Pullan's Pieces #149                                    
Pullan's Pieces #149
June 2019
BD News and Analysis for  Biotech and Pharma
Dear --FNAME--,

Summer is here! 

We just had a webinar based on Pullan's Pieces infographic.  You can still sign up to listen to the recording.  SIGN UP

Some of the figures are in the infographic in this issue, and some are in the last issue of this newsletter (available here ).




1. Key messages about reimbursement
2.  Infographic:  Cancer PART 2
3. Jessica:  We all take antibiotics... for granted
4.  Trevor: It's a numbers game - deals by stage

Roger's 4 key messages on reimbursement  
At the recent Sachs IO conference, I listened to some great talks and panels.  For those of us that think primarily about discovery and early drug development, the talk by Roger Longman (CEO of Real Endpoints) on 4 key messages on reimbursement for oncology drugs was great! I'm paraphrasing from my notes so any errors are mine, not his.  

1.  For Oncology, the US is abnormal.  In the US, reimbursement starts immediately with approval or listing in the compendium.   In Europe reimbursement starts in months (France) to more than a year after approval (UK).  In the US, CMS requires coverage of every new approval in cancer (and 5 other classes).  In the US, in what is termed "buy and bill",  doctors buy oncology drugs for in office administration and mark them up. Hospitals do the same thing for oncology drugs administered for outpatient clinics.     

2.  Oncology's problem in the US is Access not Coverage.  Drugs will get some reimbursement (Coverage) but patients may find it very difficult to get Access to the drug.  Payers limit choice and block access to new drugs via
  • preferences for their favorite drug (formulary listings and co-pay tiers, often based on prior data and price and drug manufacturer rebates to the payer or pbm),
  • prior authorization (requiring justification before approval of drug use),
  • step edits (where the cheaper drug(s) must be tried before the new more expensive drug will be paid for). 

3.  Net price for pharma companies is reduced by patient services.  Companies provide free drug to uninsured and under-insured, pay for drug in a bridge until reimbursement, provide co-pay assistance and help getting reimbursement.  There are thus costs both for the free drug and for infrastructure to support these services.    For small molecules, patient services are around 30% of the drug price.  

4. US oncology reimbursement will become more like Europe.  By 2025, there might be 50 super-high-priced gene therapies squeezing payers.  Payers are increasingly using specialty pharmacies to deliver the drugs to doctors and out-patients, to reduce the "buy and bill" by doctors or hospitals.  There are proposals for price indexing to other countries drug prices.  And any recession will increase pressures on rationing by employers and insurance.   

We all need to think about reimbursement when thinking about new drug development.  
Infographic:  Cancer PART 2
Jessica:     We all take antibiotics ... for granted
Antibiotics are so boring. Old science, old technology…zzz. Are they though? They keep us healthy and free from death on a daily basis; that’s not boring. They play an integral part of the treatment regimen for any kind of surgery, immune-oncology therapy, or most any medical procedure you can think of…and they’re failing. Rapidly! The incidence of infections with antibiotic resistant microorganisms is rising with an estimated 2 million Americans each year contracting a resistant infection. The pipeline for new antibiotics is sparse, but not dead. In fact, new antibiotics are being developed and approved, albeit slowly.


Troubled antibiotic companies

What does it say when the sponsors, Achaogen and Tetraphase, for two of the most recently approved antibiotics in the US, are barely staying afloat?  Does it say that antibiotics are not profitable in today’s market? 

Here is a case study of what happened with Achaogen.  First the highlights:

  • Zemdri (plazomicin) was approved for difficult to treat Enterobacteriaceae associated with complicated urinary tract infections (cUTI)
            It was proven to be “non-inferior to meropenem” (meropenem approved for cUTI in 2017, peak sales nearly $900M)
  • Zemdri was not approved for use in bloodstream infections (BSI) with carbapenem-resistant Enterobacteriaceae (CRE) infections
           FDA cited a lack f evidence of safety and efficacy for that indication despite it’s having been granted the Limited Population Antibiotic Drug (LPAD) pathway through the 21st Century Cures Act

Zemdri was approved for the indication for which it was tested in clinical trials, with reasonable performance compared to a marketed drug.  It was not approved for the indication for which it was minimally tested.  With the rise of antimicrobial resistance (AMR), isn’t the approval of a new antibiotic for even one indication good for the market?  Hooray, a new antibiotic that can be prescribed and used to treat a disease for which resistance already exists.  The market should respond favorably.  Well, not exactly.  Because of resistance, physicians will want to preserve any new drugs for cases in which existing drugs are ineffective, to prevent the development of resistance to the new drugs.  Accordingly, a new drug will ideally sit on the shelf until absolutely necessary due to medical good stewardship.  In other words, to do otherwise and prescribe the new drug and increase the risk of the development of resistance would be clinically irresponsible.  Therefore, analysts and investors see that new antimicrobial drugs will have poor revenues – the market, as it exists today, will not reward the developers.  Less than a year after the FDA approval of Zemdri to treat cUTI, Achaogen filed bankruptcy.

Or does capitalism work…

But wait!  There is more to the story!  It turns out that this class of antibiotics, aminoglycosides, have well-documented toxicities.  Also, 2 other drugs with a better safety profile (beta-lactams) have been approved to treat carbapenem-resistant Enterobacteriaceae in the last decade (ok, but it’s not as if the market is flooded with new antibiotics, but I digress).  In fact, one of the two recently approved drugs for this indication is meropenem, the drug against which Zemdri was tested.  Also, the testing of Zemdri for CRE with the LPAD pathway was allowed, but it is not a guarantee or a requirement that the FDA approve the drug if they feel that there isn’t sufficient data to support an approval.  Therefore, this is a drug with limited application and likely low market penetration.  Is this a case study of a broken system that doesn’t accurately reflect the value of, nor promote the development of, new antibiotics?  Or is this an example of the market’s view of sub-stellar drug?  Yes!  But why, why is the market failing antibiotic innovation and profitability?

The System is Broken

The commoditization of antibiotics has rendered them an unattractive investment.  This is also evidenced by the shedding of antibiotic assets by the large pharmaceutical companies.  In the table of recently approved antibiotics (above) it is evident that the majority of antibiotic sponsors are small and mid-size companies.  Likewise deals in the space are showing an ominous trend this year:


Global Data Deal Search for “Bacterial Infectious Diseases” – June 23, 2019

(note this will also include deals for vaccines)

There are several “push” mechanisms in place in order to promote, encourage, and (in some cases) fund the R&D efforts for new antimicrobials.  This is helpful and should breathe some new life into the field.  The challenges that still exist, and can be addressed with “push” mechanisms include: 
The “push” mechanisms are designed to help push new drug candidates into the global pipeline.  In order to see these drugs come through the other side as commercially viable products “pull” mechanisms are also needed.  The “pull” mechanisms are not as abundant (ie in effect) as the “push” programs currently, though there are several proposals in various jurisdictions.  Generally, these equate to a market entry award which can help an antibiotic sponsor through those early years post market launch when the revenues won’t (shouldn’t?) ramp up as is customary with pharmaceuticals.
*Author’s recommendation/proposal

It is clear that the traditional pharmaceutical market dynamics no longer work where antibiotics are concerned.  "Push" mechanisms, directly supporting development (see left side of figure below) such as the LPAD pathway from the 21st Centuries Cures Act, which enables innovative clinical trial design, to help bring new antibiotics through clinical development. 

"Pull" mechanisms help after the drugs are on the market.  The GAIN program offers 5 years additional market exclusivity.    

However, in addition to “pull” mechanisms to help sponsors stay afloat, a new strategy for pricing and valuation of antibiotics is needed.  As proposed in the blog post from Davos below, antibiotics should be purchased and deployed as needed.  Pricing and valuation based on the acute need dosing (as it is currently) is not providing sufficient market incentive for this class of medicines. 

Push! Pull! Solutions for Antimicrobial Resistance from Davos Jan 2018

With all of the talk these days about the need for innovative pricing and reimbursement strategies for cell and gene-based medicines (and others), perhaps we need to think about new strategies for some of the oldest, most basic medicines too…

Trevor: It's a numbers game - deals by stage
Conversion rate in the deal process
    In some ways, the business development process is like that of the drug development process: there are “stages” through which deals advance (i.e. NDA, CDA, Term Sheet, MTA, definitive agreements, etc).  Each stage experiences attrition as both Licensors and Licensees weigh the relative merits of the partner, the plan and the molecule(s).  This is nothing new, of course, but it is helpful to keep the overall conversion rate in mind during the partnering process.  For example, in their annual Dealmaker’s Intentions 2016 report, inVentiv Health Consulting (now Syneos Health) shows a cumulative conversion rate of 5 percent.  From the out-licensor’s perspective then, this implies a need for twenty interested party interactions in order to get a deal.  Finding those twenty interested parties most often means reaching out to far more than that number in order to fill the funnel with potential partners. 


Variation by Stage

What’s not shown in the illustration above is the conversion rate by stage of development.  Phase I assets require even more effort during out-licensing campaigns as the general sentiment of in-licensors is to “wait-and-see” the results of Phase I studies.  A survey by Campbell Alliance (part of InVentiv Health) speaks to these preferences quite visibly.  Capturing the overall sentiment, Campbell Alliance concluded the
“survey was conducted to seek opinions on what stage of development was perceived as best for completing a licensing transaction.  The study found that over 70 percent of in-licensors agreed that the preferred time to license a technology is within Phase II.”

Numbers of 2018 deals and drugs by stage
Granted, of course, deals are not being sought for all the drugs at any stage.  However, looking at the number of deals done in 2018 versus the number of drugs in development by stage (GlobalData) suggests that Phase II provides the best odds of a deal.  Confidence in efficacy drives deals.  
www.Pullan Consulting.com

Pullan Consulting (www.PullanConsulting) provides advice and execution for biotech partnering and fund raising, with outreach to partners and investors, help with shaping of presentations, evaluations and market analysis, preliminary valuations and deal models, and negotiations from deal prep to term sheets to final agreements. 
We have extensive scientific and financial experience, with many deals signed. 

Send us an email or set up a call if you want to explore how Pullan Consulting might be of help!

Linda Pullan                     Linda@pullanconsulting.com 
Trevor Thompson             Trevor @pullanconsulting.com 
Jessica Carmen               Jessica@pullanconsulting.com 
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