NEW BUSINESS MODELS FOR ANTIBIOTICS: WHERE ARE WE NOW?

Dr Jorge Mestre-Ferrandiz

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Agenda

• Economic challenges – is there a need for a new business model?

• Impact of incentives – what has worked in the past?

• Addressing the challenges – what could be the new business model?

• Conclusions

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Context: the public health need

Well-documented, desperate need for new antibiotics against established and emergent resistant bacterial pathogens but we currently face a thin global pipeline of new agents in this arena

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Context: the economic challenge

• Key challenge in driving investment in new antibiotics: expected returns and associated risk are not competitive with other therapeutic areas. Why?

– Low price of new innovative antibiotics. Society is used to low price, generic antibiotics used in treating a large number of patients/ regardless of infections

– Reserved use in earlier years => low volumes

– Variation in resistance and unpredictable resistance trend => commercial risk that resistance does not rise to a high level throughout the antibiotics market exclusivity => uncertain returns

• Significant uncertainty and financial risk around the expected use of a new antibiotic for both the payer/health care system and innovator

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Context

• Initial science is difficult, reflected in the high failure rate in pre-clinical research and development (R&D)

• Structure of the regulatory framework for antibiotics has historically not addressed the clinical challenges faced in demonstrating efficacy

• …but are things changing?

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Agenda

• Economic challenges – is there a need for a new business model?

• Impact of incentives – what has worked in the past?

• Addressing the challenges – what could be the new business model?

• Conclusions

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The case for R&D incentives

•What is the case for specific incentives for biomedical R&D?

• ‘Market failures’ – public good nature (‘externalities’); lack of effective demand / low expected return in some cases (e.g. neglected diseases, orphan drugs, antibiotics)

• High level of uncertainty due to a significant scientific challenge at early stage (basic research and pre-clinical) and recurrent risk of failure at clinical phases

• Large investment required (vs. other sectors)

•Role for ‘public’ intervention / additional incentives

•Broadly speaking, they can be categorised into two types: “push” and “pull”

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R&D incentives: ‘push’ and ‘pull’

Key distinction Whether or not the reward is conditional on having a successful product on the market

Push incentives fund or reward R&D effort ex ante, i.e. irrespective of the outcome

Pull provides rewards for R&D effort ex post if the outputs of R&D achieve health gain

Note that there are hybrid approaches:

Push funding can be part conditional on outcome as well as on effort

Pull funding may be staged and reward intermediate outcomes prior to delivery of a product

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‘Push’ incentives

Push initiatives: pay as you go

1. US National Institutes of Health. Funding for specific trials or discovery programmes within broad portfolio objectives.

2. Product Development Partnerships (PDPs). Funding for specific trials or development /discovery programmes within a portfolio to achieve licensed products.

3. Tax incentives to subsidise the costs of R&D. Three possible forms: (1) tax credits (2) tax allowances and (3) tax deferrals.

4. Low interest finance for development.

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‘Pull’ incentives

Pull initiatives: pay for final deliverable

1. Advance Market Commitment (AMC). Funding to purchase products not yet completed development. The funding includes a return on R&D.

2. GAVI Fund. Funding to purchase products already on the market through a supply contract.

3. US Priority Review Vouchers. Priority FDA Review as a reward for a neglected disease product.

4. Transferable/roaming intellectual property rights (TIPR). A company is awarded additional IP on a product of its choice in exchange for developing a given (neglected) disease product.

5. Prizes: Create a prize equal to the social value of innovation through a system of patents buyout.

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Incentives for antibiotics: Push

•Cost/risk-sharing as part of public-private partnerships (PPPs) => reduce financial R&D commitment required from the manufacturer

• EU Innovative Medicines Initiative (IMI)

– Funding provided by the EC; EFPIA members provide an equivalent in-kind contribution

– Combatting Bacterial Resistance in Europe (COMBACTE) under the New Drugs for Bad Bugs (ND4BB):focussed on funding for the improvements to the design and more efficient implementation of clinical trials for novel antibiotics

• US Biomedical Advanced Research and Development Authority (BARDA)

– Portfolio approach whereby funding is allocated as programmes progress or not i.e. it is not specific to a single candidate drug; funds follow successful programmes and are transferred away from unsuccessful ones

•Changes to clinical trial requirements for regulatory approval reducing time and cost (e.g. Rex et al; TATFAR)

COMBINED EFFECTS ARE

INSUFFICIENT

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Incentives for antibiotics: Pull

•Not developed too much to date – not surprising as greater complexities

•Limited to extending market exclusivity

• e.g. GAIN Act in the US: provides legal framework for extended exclusivity of five years and priority review for qualifying antibiotics by the FDA

•Industry, and others, moving towards pull incentives given the lack of action on this front at European level (understandable as EC has less room – e.g. EC important Action Plan (Nov 11) obviated P&R issues)

•9th IMI call under ND4BB: “Driving re-investment in R&D and responsible use of antibiotics”

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Ongoing initiatives

Source: ‘Review on Antimicrobial Resistance. Tackling a Global Health Crisis:

Initial Steps. 2015’

Modelling impact of “insurance” model (collaboration with AZ)

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Agenda

• Economic challenges – is there a need for a new business model?

• Impact of incentives – what has worked in the past?

• Addressing the challenges – what could be the new business model?

• Conclusions

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• Challenge is to conserve new drugs to avoid the build up of resistance. Thus do not want to incentivise volume sales

• “Pull” Buyout model: a global organisation has the authority and resources to commit lump sum payments to successful drug developers

• 15 new antibiotics per decade with 2 new classes of drug

• Estimated cost of $16bn - $37bn per decade, i.e. $1bn-$2.5bn per drug

• A $2bn “push” AMR innovation fund, paid for by industry

O’Neill Review on Antimicrobial Resistance (2015)

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Goals of a New Model

• Lifetime revenue should reflect value to society – require availability without necessarily using a new antibiotic

• Should be sufficient to drive investment (into the type of innovations that support public health need)

• Risk mitigation for both payer and investor linked to variation in antibiotic resistance, incl. local outbreaks

• Should minimise incentive to market and use (local price?) –stewardship

• Should remove financial barrier to timely and appropriate use

• Effective at international level

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Incentives and Effects

-5

0

5

10

15

20

0 2 4 6

Net

Revenue

Time

Extended Exclusivity

-5

0

5

10

15

20

0 2 4 6

Net

Revenue

Time

Premium Price

-5

0

5

10

15

20

0 2 4 6

Net

Revenue

Time

PPP & Regulatory

-5

0

5

10

15

20

0 2 4 6

Net

Revenue

Time

AMC

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Potential solution

•A commercial model where the returns are ‘de-linked’ from the traditional price x volume formula – “Insurance Model”

“Buy-out”

“Staged Buy-out”

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“Insurance-type model”

• Re-balance differences between:

• Lifetime revenue based on pricevolume;

• Return required to stimulate investment;

• Value to payer/society.

Annual

fee• Annual fee: Difference

between revenue & what is required to drive investment

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“Insurance-type model”: key characteristics

• Flat annual fee paid centrally by payers coupled with a (low) per unit price paid to the manufacturer locally by healthcare providers covered by the payers.

• This provides insurance in the following ways:

1. The company is insured against the commercial risk of both a low mean price and highly variable use. The company, however, still bears the scientific risk (i.e. the product may not obtain regulatory approval).

2. Payers are insured against not having an antibiotic to treat their patients, i.e. public health consequences of AMR build up.

3. Payers / Providers are insured against the financial risks of having an outbreak of infection (and therefore having to spend a lot of money on expensive drugs) as there is a pre-agreed low price per unit.

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Revenue & Cost estimates

• Lifetime revenue – scale up EU5 (25% global market, 25% global cost of R&D, approval)

HAIs

Share for pathogen (e.g. 15.7% for E. coli)

Share & rate of growth for resistant pathogens

Market share incl. LoE

Price

• Costs

CoGs, post-MA studies, S&M, G&A

• Scale up to reflect global revenues and costs

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Sensitivity analyses

•Growth in health associated infections

•Growth in rate of resistance

•“Tier B” [one phase III trial per indication] (Rex et al.)

•Public private partnerships

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Globalised capitalised R&D cost estimates

• $1.6 bn base case

• $0.8 bn with matching PDP funding

• $1.3 bn with Tier B registration option

• $0.7 bn with matching PDP funding and Tier B registration

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Provisional Results

• With no additional incentives and with a fixed local price per day of $120 ($1,680 per treatment)

• the fee for the global markets combined would be $380m per annum for ten years to attain an NPV of $100m.

• When the same incentives for R&D (with PPP and Tier B) were applied to the insurance model

• the premium for ten years reduces to $158m per annum

• Our analysis suggests an insurance-based model can be part of an optimal solution

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“Insurance-type model” - Challenges

• Need international collaboration

• Avoid risk of arbitrage and free riding

• Structure of annual fee

• How to treat subsequent entrants

• Alone or combined with local price?

• What price at local level?

• Balance to minimise incentive to sell (price too high) or incentive to use (price too low)

•Definition of what characteristics of antibiotics qualify

• Public health needs

• Agreed by relevant stakeholders: clinicians, regulators, payers and developers

• Pragmatic – can be demonstrated

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“Insurance-type model”– Advantages

It provides a mechanism to achieve :

I. value-based reimbursement of antibiotics (should the premium reflect the societal value of new antibiotics rather than being set ad-hoc)

II. a reasonable return to the manufacturer

III. risk mitigation for payers, providers and manufacturers

IV. support for appropriate use by delinking revenues from volume of use, and

V. conservation of antibiotic effectiveness by continued availability of new antibiotics in the long-term

VI. support timely use – helps overcome financial barriers to use

=> Provides risk mitigation at the individual (provider) level by risk pooling at the aggregate (payer) level

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Assessment of value

• Healthcare systems depend on the availability of effective antibiotics because they:

i. provide treatment for infection that saves lives

ii. provide prophylaxis to reduce the risk of infection from surgery and other interventions; and

iii. enable use of technologies that severely compromise a patient’s immune system (e.g. in oncology and transplantation)

i. Additional cost to society if people avoid procedures if worry about getting AMR infections

the value of (i) is well understood and often measured

value of (ii) and (iii) are not well measured

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Impact of resistance

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Agenda

• Economic challenges – is there a need for a new business model?

• Impact of incentives – what has worked in the past?

• Addressing the challenges – what could be the new business model?

• Conclusions

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Conclusions - Antibiotics

• Incentives for R&D & extension of exclusivity highly likely to be insufficient

• Price alone unlikely to fix the problem• Uncertainty / risk too high for both payer & investor

• “Insurance-type model” coupled with local price can reduce uncertainty / risk for both payer/health care system & investor

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To enquire about additional information and analyses, please contact Dr. Jorge Mestre-Ferrandiz at jmestre-ferrandiz@ohe.org

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