired, there was a great deal of discussion on the best clinical trial strategy for the drug.  Since lefamulin would offer another option for the oral treatment serious skin infections with MRSA, I argued that this would be the best way forward and that in this circumstance a high price would be possible – similar to other oral alternatives for treatment of MRSA infections. Others looked at the greater size of the pneumonia marketplace and felt that pneumonia would be the best way forward. They also felt that they could charge a higher price there.  I disagreed since the pneumonia market was mostly generic and cheap.  I felt that in pneumonia a higher price would be much more difficult to justify. I also felt that the safety factor would be a higher hurdle in pneumonia given the other antibiotics sold for that indication. I lost that argument.

Nabriva just released the top line data for their clinical trials in pneumonia. They clearly were as efficacious as their comparator (moxafloxacin), but they had more treatment emergent adverse events during the trials. To me, this is not surprising given the amount of unabsorbed drug that is left in the gut. Thus, in spite of their announcement that their trials were completed and the results were favorable, their stock price dropped. Investors seem to have understood that the adverse event profile plus increasing competition in the pneumonia market will mean that ultimate sales of lefamulin will suffer.  I am still of the opinion that a trial in serious skin infections focusing on oral therapy of MRSA would have been a better option.  There, given other drugs available, some leeway on safety would be expected. Further, it would be easier to justify a high price there compared to pneumonia. 

Will lefamulin be a worthwhile addition to our antibiotic armamentarium?  Absolutely. It is novel and shares almost no cross-resistance with other antibiotics. Its IV and oral dosing is clearly an advantage  - especially in the treatment of serious, antibiotic resistant infections like those caused by MRSA. 

Lefamulin is also an example of the complex volume-price relationship that Krugman failed to consider in his editorial.