Economic Incentives for New Antibiotics: What's Required?

Chris Hoyle
Superbugs & Superdrugs – A Focus on Antibacterials
London • 5-6 March 2014
Economic Incentives for New Antibiotics

Economic Incentives for Antibiotics 2
Overview
• Product & goals of a new business model
• Economic model – EU5 (25% global)
• Note, UK ~5% of market but <<5% for new antibiotics
• Incentives & effects
• What has worked previously?
• What has been implemented for antibiotics?
• Options for new business models & key
challenges

Disclaimers
None of the financial figures shown in this presentation
represent a specific marketed product or product in
development.
Valuations quoted in this presentation are for illustration
only.
The research presented has been done in collaboration with
OHE’s Adrian Towse and Jorge Mestre-Ferrandiz.

Target Product Profile
• Antibiotic for use in secondary care
• To treat antibiotic resistant pathogens
• For a limited number of patients with
an infection

Goals of a New Commercial
Model
• Lifetime revenue should reflect value to society –
require availability without necessarily using a new
antibiotic
• Should be sufficient to drive investment
• Risk mitigation for both payer & investor linked to
variation in antibiotic resistance, incl. local outbreaks
• Should minimise incentive to market & use (local price?)
– stewardship
• Effective at international level

Goals - General
Incentives should also:
• Improve efficiency
• Regulatory
• Stewardship
• Reduce risk
• Payer
• Investor

Commercial Model - Framework
R&D, licensing
Market
Exclusivity
Generic
competition
Market
Authorisation
Year 1
LoE
Year 10 Year 20
Start of
investment
Year -11
Phases
• Pre-clinical R&D
• Clin dev., Ph 1-3
• Registration
Components
• Out-of-pocket costs
• Progression rate
• Duration
• Cost of capital
Components
• Prevalence of:
− HAIs
− Resistant pathogens
• Price
• Market share
• Costs
− Cost of goods
− Marketing
− G&A
Components
• Market erosion

R&D & Registration
Out of pocket
($ m)
Probability of
progression
Duration (yrs)
Capitalised
cost ($ m)
PCRD
$4
9.8%
5.4
$788
Ph I
$16
59%
1.3
$225
Ph II
$54
46%
2.2
$379
Ph III
$196
54%
2.4
$510
Approval
$29
87%
0.9
$35
# Programs
Total
capitalised
cost ($m)
80
$1,936
11.3 yrs
(80%) (87%)
(29)
($848)(Figures in parentheses represent data for probability of
success.)
Probability of success is defined as likelihood that clinical
study will meet the primary endpoint.

Incentives for R&D, Registration
Objectives:
Out of pocket
($ m)
Probability of
progression
Duration (yrs)
Capitalised
cost ($ m)
PCRD
$4
9.8%
5.4
$788
Ph I
$16
59%
1.3
$225
Ph II
$54
46%
2.2
$379
Ph III
$196
54%
2.4
$510
Approval
$29
87%
0.9
$35
(80%) (87%)
Reduce risk
to investor
Promote
efficiency

Post-MA Revenue & Costs
• Lifetime revenue – EU5 (25% global market, 25% global
cost of R&D, approval)
HAIs
Share for pathogen (e.g. 15.7% for E. coli)
Share & rate of growth for resistant pathogens
Market share incl. LoE
Price
• Advanced market commitment e.g. Annual payment
• Costs
• CoGs, post-MA studies, S&M, G&A

Problem: Uncertainty ⇒ High
Risk for Payer & Investor
HAIs
Share for antibiotic-resistant pathogen
Rate of growth for resistant pathogen
Market share incl. LoE
Price
• Combined effect of uncertainty is multiplicative
• Plus local & national variations in prevalence

Variation in Antibiotic
Resistance Across Europe
Problem – High risk for payer & investor due to national &
local variations in prevalence and time
Country
Pathogen Class Fra Ger Ita Spa UK Swe Gre
E. coli ceph 10% 9% 26% 14% 13% 4.4% 16%
carb 0.0% 0.0% 0.2% 0.1% 0.2% 0.0% 1.4%
fluor 18% 21% 42% 34% 17% 11% 29%
K. pneumoniae ceph 23% 13% 48% 17% 12% 3% 71%
carb 0.5% 0.0% 29% 0.8% 0.5% 0.0% 61%
fluor 24% 14% 50% 17% 7.4% 4% 70%
P. aeruginosa cepha 18% 11% 25% 16% 6.3% 5% 48%
carb 14% 9.6% 26% 9% 4% 6% 31%
fluor 22% 20% 31% 21% 4% 7% 44%
a. For P. aeruginosa, rates are shown for ceftazidime only.
Source: ECDC TESSy, November 2013.

Variation in Antibiotic
Resistance Across Europe
Problem – High risk for payer & investor due to national & local
variations in prevalence and time
Country
Pathogen Class Fra Ger Ita Spa UK Swe Gre
E. coli ceph 10% 9% 26% 14% 13% 4.4% 16%
carb 0.0% 0.0% 0.2% 0.1% 0.2% 0.0% 1.4%
fluor 18% 21% 42% 34% 17% 11% 29%
K. pneumoniae ceph 23% 13% 48% 17% 12% 3% 71%
carb 0.5% 0.0% 29% 0.8% 0.5% 0.0% 61%
fluor 24% 14% 50% 17% 7.4% 4% 70%
P. aeruginosa cepha 18% 11% 25% 16% 6.3% 5% 48%
carb 14% 9.6% 26% 9% 4% 6% 31%
fluor 22% 20% 31% 21% 4% 7% 44%
a. For P. aeruginosa, rates are shown for ceftazidime only.
Source: ECDC TESSy, November 2013.
Plus
Local Outbreaks

What Incentives Have Worked
Previously?
• Public-private partnerships
• Bill & Melinda Gates Foundation
• Extended exclusivity
• Patent, data, market
• Price – Orphan drugs & oncology
• Advanced market commitment
• GAVI

Estimated NPV – Metric for
Investment
R&D, licensing
Market
Exclusivity
Generic
competition
Viable eNPV: >$100 million
(global)

Recap: Components for
Economic Model
• Market & target product profile
• Model structure & inputs for
• Product development &
• Post-MA revenue & costs
• Incentives
• Metric for investment decision
• But uncertainty is difficult to quantify

Modelling at OHE
• Product: Secondary care for treating infections caused by
specific antibiotic-resistant pathogens
• E. coli resistance to 3rd generation cephalosporins
• Push incentives
• R&D
• Regulatory
• Pull incentives – specific pathogens
• Product exclusivity – 5 years
• Revenue – Price & annual payment (AMC)
• Comparative effect & $
• Effect of uncertainty

Cost of New Antibiotic –
Baseline Case
• Single pathogen, two indications
• Four phase III studies
• No partnership funding for R&D
• eNPV minus $469 million at $120 per day
• Latest branded antibiotic launched; price
required: $2,770 per day
– without accounting for uncertainty

Incentives for Antibiotics?
• Public-private partnerships
• IMI – Europe – COMBACTE & ND4BB
• BARDA – USA
• Regulatory – EMA
• “Addendum to the guideline on the evaluation of medicinal products
indicated for treatment of bacterial infections”
EMA/CHMP/351889/2013 adopted by CHMP on 24th October 2013 &
will come into effect on 1st May 2014
• Rex et al. 2013 (Lancet Infectious Diseases)
• GAIN Act – USA
COMBINED EFFECTS ARE INSUFFICIENT
eNPV: minus $142 million at $120 per day
Need price of $600 per day for eNPV $100 million

Effect of Uncertainty on Price
• Growth in HAIs over 20 years
• No growth: $600 per day
• 5% annual growth: $400 per day
• Variation in prevalence
• High prevalence: $355 per day
– E. coli resistance to 3rd gen cephalosporins
• Low prevalence: $1,156 per day (quarter of
high)
• BUT…E. coli & third generation cephalo-
sporins is an optimistic model!

Effect of Uncertainty on Price
• No growth: $600 per day
• 5% annual growth: $400 per day
• High prevalence: $355 per day
– E. coli resistance to 3rd gen cephalosporins
• Low prevalence: $1,156 per day (quarter of
high)
• BUT…E. coli & third generation cephalo-
sporins is an optimistic model!
But effect is
multiplicative……
Range is $203 - $1,156

Problems with Price-only Model
• High uncertainty in growth of market &
impact of cross-sectional variation in
resistance
• Price × volume not aligned with antibiotic
stewardship/conservation
• Minimal link to valuation of availability
now & for the future
• Lifetime revenue based on infection only

Assessment of Value
• Treatment of infection
• 5-7% of patients in hospitals across
Europe
• Reduction in risk of infection
• 30% of patients on any day are taking an
antibiotic
• Development & sustainability of health
care systems more generally
Not captured in price × volume model

Alternative Strategy:
Advanced Market Commitment
• Re-balance differences across:
• Lifetime revenue based on price × volume
• Return required to stimulate
investment
• Value to payer/society
Annual
fee
• AMC - Difference
between revenue &
what is required to
drive investment

AMC - Challenges
• Value to society?
• Treat infection, prophylaxis, availability & risk reduction
• Sustainability & development of healthcare
• Reduce spread
• Present & future
• Structure of AMC required?
• Alone or combined with local price?
• What price at local level?
• Balance to minimise incentive to sell (price too high) or
incentive to use (price too low)

Agreement & Duration of AMC
R&D, licensing
Market
Exclusivity
Generic
competition
Market
Authorisation
Year 1
LoE
Year 10 Year 20
Start of
investment
Year -11
Annual premium
Ph III
AMC agreement
& PDP option
Extended
Exclusivity
Year 15
Annual premium

Two Financial Components of
OHE Model
• Annual fee over 10 yrs
• Agreed in advance
• Reduce risk for payer
& investor – drive investment
• Local fee per use
• Role in stewardship & supply chain
• National or international
• EC legislation – Article 5: Joint procurement of medical
countermeasures 1082/2013/EU on serious cross-border threats to
health covers “antimicrobial resistance and healthcare-associated
infection related to communicable disease”
Use if too cheap Sell if profitable
Investor - No RoI
On-going investment
Payer – overpays
Cost-effective

Effect of Uncertainty on AMC
- Price
• No growth - $29m/year at $120/day
• 5% annual growth - $28m/year at $120/day
• High prevalence - $27m/year at $120/day
– E. coli resistance to 3rd generation cephalosporins
• Low prevalence - $31m/year at $120/day
– (quarter of high)

Effect of Uncertainty on AMC
- Price
• No growth - $29m/year at $120/day
• 5% annual growth - $28m/year at $120/day
• High prevalence - $27m/year at $120/day
– E. coli resistance to 3rd gen cephs
• Low prevalence - $31m/year at $120/day
– (quarter of high)
Multiplicative effect……
Annual fee: $24 - $31 m/yr
Price only model: $203 - $1,156

AMC – Advantages
• Dampens financial effect of regional &
national variations in resistance for payer &
investor, i.e. partial “de-linking”
• Compared to revenue = price × volume alone
• Reduces risk to both payer & investor
• Payer receives on-going benefit of “availability”
of new antibiotics without need to use now
• Investor receives return to justify investment
• Balance risk that payer over-pays & investor
does not receive return on investment

Conclusions
• Incentives for R&D & extension of
exclusivity highly likely to be insufficient
• Price alone unlikely to fix the problem
• Uncertainty/risk too high for both payer & investor
• AMC coupled with local price can reduce
uncertainty/risk for both payer & investor
• What are we (society) paying for?
• AMC in € & how many products?
• Local price in € & who administers?

To enquire about additional information and analyses, please contact Dr. Jorge Mestre-
Ferrandiz at jmestre-ferrandiz@ohe.org
To keep up with the latest news and research, subscribe to our blog, OHE News.
Follow us on Twitter @OHENews, LinkedIn and SlideShare.
The Office of Health Economics is a research and consulting organisation that has been
providing specialised research, analysis and expertise on a range of health care and life
sciences issues and topics for more than 50 years.
OHE’s publications may be downloaded free of charge for registered users of its
website.
Office of Health Economics
Southside, 7th Floor
105 Victoria Street
London SW1E 6QT
United Kingdom
+44 20 7747 8850
www.ohe.org
About OHE
©2014 OHE

Economic Incentives for New Antibiotics: What's Required?

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (20)

Similaire à Economic Incentives for New Antibiotics: What's Required?

Similaire à Economic Incentives for New Antibiotics: What's Required? (20)

Plus de Office of Health Economics

Plus de Office of Health Economics (20)

Dernier

Dernier (20)

Economic Incentives for New Antibiotics: What's Required?