I have spent my career as a biomedical entrepreneur working to develop products that have the potential to save lives while also generating returns for shareholders. Two years ago, I co-founded a new company, Octagon Therapeutics, focused on a critical unmet medical need and a growing market opportunity: more effective antibiotics. It turned out to be a disaster.
We invested significant resources into developing a promising treatment for infections caused by drug-resistant bacteria. These “superbugs,” which do not respond to most existing antibiotics, are responsible for nearly 700,000 deaths each year. If current trends continue, drug-resistant bacteria will be the leading global cause of death by 2050.
Given those scenarios, we expected to have no problem finding investors to finance our venture. The infectious disease clinicians we spoke with were clamoring for new treatment options, and the pipeline of new antibiotics in development was shockingly sparse. What’s more, the World Health Organization and the U.S. Centers for Disease Control and Prevention had just released a prioritized list of the most dangerous bacterial pathogens. One of Octagon’s experimental therapies showed a high level of in vivo activity against Pseudomonas and Acinetobacter bacteria, number one and two on the WHO hit list.
Our pitch to investors was simple: We have discovered a compound that has the potential to be the first example of a novel antibiotic class. It has proved effective in animal models and has been shown to be safe in humans.
Investor after investor turned us down. Antibiotics, they said, were practically guaranteed money losers.
Sadly, it turns out they are right. Last-resort antibiotics, the ones that are effective against the most dangerous bacteria, are an option that doctors rarely turn to, prescribing them only in limited emergency scenarios. If such novel antibiotics are overused, bacteria will develop resistance to them. This caution is scientifically sound, but it creates a problem for companies developing new treatments: the number of patients receiving them will — hopefully — always be low.
Making matters worse, insurers are incredibly tight-fisted when reimbursing doctors and health systems for their use of antibiotics. Medicare pays hospitals the same flat fee to treat patients with bacterial infections regardless of whether they use cheap generics or more effective — and more expensive — cutting-edge drugs.
As a result, artificial pricing pressure is applied to novel antibiotics as they are not reimbursed based on the clinical value they deliver. Antibiotics, which are one-time curative medicines, typically sell for 100 times less than new cancer therapies. At current price points, and with responsible prescribing practices, companies developing new and effective antibiotics have no hope of recouping the massive development costs needed to bring them to market.
Seeing the writing on the wall, Octagon changed course in late 2018. Despite the good our product could have done, it would have been irresponsible to continue to spend investor capital on antibiotic development.
We were lucky, because we had a second program focused on severe autoimmune disorders, an area currently in vogue. The company now has significant momentum and traction with both investors and larger pharmaceutical partners.
Others haven’t been so fortunate. Antibiotic developers like Achaogen, Melinta, and Aradigm have folded in recent months. Others will follow. The deterioration of the sector has extended to larger companies as well. All but three major pharmaceutical firms have axed their antibiotic development divisions.
The United States — the world, really — is at a crucial moment where public intervention is needed for antibiotic development. Private companies can’t take on the cost and risk associated with developing products for a market that is not functioning efficiently. There are parallels here to developing treatments for viral pandemics such as Covid-19. These are strategically vital medicines that we hope will rarely be used but that health care systems desperately needs. Cooperation between the public and private sectors is necessary to ensure that they will continue to be available.
It is past time for policymakers to intervene. In 2018, development and pricing incentives from Washington looked to be right around the corner. Two years later, these market reforms are less certain.
Such incentives could include legislative action like the DISARM Act. Currently under consideration in the Senate, DISARM is a step in the right direction. The law would alter Medicare’s reimbursement formula to reward hospitals for appropriately using the latest antibiotics. This would reduce pricing pressures and encourage more hospitals to stock new antibiotics.
Congress and the Trump administration could further reward companies for developing novel antibiotics. It can cost more than $1 billion dollars to gain approval for a new medicine. Many companies avoid antibiotic development after concluding they won’t be able to recoup those R&D costs. A significant lump-sum payment from a dedicated government fund or a large private endowment could change that calculus, encouraging more firms to pursue antibiotic development. But to fully restore healthy market dynamics, price points need to change. New last-resort antibiotics, which save lives, need to be reimbursed like the life-saving medicines they are.
When drug developers and venture capitalists can’t make a return on investment in one disease area, they will put their risk capital and talent elsewhere.
I’ve seen firsthand that there are plenty of talented researchers eager to work on the challenge of fighting antimicrobial resistance. But without a marketplace that rewards innovation, brilliant scientific minds and well-run drug discovery companies will focus on disease areas where the market is operating efficiently.
Combating antibiotic resistance will require both a functioning marketplace and public-private collaboration. And if we don’t act today, millions will die from resistant infections.
Isaac Stoner is the president and chief operating officer of Octagon Therapeutics.