Antibiotics Aren’t Profitable Enough for Big Pharma to Make More
(Bloomberg Businessweek) -- Achaogen Inc. spent 15 years racing to develop antibiotics against resistant superbugs. It targeted one of the most-feared superbugs lurking in intensive care units: carbapenem-resistant Enterobacteriaceae, or CRE, a strain that can kill up to half the people it attacks. Last June its first drug, Zemdri, which kills CRE bacteria in the test tube, was approved by U.S. regulators. From a public health perspective, Achaogen is a success. But as a business, it’s a failure. Zemdri’s sales in its first six months on the market were less than $1 million. Achaogen filed for bankruptcy in April.
The failure has set off alarm bells among infectious disease doctors and public health experts. Big drug companies have been exiting antibiotic research for years, prompting the U.S. government and medical charities to step in with research funding. Now health experts are realizing that research funding doesn’t matter if there’s no market for the drugs when they get approved. “We have a broken antibiotic market, and this is a stunning example of how broken it is,” says Helen Boucher, a doctor at Tufts Medical Center and treasurer of the Infectious Diseases Society of America. The IDSA is “very worried” that other biotechs with promising new antibiotics are going to collapse if something isn’t done, she says.
Shares of small biotechs focusing on antibiotics have declined sharply over the past year. Sales of most new antibiotics “have been very disappointing, and that is why investors have turned away from this space,” says Alan Carr, a biotech analyst at Needham & Co. Only 5 of 16 antibiotics introduced between 2000 and 2015 achieved annual U.S. sales of $100 million or more, according to a 2017 study from Duke University’s Margolis Center for Health Policy. Most antibiotics introduced since then have gotten off to slow starts as well.
New antibiotics, which often compete with cheap generics, generally don’t cost more than $1,000 a day, or about $10,000 for a course of treatment. That compares with cancer drugs priced at $100,000 a year or more, so pharmaceutical companies focus on the more lucrative medicines.
And infectious disease doctors, wary of promoting resistance, are reluctant to use new antibiotics until they’re absolutely needed. When a better antibiotic comes out, “the entire specialty community that relates to that product rises up and says, ‘Don’t use it. Hold it in reserve,’ ” says William Schaffner, an infectious disease doctor at Vanderbilt University School of Medicine. That “doesn’t make for a good business plan.”
Big drug companies continue to exit the field. Sanofi handed off its antibiotic unit last June to Evotec SE, a German biotech. Novartis AG in 2018 stopped antibiotic research and sold three experimental antibiotics to startup Boston Pharmaceuticals Inc. Allergan Plc has been trying to divest its infectious disease unit for the past year. Of the 42 antibiotics in human trials, only 4 come from the largest 50 drug companies, according to the Pew Charitable Trusts. The capacity to develop antibiotics “is dying,” says Kevin Outterson, a Boston University law professor who’s studied market failures in the antibiotic area. “Little biotechs with 50 or 100 people working for them can’t afford to wait a decade or two” for sales to kick in.
Public health experts are calling for new incentives to reward companies for bringing drugs that are effective against resistant strains to market. Last year, Scott Gottlieb, the former Food and Drug Administration commissioner, suggested having hospitals pay a subscription fee for key new antibiotics. Other ideas that have been floated are to give a cash reward to companies that develop a drug effective against deadly resistant strains, perhaps $1 billion, or to grant them additional years of patent exclusivity for another more lucrative drug.
Merck & Co., one of the few majors still doing antibiotic research, supports a variety of incentives to stabilize the market for last-ditch antibiotics. “They’re made to be used as little as possible, so therefore companies aren’t making any return,” says Joan Butterton, a doctor who heads antibiotic development at Merck. “Having some of these pull incentives where investors would be guaranteed a return would make it more palatable.”
For now, companies trying to sell antibiotics are on their own. Over the years, “it’s gotten a lot harder” to get new antibiotics on hospital covered-drugs lists, says John Johnson, chief executive officer of antibiotic maker Melinta Therapeutics Inc. Multiple hospital committees often need to sign off, and new drugs must be incorporated in computer drug-ordering systems and hospital lab testing equipment. All of this can take a year or more, he says, at the same time that a company is spending heavily to launch its medicine. Melinta’s shares have plummeted 94 percent since the beginning of 2018, amid the general decline for small antibiotic sellers. “Clearly our industry is at a crossroads and is struggling,” says Johnson.
Achaogen had lots going for it. Over the years, it snared $250 million in grants and contracts from government agencies and medical charities, including $124 million under a federal program to combat emerging biological threats. The company went public in 2014 and began a later-aborted trial aiming to show Zemdri was superior to a decades-old generic drug in treating deadly CRE bloodstream infections. The FDA in June 2018 approved it for urinary tract infections, not for the CRE use. Achaogen filed for bankruptcy on April 15, and an auction of its assets is set for June. “It’s really frustrating,” says CEO Blake Wise. “We developed a really important medicine and went through all the things we needed to do to develop a drug, but the market dynamics are such we can’t successfully run the commercial part of the equation.”
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