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In the five years since the alarm sounded about so-called superbugs, the world has continued to grapple with the staggering health and economic impacts of antibiotic resistance and mounting resistance to antibiotics of last resort.

In the U.S. alone, antibiotic resistance adds $20 billion to $35 billion in direct health care costs each year, along with 8 million extra days in the hospital. In the European Union, multidrug-resistant infections kill more than 30,000 people every year. While scientists work to uncover new ways to combat antibiotic-resistant microbes — which harbor a dizzying array of tools to evade antibiotics — the question of how to best develop and commercialize novel antibiotics while at the same time creating a return for investors remains just as puzzling as the most recalcitrant bacteria.

Any company considering investing in novel anti-infectives faces substantial commercial headwinds despite a clear and urgent need for them.


Cost pressure is one formidable obstacle. Any new antibiotic will face substantial pressure from competitors, as most antibiotic classes have now lost market exclusivity and relatively affordable generic options are available.

How the treatment of infections is paid for is another obstacle. This treatment is often covered by a diagnosis related group, under which a hospital is paid a lump sum for an episode of patient care. That leaves the hospital on the hook for any additional costs, including pharmaceuticals like antibiotics, that exceed the prespecified payment rate. The upshot is that institutions have an incentive to use the least costly option available — not necessarily the best in class.


The population of potential recipients is another impediment. A pharmaceutical company developing an antibiotic for a multidrug-resistant bacterial strain targets a relatively small pool of infections. For example, a study that assessed bloodstream infections between 2009 and 2013 revealed that only 1 percent of bacteria were resistant to the most commonly used antibiotics. It’s worth noting, however, that the report also demonstrates the medical need within patients unlucky enough to be infected by that 1 percent of bacteria. These resistant strains were associated with a 40 percent increase in the risk of dying and more than doubled the average hospital stay.

Creating an investment strategy around this relatively small patient population is further confounded by the increasing role of antibiotic stewardship committees. They develop guidelines to make sure that specific classes of antibiotics, particularly the often-expensive novel classes, are used only for appropriate infections as a way to prevent further development of antibiotic resistance. As a result, novel antibiotics targeting multidrug-resistant microbe strains are often deployed only after extensive laboratory tests have confirmed that a bad actor is present — at which point it may be too late for the patient.

Although these hurdles may hold back any investor considering an anti-infective opportunity, several incentives and economic models have been proposed to reduce clinical development time and costs for anti-infectives, and ensure a commercially viable payment and reimbursement structure. These concepts are generally known as “push” and “pull” incentives.

The superbugs are growing in strength and it’s our fault. Hyacinth Empinado/STAT

Pushing anti-infectives through clinical development

A variety of mechanisms are currently in place to help push an anti-infective through the clinical development process.

From a regulatory perspective, the Food and Drug Administration and the European Medicines Agency have done their part devising programs that help pharmaceutical companies quickly and efficiently shepherd their anti-infective drugs through clinical trials.

As part of the 2012 Generating Antibiotic Incentives Now (GAIN) provision, the FDA created the designation of qualified infectious disease product. It includes several incentives for antibiotics that meet certain criteria, including eligibility for priority review, fast track designation, and a five-year extension of exclusivity. Not to be outdone, the EMA is exploring “adaptive pathways” for high-need areas in which current care is unsatisfactory (including infections), granting marketing approval based on targeted studies in circumscribed patient populations with continued post-marketing data gathering.

Both the FDA and EMA have been flexible about the totality of evidence required for approval. For most drugs, companies are required to conduct large, randomized, controlled Phase 3 trials. For some anti-infectives, recent approvals were based on one randomized, controlled Phase 3 trial and a small open-label, single-arm study in a population of high unmet need.

While programs like these may grease the wheels of clinical development, it is still up to the sponsor to find money to pay for these efforts. As a result, public-private partnerships have emerged to help push anti-infective therapies onto the market. One is CARB-X, a nonprofit organization funded in part by the National Institutes of Health, the Bill and Melinda Gates Foundation, and the Wellcome Trust, among others. With a target investment budget of $500 million, the organization aims to make non-dilutive investments in antibiotics to prevent and treat life-threatening bacterial infections. So far, CARB-X has deployed $91 million of funding across 17 programs for antibiotics.

Not to be left out, traditional VCs have also entered the game. Novo Holdings launched the REPAIR Impact Fund in 2018, with a budget of $165 million to invest in companies focused on treating drug-resistant organisms. These efforts have paid off, as there has been a spate of company formation and venture capital investment around developing novel anti-infectives.

As highlighted by a recent CARB-X report, non-dilutive funding may beget further investment. As of the third quarter of 2018, 15 companies in the CARB-X portfolio had raised $762 million in private funds since their awards were announced. Beyond these examples, an estimated $800 million in venture capital funding for anti-infective companies was spent between 2016 and 2017, according to an analysis conducted by my company, Back Bay Life Science Advisors (the report is available by request).

This spark of interest in drug development is encouraging, but large pharma is hardly fanning the flames. Several commercial-stage companies, including AstraZeneca, The Medicines Company, and Novartis, have shuttered their antibiotic operations. Companies that still have anti-infective franchises remain on the sidelines of the merger and acquisitions game — compared to other therapeutic areas, there has been a dearth of anti-infective licensing and merger and acquisition deals compared with the previous five years. While there are multiple reasons for this, one is that the economic model for developing novel antibiotics to treat resistant bugs has yet to be clearly defined.

Pull incentives aren’t yet robust

What pull incentives might look like in the future remains cloudy, though some groundwork has been established. For instance, the qualified infectious disease product designation mentioned earlier offers an extra five years of exclusivity during which sponsors can market their drugs without threat of generic competition. While this extends the runway to generics, it does little to address the current reimbursement landscape, and so may do little to lure investors toward anti-infective development.

Some existing mechanisms are in place to provide additional reimbursement for novel anti-infectives, such as Medicare’s new technology add-on payment program. This offers an additional payment for the use novel in-patient products that are an improvement over the current clinical standard of care and are otherwise cost prohibitive under normal reimbursement structures. Although these payments have been granted to novel antibiotics, they have done little to increase their uptake and utilization.

Innovative economic models have been suggested, ranging from a subscription-based model, under which hospitals or governments pay sponsors for licenses to access antibiotics, to a framework in which a drug developer is granted a minimum level of annual revenue for bringing an anti-infective through FDA approval.

These models require the coordination and alignments of governments, hospitals, insurers, and others — a daunting task. As such, they have been mostly academic exercises.

FDA Commissioner Scott Gottlieb announced serious consideration for reforming reimbursement for antibiotics. What transpires from that could be the watershed moment. But even if it is, any action remains years in the future.

Questions remain

With a clear and present danger of the growing need for new antibiotics, questions abound:

  • When will big players re-enter the licensing or merger and acquisition space, if at all? Following the launch of antibiotics targeting complicated urinary tract infections (e.g. Achaogen’s Zemdri and Melinta’s Vabomere), many in the industry are waiting to see if the market will sustain them. The clinical uptake and commercial success of these brands could be the data point that larger companies are waiting to access.
  • Who will become the market leaders, given the lack of interest by big pharmaceutical companies? Smaller companies are currently the dominant sponsors of novel and recently launched antibiotics. As larger companies have divested their anti-infective assets, their portfolios have found their way into public corporations, such as Melinta’s acquisition of The Medicines portfolio and AstraZeneca spinning out its portfolio to Entasis, which recently closed a $75 million IPO (after lowering its offered share price). The market, though, has been skeptical: Despite Achaogen’s launch of Zemdri, the company slimmed payrolls to focus on commercialization activities and essentially put out the “for sale” sign.
  • Will enabling technologies, such as rapid diagnostics, help get novel antibiotics more quickly and efficiently to the patients who need them? While rapid, sensitive, and specific diagnostics have long been a holy grail, the field is still waiting for them to appear. Structures to spur innovation in this space have popped up, like CARB-X eligibility for diagnostic companies and the Longitude Prize for the development of an inexpensive, sensitive, and rapid point-of-care test for bacteria sensitivity. Such advances will enable hospital systems to confidently use costly novel antibiotics for the patients who most need them without the fear of unnecessarily speeding the development of antibiotic resistance.

The next few years will prove critical for organizations developing novel antibiotics. Commercial successes could be the tipping point that pulls together stakeholders to reinvigorate the commercial model for anti-infectives.

But as we have seen with other efforts to reorganize health care delivery in the U.S., that could prove as difficult as eradicating a superbug.

Peter Bak, Ph.D., is vice president for life science strategy at Back Bay Life Science Advisors.