Last week, the biotech company Achaogen announced that it was filing for bankruptcy. That might not seem like much news: businesses crash and burn all the time. But Achaogen, founded in 2002, was an antibiotics company. Its first drug, Zemdri (plazomicin), was approved by the Food and Drug Administration last June.
The world is running out of useful antibiotics because the rise of antibiotic resistance in bacteria is undermining them, and big firms are disinclined to make more. In 2018 alone, three large legacy pharma firms closed their antibiotic research programs. So the collapse of even a small business that stepped up to make a new antibiotic is a blow.
Achaogen hit all the marks that should have signaled success. It recruited experienced developers, targeted an infection that the World Health Organization considers a critical unmet need, stuck with its compound through 15 years of testing, scored several rounds of public investment and private philanthropy, and got its drug approved. Yet the market didn’t reward the company for producing a new antibiotic: on the day the FDA announced its decision, its stock price actually dropped by 20 percent. Almost a year later, it has earned less than $1 million on the drug, not enough to stay alive.
The larger story of the Achaogen bankruptcy is that the financial structures that sustained antibiotic development for decades are broken. If we want new antibiotics, we’re going to have to find new ways to pay for them. And that will involve hard choices with big dollar signs attached.
Successful drug development relies on an extremely simple assumption. If you spend the industry-standard amounts of time and money to achieve a new drug—generally accepted to be 10 to 15 years and at least $1 billion—you will end up with a product to which you can assign a high enough price, or sell in enough volume, to earn back that R&D budget, reward investors, and turn a profit.
That math works for most of the products of the pharmaceutical industry, from old drugs that people take every day—antidepressants, beta-blockers, statins—to the newest cancer therapiesknown as CAR-T, which can cost almost $500,000 per dose. But antibiotics don’t fit that equation. Unlike cancer drugs, most antibiotics are inexpensive; the few with high price tags are reserved for rare hospital use. And unlike drugs to treat chronic diseases, people take antibiotics for only short periods of time.
There’s another way in which antibiotics are unlike all other categories of drugs. A daily dose of Lipitor causes the world no harm—but every dose of antibiotics poses a risk of encouraging bacteria to adapt and develop resistance. So these new medications are caught in a conundrum: their fiscal promise and their social value are at odds. Public health implicitly asks physicians “to use older drugs as long as possible so that we don't add a new level of resistance,” says Kathy Talkington, who directs the Pew Charitable Trusts’ Antibiotic Resistance Project. “And the other challenge is that antibiotics lose their effectiveness over time” as resistance develops.
Past research by the Pew Trusts has shown that almost all of the companies doing research on new antibiotics—at least 90 percent—are small in pharma terms, with a market capitalization of less than $100 million. More than half are pre-revenue, still working on their first product. They don’t have a built-up infrastructure, or a steady revenue stream, which means they can quickly get overextended. (Achaogen’s last public offering in February, meant to generate three months of emergency cash, offered 15 million shares at $1 each. Its stock price the day before the FDA approval was $12.)
Because this situation is common, the policy conversation around getting new antibiotics has focused on offering support to small companies. So far, that has meant what are called “push” incentives, making grants that fund very early stage research. The largest provider of push incentives is CARB-X, an internationally funded public-private partnership based in Boston that has given more than $100 million to small pharmas since it was launched in 2016.
As it happens, Achaogen got CARB-X money. It also received funds from BARDA, the US government’s Biomedical Advanced Research and Development Authority. These were substantial grants, enough to get the company over the “valley of death” between discovery and commercialization. But they weren’t enough, because it turns out there’s a second deadly valley—after commercialization but before profitability, whenever that arrives.
Which means it’s time to talk about other, more controversial enticements to get more antibiotics on the market. These so-called “pull” incentives (the alternative to push) don’t pay R&D costs up front; instead, they reward R&D done well. Short version: they gift pharma companies huge wads of cash.
Maryn McKenna, ArsTechnica | Read more:
Image: Getty/Bloomberg
The world is running out of useful antibiotics because the rise of antibiotic resistance in bacteria is undermining them, and big firms are disinclined to make more. In 2018 alone, three large legacy pharma firms closed their antibiotic research programs. So the collapse of even a small business that stepped up to make a new antibiotic is a blow.
Achaogen hit all the marks that should have signaled success. It recruited experienced developers, targeted an infection that the World Health Organization considers a critical unmet need, stuck with its compound through 15 years of testing, scored several rounds of public investment and private philanthropy, and got its drug approved. Yet the market didn’t reward the company for producing a new antibiotic: on the day the FDA announced its decision, its stock price actually dropped by 20 percent. Almost a year later, it has earned less than $1 million on the drug, not enough to stay alive.The larger story of the Achaogen bankruptcy is that the financial structures that sustained antibiotic development for decades are broken. If we want new antibiotics, we’re going to have to find new ways to pay for them. And that will involve hard choices with big dollar signs attached.
Successful drug development relies on an extremely simple assumption. If you spend the industry-standard amounts of time and money to achieve a new drug—generally accepted to be 10 to 15 years and at least $1 billion—you will end up with a product to which you can assign a high enough price, or sell in enough volume, to earn back that R&D budget, reward investors, and turn a profit.
That math works for most of the products of the pharmaceutical industry, from old drugs that people take every day—antidepressants, beta-blockers, statins—to the newest cancer therapiesknown as CAR-T, which can cost almost $500,000 per dose. But antibiotics don’t fit that equation. Unlike cancer drugs, most antibiotics are inexpensive; the few with high price tags are reserved for rare hospital use. And unlike drugs to treat chronic diseases, people take antibiotics for only short periods of time.
There’s another way in which antibiotics are unlike all other categories of drugs. A daily dose of Lipitor causes the world no harm—but every dose of antibiotics poses a risk of encouraging bacteria to adapt and develop resistance. So these new medications are caught in a conundrum: their fiscal promise and their social value are at odds. Public health implicitly asks physicians “to use older drugs as long as possible so that we don't add a new level of resistance,” says Kathy Talkington, who directs the Pew Charitable Trusts’ Antibiotic Resistance Project. “And the other challenge is that antibiotics lose their effectiveness over time” as resistance develops.
Past research by the Pew Trusts has shown that almost all of the companies doing research on new antibiotics—at least 90 percent—are small in pharma terms, with a market capitalization of less than $100 million. More than half are pre-revenue, still working on their first product. They don’t have a built-up infrastructure, or a steady revenue stream, which means they can quickly get overextended. (Achaogen’s last public offering in February, meant to generate three months of emergency cash, offered 15 million shares at $1 each. Its stock price the day before the FDA approval was $12.)
Because this situation is common, the policy conversation around getting new antibiotics has focused on offering support to small companies. So far, that has meant what are called “push” incentives, making grants that fund very early stage research. The largest provider of push incentives is CARB-X, an internationally funded public-private partnership based in Boston that has given more than $100 million to small pharmas since it was launched in 2016.
As it happens, Achaogen got CARB-X money. It also received funds from BARDA, the US government’s Biomedical Advanced Research and Development Authority. These were substantial grants, enough to get the company over the “valley of death” between discovery and commercialization. But they weren’t enough, because it turns out there’s a second deadly valley—after commercialization but before profitability, whenever that arrives.
Which means it’s time to talk about other, more controversial enticements to get more antibiotics on the market. These so-called “pull” incentives (the alternative to push) don’t pay R&D costs up front; instead, they reward R&D done well. Short version: they gift pharma companies huge wads of cash.
Maryn McKenna, ArsTechnica | Read more:
Image: Getty/Bloomberg
