A. Dowsett, National Infection Service/Science Photo Library

When Free Markets Fail ... and Maybe You Die

 

larry fisher a former New York Times reporter, writes about business, technology and design.

Published April 25, 2022

 

WHAT HAPPENS WHEN THE INVISIBLE HAND CALLS IN SICK? Consider antibiotics. For decades, scientists and public health officials have warned that bacteria were growing resistant to an ever-longer list of antibiotic drugs, but market-based solutions are still nowhere in sight.

Read It and Weep

Some of the reasons are straightforward. Developing an antibiotic costs as much as developing any other novel drug — $1 billion or more — but the public has grown accustomed to paying just pennies a pill, and patients rarely take them for long. So only a handful of large pharmaceutical companies are still trying, down from more than 20 in the 1980s. That leaves the job to smaller biotech enterprises, which struggle to raise funds.

Compare antibiotics to immunotherapy drugs for cancer, monoclonal antibody treatments for autoimmune diseases and antivirals for HIV/AIDS and hepatitis C, all of which sell for thousands of dollars per course of treatment — and some are taken for a lifetime. So it’s relatively easy to attract venture capital for, say, a new immuno-oncology company or a new psoriasis treatment that may attract millions of users, but next to impossible if your enterprise is focused on combating potentially fatal bacterial infections. “Please don’t write that we’re an antibiotics company; that’s the death knell,” one biotech exec said to me, only partly in jest.

Actually, one other comparison is apt. Before Covid-19, vaccines were disdained by investors. Immunization was expected to be cheap, yet development costs were high and recruiting healthy patients for clinical trials was especially tough. Sound familiar? Of course, thanks to its Covid-19 vaccine, which teaches the body to fight the SARS-CoV-2 virus, Moderna had a market cap of $59 billion in February 2022. Will it take a bacterial crisis to change the economics of antibiotics?

That’s not a casual question. The microbe behind the next public health tsunami could be bacterial. Resistant forms of bacterial diseases including tuberculosis and a host of maladies caused by Staphylococcus aureus have proliferated, and infections once only suffered by desperately ill hospital patients now spread in community settings. Moreover, patients who become seriously ill with viral respiratory diseases often subsequently die of opportunistic bacterial infections. That’s why as many as 75 percent of hospitalized Covid patients are given antibiotics. By the same token, without an array of effective antibiotics in the doctor’s kit, elective surgery and cancer chemotherapy would be perilous.

James Cavallini/Science Source

And while we’re peering over the edge of the abyss, let’s not forget one other scenario in which the lack of novel antibiotics to fight novel threats would be sorely missed: the weaponized release of plague or other pathogens by terrorists, which remains an imminent threat.

In the absence of antibiotics generated by market forces, the challenge of growing resistance to existing antibiotics has been addressed by a host of initiatives — public, private and hybrid — with clever acronyms. Their structures vary, but GAIN, PRIZE, REPAIR, CARB-X and, pending in Congress, PASTEUR, all look like too little, perhaps too late. Most measure generosity in the millions of dollars. One much-publicized industry initiative committed $1 billion — real money, to be sure, but hardly enough in the context of commercial drug development under contemporary regulations.

“I don’t think the private sector is going to do this — the incentives aren’t there,” concludes Jonathan Gruber, a professor of economics at MIT and one of the architects of the Affordable Care Act (aka Obamacare). “It’s really about the government pushing the ball forward on these socially valuable but privately less valuable opportunities.”

A Broken Market

Jim O’Neill, the former chair of Goldman Sachs Asset Management, has estimated that 700,000 people worldwide die every year from drug-resistant infections, and that by 2050, the number could reach 10 million. Resistant infections, he argues, will drain $100 trillion from the global economy between now and then — equivalent to $10,000 for every person alive today.

Closer to home, the numbers don’t look much better. According to the Centers for Disease Control and Prevention, Americans contract more than 2.8 million antibioticresistant infections every year, and at least 35,000 of them die.

One might assume that all that death and destruction presents a huge market opportunity. In fact, antibiotics development has stalled. Discovery — the process of finding effective antibiotic candidates — is inherently difficult, since bacteria have had hundreds of millions of years of evolution to perfect their defenses. And much of the low-hanging fruit has been picked in the 93 years since Alexander Fleming discovered penicillin. Development is fraught as well because new antibiotics in clinical trials are expected to show not just safety and efficacy, but superiority to existing drugs.

Dennis Kunkel Microscopy/Science Photo Library

When a new antibiotic is compared in trials with an existing one, either the old antibiotic still works and so it is hard to prove superiority, or the old antibiotic doesn’t work and so it is unethical to give it to a control group. Even drugs that successfully run the gantlet are not guaranteed to be viable in the market. In an effort to forestall resistance, hospitals hesitate to use new antibiotics. As a result, effective new drugs often wind up in the place of honor as last-resort backups — but that doesn’t help the drugmaker’s bottom line.

Consider Achaogen, a biotech startup launched in 2002, whose first drug, Plazomicin, received approval to treat urinary tract infections, one of the most common drugresistant diseases, in 2018. But Plazomicin’s sales were less than $1 million in its first year, not nearly enough to recoup its development costs, forcing Achaogen into bankruptcy. Meanwhile, the pharmaceutical market was continuing its drift into winner-take-all outcomes. That same year, Humira, AbbVie’s monoclonal antibody for treating autoimmune pathologies from rheumatoid arthritis to Crohn’s disease to psoriasis rang up $19 billion in sales.

Small wonder, then, there’s been an exodus of big pharma from antibiotics development. According to the Pew Charitable Trusts, among the 38 companies still working on antibiotics, only two rank among the top 50 pharmas by sales. That leaves small-tomedium biotech enterprises, which are dependent on research grants and scarce venture capital, to carry on the fight.

A veteran venture capitalist I spoke with said he can raise money for antivirals and even antifungal drugs, but not antibiotics. Pricing is part of the equation. “There are a set of systematic problems that a developer faces that all stem from the pharmacy and therapeutics committees at hospitals that were put in place to control the use of expensive drugs,” he said. The committees, it seems, have saved the hospitals from financial ruin but killed the prospects for new antibiotics in the process.

“If you ask people in this ecosystem whether the market is broken, you would get a resounding yes,” said Wes Kim, senior officer at Pew’s Antibiotic Resistance Project. “The challenge is not only developing an antibiotic … it’s what happens after they get FDA approval,” he added, noting that Achaogen is not the only antibiotics company to go bankrupt with an approved drug on the market.

There’s an Acronym for That

While we’ve not been producing new antibiotics, we are ahead of the game in handwringing. For example, in 2001, the federal Interagency Task Force on Antimicrobial Resistance released the Action Plan to Combat Antimicrobial Resistance to strengthen the response in the United States. In 2004, the Infectious Diseases Society of America issued “Bad Bugs, No Drugs … As Antibiotic Discovery Stagnates, a Public Health Crisis Brews.”

 
In recent years, venture capitalists have circled the wagons. They aim to coax a biotech discovery just to the proof-of-concept stage and sell the intellectual property to a pharmaceutical company.
 

One tangible response was the GAIN (Generating Antibiotic Incentives Now) Act of 2012, which aimed to make successful development more lucrative by extending by five years the patent-exclusivity period for “qualified infectious-disease products.” A qualified infectious disease product, or QIDP, was defined as an antibacterial or antifungal drug intended to treat serious or life-threatening infections. And by September 2013, the FDA had issued 24 QIDP designations for 16 candidates. The FDA also formed the Antibacterial Drug Development Task Force to assist in developing and revising guidance related to antibacterial drug development.

Does that mean GAIN succeeded? “GAIN spurred some investment, and some companies thought they could get acquired,” said Gregory Frank, director of Global Public Policy at Merck. “But that didn’t happen, so they came to market and tried to do it themselves. Up to then, VCs were willing to finance biotechs [pursuing antibiotics]. But after Achaogen… the bottom fell out.”

In recent years, venture capitalists have circled the wagons. They have passed on opportunities to fund biotech startups to become fully integrated pharmaceutical companies.

Instead, they aim to coax a biotech discovery just to the proof-of-concept stage and sell the intellectual property to a pharmaceutical company. And if big pharma declines to offer an exit, the VCs walk away.

Merck acquired Cubist Pharmaceuticals, a pure play in antibiotics, for $8.4 billion in 2014, only to shut down Cubist’s R&D a year later. Whatever the reason for Merck’s change of mind, the giga-loss strengthened investors’ perception that antibiotics are a loser’s game.

When at First You Don’t Succeed…

A public-private initiative, the Combating Antibiotic-Resistant Bacteria Biopharmaceutical Accelerator (CARB-X), was formed in 2016 with $480 million to invest in new antibiotics, vaccines, rapid diagnostics and other lifesaving products. CARB-X is led by Boston University and funded by a Who’s Who of players in health research, including governments (US, UK, Germany) and big philanthropies (Wellcome Trust, the Bill & Melinda Gates Foundation).

Meanwhile, some drug companies have started non-profit programs of their own to boost antibiotic development. The Novo Nordisk Foundation, funded by the eponymous Danish diabetes-drug giant, launched the REPAIR (Replenishing and Enabling the Pipeline for Anti-Infective Resistance) Impact Fund in 2018. The fund is expected to invest $20-40 million annually for three to five years, spreading the cash around some 20 projects with the goal of coming up with at least one new marketable therapy. So far, eight drugs and vaccines are in development, all from small companies, with two now in the first phase of clinical trials.

Dr. Jeremy Burgess/Science Photo Library

Then, in 2020, a group of the world’s largest drug companies, including Merck, Pfizer, Eli Lilly and GlaxoSmithKline, pledged $1 billion for the AMR (Anti-Microbial Resistance) Action Fund, with the goal of yielding two to four novel antibiotics by 2030. The effort also has support from the European Investment Bank and the aforementioned Wellcome Trust.

“We’re helping to buy time for some antibiotics in the pipeline,” said Frank, the Merck executive. “This is by no means going to be a sustainable solution in and of itself. ... The hope is that, if you do this, the private investment will come back. Hundreds of applications go to CARB-X because nobody else will give them money.”

In the language of drug initiatives, CARB-X provides a “push incentive.” It funds biotech startups through the early stages of product development and Phase 1 safety trials so they can attract bigger bucks for further clinical stage development. GAIN was a “pull incentive,” granting a longer period of patent protection to make back investment costs — provided the R&D did generate a marketable drug. Pull incentives can also be direct, such as a cash award for gaining FDA approval of a new drug, sometimes known as a market-entry award.

“All of these are great, but they’re not sufficient,” said Kim of the Pew Trust. “We need both push funding to get the R&D and the pull incentives to continue operations [for the same drug initiative]… We need an endto- end system.”

Traversing the Valley of Death

As big companies exit development, global health is becoming ever more dependent on small, lightly funded enterprises with little or no experience bringing drugs to market. Academic grants and philanthropy focus on helping companies through the discovery stage. If they’re not acquired after a brilliant beginning, smaller enterprises need more help with the hard slog through development, clinical trials and regulatory submissions.

“You have a lot of incentives to get research started,” said Fatema Rafiqi of the Access to Medicine Foundation in Amsterdam. In 2021, Rafiqi authored the report, “Biotechs Are Saving the World from Superbugs. Can They Also Save Themselves?”

 
A growing number of small companies have looked to China, which has a looming resistance problem, inadequate access to the most sophisticated antibiotics — and an apparent willingness to write big checks.
 

“You dip into the ‘valley of death’, getting projects past proof of concept,” she said. “Then the money runs out. And right before projects get to approval, money tends to run out again.”

Oh, but the journey is perilous. There’s still another valley of death, as funding tends to dry up after drugs are approved for sale. Getting drugs into the hands of doctors requires both manufacturing capacity and a sales force, which most small companies lack. And while either can be outsourced, the cut demanded by big pharmas (which may sell competing drugs) is often onerous. And then there’s the dealbreaker: drug development is just not supported very well by the prices that antibiotics command — particularly when hospitals reserve their new antibiotics as cures of last resort.

Countries and foundations can help fill these gaps. Rafiqi notes that some countries aim to do this by delinking payments to drugmakers from the volume of drugs purchased. Sweden is experimenting with a subscription model where regular fees are paid in return for on-demand supply — the so-called Netflix model. Britain pays for antibiotics based on their overall value to the health system rather than the volume of use. The aforementioned PASTEUR Act (H.R. 8920 and S. 4760), a rare bipartisan bill, would implement a version of this model in the United States.

Under PASTEUR (Pioneering Antimicrobial Subscriptions to End Upsurging Resistance), the federal government would create market incentives for the development of lifesaving antimicrobials. Developers would be paid contractually agreed-upon amounts anually for a duration ranging from five years up to the antimicrobial’s patent life. Eligibility and value would be based on the clinical need and novelty of the drug.

PASTEUR still has to pass both houses of Congress. In the meantime, Rafiqi said a growing number of small companies have looked to China, which has a looming resistance problem, inadequate access to the most sophisticated antibiotics — and an apparent willingness to write big checks. “Our focus on China is not from a political aspect,” she says, “but that there’s a government that understands.”

Those companies include Entasis, a Massachusetts biotech that has partnered with Zai Lab, a commercial-stage drug company based in China, to share the risk of developing and commercializing its experimental drug across the Asia Pacific region while securing potential future licensing revenues. There’s also Qpex, based in San Diego, which has licensed the Chinese company Brii Biosciences to develop, manufacture and commercialize three products. In return, Qpex receives an initial payment, with future payments dependent on various development, regulatory and commercial milestones.

But Frank of Merck said that one should not read too much into such deals. “It’s always important to think about why they did it. Desperation is a strong word, but those were deals done in a frantic attempt to survive long enough to see whether they can make it in the U.S.,” he said. “When you have limited opportunities to raise capital, you have to get creative, and these are creative people. But these deals are not sustainable either.”

Thinking Outside the Pill Bottle

Antibiotics resistance is not new. Penicillin saved countless lives during World War II, but its wide use and misuse prompted Fleming himself to warn of resistance. The first strains of penicillin-resistant bacteria began to appear shortly after the war ended.

By 1950, some 40 percent of hospital S. aureus isolates were penicillin-resistant; by 1960, this figure had risen to 80 percent. S. aureus has since developed resistance to methicillin, flucloxacillin, dicloxacillin and vancomycin, leaving physicians few effective treatments for this potentially deadly disease.

 
One thing that we don’t appreciate is if we were to wave a magic wand and implement the PASTEUR Act, we probably would not be seeing the fruits of that labor for 10 years, and resistance is just going to climb.
 

All of these drugs are variations on a theme — small molecules that bind with a particular receptor that is implicated in the progression of disease. But the inexorable march of natural selection generally leads bacteria to develop a workaround. Small-molecule drugs are cheap and orally available, so they’re easy to use (and overuse). Most antibiotic drugs are broad-spectrum, active against a range of bacterial diseases, which tends to kill beneficial bacteria as well as hastening the rise of resistance by broadening their use.

And then there’s the poisonous icing on the cake: farmers discovered long ago that regular dosing with antibiotics allows healthy livestock and chickens to grow bigger faster, spurring massive dumping of pharmaceuticals into the environment that inevitably accelerates the arrival of resistance.

It’s long past time to consider a different paradigm. Why not develop narrow-spectrum antibiotics that kill only the target bacteria, leaving the rest of the microbiome unscathed? That’s the premise behind Pylum Biosciences, founded by David Martin, the original head of research at Genentech, and James Knighton, who’s held senior executive roles at a number of pioneering biotech companies.

Pylum has developed a new class of proteins that will kill only the targeted bacteria and not other microbes, thereby avoiding damage to off-target species. They’re unaffected by mechanisms of antibiotic resistance, and, accordingly, kill drug-resistant bacteria.

Because the underlying structure of the protein remains constant, developing new drugs for other diseases can be accelerated. The technology was featured in an April 2020 cover story in the prestigious peer-reviewed journal Nature, the kind of imprimatur that biotech executives dream about.

Yet Pylum has struggled to raise capital. Why? Because the goal is antibiotics, a word guaranteed to send VCs scurrying for the exits. Then, too, its drugs are proteins, large molecules that must be injected or infused, while big pharma (and patients) much prefer pills, which are cheaper to make and distribute, and not nearly as scary as needles.

A few years ago, Martin and Knighton created a spinoff company called Xyphos to pursue immuno-oncology, which was acquired in 2020 by Astellas Pharma for $665 million. Pylum needs far less cash to plow on. “CEOs have to go against the grain and say we’re not going to abandon this area,” says Knighton. “Economically this can work. This could be a fantastic business.”

 
By and large, antibiotics are used to treat infection; in our view, it’s much better for everyone, particularly the patients, if you can prevent the infection in the first place.
 

Or consider Lumen Bioscience, which was originally founded to develop biofuels. That effort had stalled when the company got an unexpected call from the Gates Foundation, which wondered if Lumen’s technology could be used to produce monoclonal antibodies in a medium of spirulina, the blue-green algae that became a popular dietary supplement in the 1970s. Most monoclonal antibodies are grown in cultures using Chinese hamster ovary cells, a complex, expensive procedure.

Growing them in spirulina is inexpensive, easy to scale — and, remarkably, yields antibodies that survive digestion, making them available by mouth.

Lumen is currently conducting clinical trials of its antibodies against Campylobacter jejuni and enterotoxigenic Escherichia coli. Common causes of travelers’ diarrhea, these bacteria are also a major cause of infant mortality in the developing world. Another Lumen drug has begun trials against Clostridioides difficile, which is also a cause of severe diarrhea, intestinal inflammation and sometimes death. Lumen is promoting these drugs as prophylactics, which would be given to susceptible populations to prevent disease.

“By and large, antibiotics are used to treat infection; in our view, it’s much better for everyone, particularly the patients, if you can prevent the infection in the first place,” explained Brian Finrow, Lumen’s chief executive.

Finrow is an attorney, not a biologist, and he notes that as fiduciaries, venture capitalists’ first responsibility is generating returns, not improving public health. “In fairness to the VCs, it is reasonable to point out that it’s not their money they’re gambling with,” he said, “it’s pension funds’. Is it appropriate for them to gamble with the pensions of California public employees?”

When Government Steps Up

If private enterprise can’t or won’t finance innovative pharmaceuticals, could public investment take its place, as MIT’s Gruber suggested?

Just days after 9/11, the Federal Biomedical Advanced Research and Development Authority (BARDA) signed a contract with GlaxoSmithKline to develop antibiotics to counter bioterrorism threats including plague and tularemia, as well as more common lifethreatening infections lurking in hospitals.

Raxibacumab, a monoclonal antibody for anthrax, was developed by Human Genome Sciences in conjunction with the U.S. Department of Health and Human Services. All told, BARDA claims that it has supported 61 FDA approvals, licenses and clearances for medical countermeasures. Not to drizzle on BARDA’s parade, but its help can be insufficient: Merck’s Frank points out that one BARDA success story was Achaogen — and the company failed anyway.

But public-private drug initiatives have their home-run outcomes as well as singles and strikeouts. According to University of Chicago law professor Eric Posner, Operation Warp Speed, the Trump administration initiative to accelerate Covid-19 vaccine development, was a classic government intervention in the free market. Costing more than $10 billion, it was designed to correct a market failure. The market failure was the lack of incentives for private companies to invent and distribute a vaccine, presumably because the costs and risks could not justify the return if they succeeded. The government stepped in by throwing money at the companies, guaranteeing a market, and supplying technical advice and coordination.

It’s important to remember, though, that Warp Speed had a bit of a head start. Both Moderna and BioNTech had been working on messenger RNA vaccines for many years, while Regeneron and others had already developed monoclonal antibodies for SARS, an earlier coronavirus similar to Covid-19. Antibiotic development, by contrast, is playing catch-up.

“One thing that we don’t appreciate is if we were to wave a magic wand and implement the PASTEUR Act, we probably would not be seeing the fruits of that labor for 10 years, and resistance is just going to climb,” said Frank. “People think this is a problem of the future, but the drugs are in the future, too.”

main topic: Medical Research