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What policies can increase antibiotics investment and why does it matter?

Kimberly Ha, Founder & CEO, KKH Advisors | June 29, 2018

Kimberly Ha is founder & CEO of KKH Advisors, a life sciences and digital health advisory firm. She joined our Merrill Insight™ panel on healthcare M&A and we’ve invited her to share more about the level of underfunding of antibiotic drugs in response to audience questions.

Listen to an excerpt with Kimberly:

One of the most underinvested areas in healthcare continues to be antibiotics. Alexander Fleming, a British scientist, discovered penicillin, the world's first antibiotic in 1928. Nearly 90 years later, we are now facing a global antibiotic crisis. Many pharmaceutical companies have stopped looking to develop new drugs in this sector, discouraged by economic and regulatory challenges. Antibiotics are no cheaper to develop than other drugs, but they typically bring in less revenue - unlike drugs for chronic conditions like arthritis or high cholesterol - antibiotics are given in courses that typically last only a few weeks.

Multi-drug resistant “superbugs,” have evolved and developed resistance to dozens of antibiotic drugs, leading to infections that are increasingly difficult to treat. Global deaths from antibiotic-resistant infections are predicted to hit 10 million a year by 2050.

No new classes of antibiotics have been developed since the 1950s, and antibiotic resistance is a significant threat to public health. Around 2 million Americans are infected with hospital-acquired infections annually, most of which are antibiotic-resistant infections, and around 99,000 people die each year. Our industry needs to figure out a way to incentivize research and development in this space, despite generics competition.

While the need for effective new antibiotics is clear, the drug development pipeline has not kept pace. Major pharmaceutical companies have largely abandoned the antibiotic space because the path to market and profitability is uncertain. Under 1% of all the research funding in the UK and Europe goes towards antibiotics research, and that number is only slightly higher in the US.

So where is the R&D investment going?

According to recent BIO industry report, depression and pain received the least investment funding last year. Out of around $8B raised by 330 companies in the sector last year, over a third of them were in oncology, and they received $3B in funding. Pain companies raised a total of $171M last year. Between 2008 and 2017, 13B in VC funding was invested in oncology, compared to 1.3B for pain drug companies and only 300M for depression drugs.

According to a California Healthcare Industry report, drug-resistant infections and related morbidity and mortality are on the rise in the United States and around the world. The Centers for Disease Control (CDC) has defined antimicrobial resistance as a major public health issue, and the World Health Organization (WHO) has identified it as one of the three greatest threats to human health. The Department of Homeland Security also recognizes pan-resistant microbes as a national security threat.

The CDC estimates that healthcare-acquired infections cost hospitals in the United States between $35.7 and $45 billion annually.

What can we do to incentivize companies?

To foster the discovery of truly innovative medicines, drug companies may need to be offered more extensive inducements, including tax breaks or market guarantees. According to a Nature article, political momentum and funding for combatting antimicrobial resistance continues to build. Numerous major international and national initiatives aimed at financially incentivizing the research and development of antibiotics have been implemented. However, it remains unclear how to effectively strengthen the current set of incentive programs to further accelerate antibiotic innovation.

According to a STAT article last month, an effort to use congressional legislation to incentivize the development of new antibiotics fell short, despite lobbying pressure from pharmaceutical companies and medical societies. Drug makers had hoped lawmakers would build provisions into a law that would encourage the development of new antibiotics.

Some of the proposed incentives included a “market entry reward,” which is a cash prize awarded to a company that brings a new antibiotic to market, and “transferrable exclusivity,” a voucher that would allow an antibiotic developer to extend the market exclusivity of a product of its choice.

Until policymakers and the government make significant changes and offer additional incentives to the pharmaceutical industry, the current commercial marketplace provides an insufficient level of return, which is the biggest hurdle to new antibiotic drug development.

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