Winning the superbug battle - what is it going to take? (Part 2)

by Dragos Mircea Strategy Consultant, Pharmaceutical and life sciences

Email +44 (0)7841 804195

by David Leonard Strategy Consultant, Pharmaceutical and life sciences

Email +44 (0)7483 361737

As presented in Part One of our series, antibiotics appear to be bad business. The expected Net Present Value (NPV) of developing a new antibiotic was estimated at minus $1.51billion which is far from what investors would consider attractive. 

Several interventions can change this, one of which is a Market Entry Reward (MER).

The case for investing in antibiotics

Let’s put investing into antibiotics into perspective. In addition to our base case (analysed in Part One), we also define an optimistic case as one in which the following two conditions are met: half of the R&D costs are covered by public funding; only one (instead of the normal two) Phase III clinical trial is needed for the first indication, effectively halving the Phase III pre-registration costs. The NPV of these two cases is compared with the NPV of other therapeutic areas (TAs) and with a select target of +$100million.

Figure 1: Benchmarking the estimated NPV of a new antibiotic

Figure 1 - BenchmarkingEven when using the optimistic case, and a $100million target that is significantly below what can be obtained by investing in other therapeutic areas (TAs), the gap is still significant, at $700million. Next, we estimate the MER that is needed to bridge this gap. Given the time value of money (having £100 today is worth more than getting £100 five years from now), the total cash amount required will depend on the payment model adopted:

Figure 2: Market entry reward - range of payments needed to reach a +$100M NPV, by model Figure 2 -Market Entry RewardEach model varies in the length and profile of its payments, and has its pros and cons. One can come up with a great number of alternatives by changing the payments’ timing and amount, but considerations such as practicality of implementation and payer acceptability have to be kept in mind. With this said, we assume that the second commercial model is adopted, given its simplicity, predictability, and its relatively low effect on annual budgets. 

Finally, given the uncertainty, we picked a mid point between the base and the optimistic case. All in all, this leads to estimating the market entry reward that would credibly incentivise R&D for new antibiotics at $1.85billion. This is a large sum of money, and this is only for one antibiotic! Many more will be required. 

What is the global budget impact?

DRIVE-AB estimated that a Market Entry Reward of $800million – $1.5billion per new antibiotic would deliver on average 16–20 truly innovative new antibiotics over 30 years. 

We have considered three scenarios to estimate the global budget impact of a market entry reward: 10, 20 or 30 truly innovative antibiotics launched over the next 30 years. Based on the above, we assume that the reward needs to be $1.85B and paid evenly over 10 years for each antibiotic. This results in a budget impact between $18.5billion and $55.5billion over the next 40 years.

Figure 3: Total global budget impact of the MER for different numbers of new antibioticsFigure 3 - Budget impactWho is going to foot the bill?

AMR is a global issue and as such it is expected that investment from multiple nations will be required. The belief is that only the richest countries could contribute to a market entry reward, as poorer countries have more fundamental healthcare challenges that they need to tackle today. This is despite the fact that poorer countries often have significantly higher AMR rates. In this analysis we have assumed that only countries who are top-10 spenders on prescription medicines will contribute. We have then estimated the budget impact for these countries over the next 40 years, based on 20 new antibiotics receiving the Market Entry Reward over the next 30 years. 

To calculate these amounts, we used the relative prescription drugs spend of each country. Unsurprisingly, based on this approach, the US would have to pay the most, $15.8billion (40% of the total MER) and the UK would have to pay $1.9billion (5% of the total MER).

Figure 4: Budget impact based on 20 innovative antibiotics launched over 30 years  Figure 4 - Budget impact based on 20 innovative antibioticsLooking at the $50million (£39 million) average annual budget impact to the UK (over the next 40 years), this represents 0.03% of the 2019/20 NHS budget of £139.3billion. At first glance a figure of £39 million may seem affordable, but the challenge is often deciding whether to invest in challenges that exist today vs. investing in solutions that prevent challenges of the future.

What is the next step to implementing a Market Entry Reward?

Global cooperation is required to implement the MER. Not getting support from large nations such as the ones included above means that, the global MER, if implemented, will have to be paid by fewer countries. This increases the budget impact on the contributors, which may, in turn, lead to all countries delaying or pulling out of the MER, refusing to subsidise antibiotics for a world of free riders.

Currently, across the globe, there are significant political and economic uncertainties and crises that need to be tackled right now; this makes it difficult to obtain global cooperation for immediate investments that prevent future potential crises. Global warming is a prime example of this, and antimicrobial resistance is another; despite the fact that both of these challenges threaten the existence of society as we know it, global cooperation is inconsistent and investment is insufficient.

The UK is leading the way when it comes to incentivising R&D for antibiotics, with its pilot of the world's first ‘subscription’ style payment model. There is hope that this will trigger an international agreement that ensures funding is in place to implement a coordinated and effective Market Entry Reward. 

Contributing countries will end up paying more for antibiotics than they currently do. However, when compared to the cost of being brought back in time to a world where people die from simple infections, the increased cost due to the Market Entry Reward fades into insignificance. 

Therefore, it is important that any Market Entry Reward is budgeted for over the long-term and the budget is protected from political cycles at the country level. Time will tell if we can fix the broken antibiotics market before it’s too late...

by Dragos Mircea Strategy Consultant, Pharmaceutical and life sciences

Email +44 (0)7841 804195

by David Leonard Strategy Consultant, Pharmaceutical and life sciences

Email +44 (0)7483 361737