John Rex (thank you) just sent out an email highlighting a paper emanating from the Milliken Institute on how private investment could augment government sponsored pull incentives for antibiotic R&D. Even though I consider myself an ex-PhRMA executive and, as such, I thought I could understand the basics of the pharmaceutical business and investment strategies, this paper is beyond me. (Its important to know what you don’t know, right?) But, as you might have surmised, I have my own thoughts on this subject. They are not new. They are not surprising. And I think I understand what I’m thinking . . .
Historically and even today, private investment in biotech is based on the belief that outright purchase or a lucrative licensing deal from large PhRMA is the ideal exit providing the highest return on investment. Reliance on a public market exit is a distant second best – although clearly a large pull incentive would increase the attractiveness of a pubic market exit. Assuming this dynamic is still generally in place, how would a significant pull incentive interact with a large pull incentive in this situation?
As I’ve noted previously, large PhRMA is interested in large pull incentives. The PASTEUR Act being considered in the US congress envisions pull incentives from $750 million (not enough) to $3 billion (yes) per high priority antimicrobial approved by the FDA. A transferable exclusivity voucher would provide, in my view, an even more attractive option for PhRMA given the opportunity for prolonged exclusivity on multi-billion-dollar products. Since most antibiotic discovery and development is now occurring in biotech, if a product in late-stage development were known to be the recipient of such a pull incentive upon approval, large PhRMA would certainly consider an investment. As has always been true, the earlier the investment (where the risk is greater), the lower the amount of investment required. As the product nears NDA and that valuable pull incentive, the cost of any investment will rise while the value of any early investment will also rise.
Given this dynamic, let’s go back to private investors like venture capitalists. Today, antibiotic R&D is avoided, shunned by venture capital. But what happens when interest by large PhRMA is stimulated by the prospect of significant pull incentives? Venture will come back to the table to try and take advantage of this opportunity. Again, the earlier they get involved, the lower the initial investment becomes. In the presence of continued non-dilutive support for R&D (push incentives) such as are available through CARB-X, Wellcome, BARDA and others, the private investment required becomes even more attractive. But this all depends on the availability of that important pull incentive at the end of the road. This all falls apart without that.
I would like to spend a few words discussing the urgency of pull incentives for antibiotic R&D. Entasis, a truly important antibiotic biotech, appears to be in trouble. VenatoRx is an antibiotic biotech with a remarkable product (partnered with GARDP), cefepime-taniborbactam, that has just completed its phase 3 trials. An NDA is imminent. Will VenatoRx survive the crucible of commercialization? How many more antibiotic biotech bankruptcies will investors tolerate? The level of investment in this space shows they are already very spooked.
I have always thought and continue to believe that one major rationale for pull incentives is to attract large PhRMA, and with it, venture capital back to antibiotic research. To me, any pull incentive that fails the PhRMA attractiveness test will diminish its success in stimulating investment in antibiotic R&D.
What comes next? PASTEUR must pass the US congress this year! Europe must provide a significant pull incentive ahead of its 2024 timeframe. We must all work to achieve these goals.
