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Chris Hoyle
Superbugs & Superdrugs – A Focus on Antibacterials
London • 5-6 March 2014
Economic Incentives for New Antibio...
Economic Incentives for Antibiotics 2
Overview
• Product & goals of a new business model
• Economic model – EU5 (25% globa...
Economic Incentives for Antibiotics 3
Disclaimers
None of the financial figures shown in this presentation
represent a spe...
Economic Incentives for Antibiotics 4
Target Product Profile
• Antibiotic for use in secondary care
• To treat antibiotic ...
Economic Incentives for Antibiotics 5
Goals of a New Commercial
Model
• Lifetime revenue should reflect value to society –...
Economic Incentives for Antibiotics 6
Goals - General
Incentives should also:
• Improve efficiency
• Regulatory
• Stewards...
Economic Incentives for Antibiotics 7
Commercial Model - Framework
R&D, licensing
Market
Exclusivity
Generic
competition
M...
Economic Incentives for Antibiotics 8
R&D & Registration
Out of pocket
($ m)
Probability of
progression
Duration (yrs)
Cap...
Economic Incentives for Antibiotics 9
Incentives for R&D, Registration
Objectives:
Out of pocket
($ m)
Probability of
prog...
Economic Incentives for Antibiotics 10
Post-MA Revenue & Costs
• Lifetime revenue – EU5 (25% global market, 25% global
cos...
Economic Incentives for Antibiotics 11
Problem: Uncertainty ⇒ High
Risk for Payer & Investor
HAIs
Share for antibiotic-res...
Economic Incentives for Antibiotics 12
Variation in Antibiotic
Resistance Across Europe
Problem – High risk for payer & in...
Economic Incentives for Antibiotics 13
Variation in Antibiotic
Resistance Across Europe
Problem – High risk for payer & in...
Economic Incentives for Antibiotics 14
What Incentives Have Worked
Previously?
• Public-private partnerships
• Bill & Meli...
Economic Incentives for Antibiotics 15
Estimated NPV – Metric for
Investment
R&D, licensing
Market
Exclusivity
Generic
com...
Economic Incentives for Antibiotics 16
Recap: Components for
Economic Model
• Market & target product profile
• Model stru...
Economic Incentives for Antibiotics 17
Modelling at OHE
• Product: Secondary care for treating infections caused by
specif...
Economic Incentives for Antibiotics 18
Cost of New Antibiotic –
Baseline Case
• Single pathogen, two indications
• Four ph...
Economic Incentives for Antibiotics 19
Incentives for Antibiotics?
• Public-private partnerships
• IMI – Europe – COMBACTE...
Economic Incentives for Antibiotics 20
Effect of Uncertainty on Price
• Growth in HAIs over 20 years
• No growth: $600 per...
Economic Incentives for Antibiotics 21
Effect of Uncertainty on Price
• Growth in HAIs over 20 years
• No growth: $600 per...
Economic Incentives for Antibiotics 22
Problems with Price-only Model
• High uncertainty in growth of market &
impact of c...
Economic Incentives for Antibiotics 23
Assessment of Value
• Treatment of infection
• 5-7% of patients in hospitals across...
Economic Incentives for Antibiotics 24
Alternative Strategy:
Advanced Market Commitment
• Re-balance differences across:
•...
Economic Incentives for Antibiotics 25
AMC - Challenges
• Value to society?
• Treat infection, prophylaxis, availability &...
Economic Incentives for Antibiotics 26
Agreement & Duration of AMC
R&D, licensing
Market
Exclusivity
Generic
competition
M...
Economic Incentives for Antibiotics 27
Two Financial Components of
OHE Model
• Annual fee over 10 yrs
• Agreed in advance
...
Economic Incentives for Antibiotics 28
Effect of Uncertainty on AMC
- Price
• Growth in HAIs over 20 years
• No growth - $...
Economic Incentives for Antibiotics 29
Effect of Uncertainty on AMC
- Price
• Growth in HAIs over 20 years
• No growth - $...
Economic Incentives for Antibiotics 30
AMC – Advantages
• Dampens financial effect of regional &
national variations in re...
Economic Incentives for Antibiotics 31
Conclusions
• Incentives for R&D & extension of
exclusivity highly likely to be ins...
Economic Incentives for Antibiotics 32
To enquire about additional information and analyses, please contact Dr. Jorge Mest...
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Economic Incentives for New Antibiotics: What's Required?

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A new model aimed at encouraging the development of new antibiotics was presented recently by OHE’s Chris Hoyle, who collaborated with Adrian Towse and Jorge Mestre-Ferrandiz in designing the model.

Antimicrobial resistance to existing antibiotics is an increasingly serious global health issue that extends to a number of diseases. Earlier OHE research defined the parameters of policy options, which must achieve two objectives: (1) encourage the development of new antibiotics to treat resistant microbes and (2) discourage the overuse that produces resistance.

Chris’s presentation summarises the OHE model, which takes into account the value to society of new antibiotics as well as the risks and rewards for payers and the entities developing the new drugs. It concludes that traditional incentives for R&D/market exclusivity are likely to be insufficient to spur development, and that uncertainty and risk are too great for price alone to provide sufficient incentive. The most effective solution couples an advance market commitment, at national or supranational level, with careful local pricing.

OHE’s previous work on this issue has included thorough analyses of the policy issues worldwide as well as policy options specifically for use in discussion in the EU. For information about this research, please click on the "countering AMR" category on our blog at news.ohe.org.

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Transcript of "Economic Incentives for New Antibiotics: What's Required?"

  1. 1. Chris Hoyle Superbugs & Superdrugs – A Focus on Antibacterials London • 5-6 March 2014 Economic Incentives for New Antibiotics
  2. 2. 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
  3. 3. Economic Incentives for Antibiotics 3 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.
  4. 4. Economic Incentives for Antibiotics 4 Target Product Profile • Antibiotic for use in secondary care • To treat antibiotic resistant pathogens • For a limited number of patients with an infection
  5. 5. Economic Incentives for Antibiotics 5 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
  6. 6. Economic Incentives for Antibiotics 6 Goals - General Incentives should also: • Improve efficiency • Regulatory • Stewardship • Reduce risk • Payer • Investor
  7. 7. Economic Incentives for Antibiotics 7 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
  8. 8. Economic Incentives for Antibiotics 8 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) ($848)(Figures in parentheses represent data for probability of success.) Probability of success is defined as likelihood that clinical study will meet the primary endpoint.
  9. 9. Economic Incentives for Antibiotics 9 Incentives for R&D, Registration Objectives: Out of pocket ($ 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
  10. 10. Economic Incentives for Antibiotics 10 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
  11. 11. Economic Incentives for Antibiotics 11 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
  12. 12. Economic Incentives for Antibiotics 12 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.
  13. 13. Economic Incentives for Antibiotics 13 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
  14. 14. Economic Incentives for Antibiotics 14 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
  15. 15. Economic Incentives for Antibiotics 15 Estimated NPV – Metric for Investment R&D, licensing Market Exclusivity Generic competition Viable eNPV: >$100 million (global)
  16. 16. Economic Incentives for Antibiotics 16 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
  17. 17. Economic Incentives for Antibiotics 17 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
  18. 18. Economic Incentives for Antibiotics 18 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
  19. 19. Economic Incentives for Antibiotics 19 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
  20. 20. Economic Incentives for Antibiotics 20 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!
  21. 21. Economic Incentives for Antibiotics 21 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! But effect is multiplicative…… Range is $203 - $1,156
  22. 22. Economic Incentives for Antibiotics 22 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
  23. 23. Economic Incentives for Antibiotics 23 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
  24. 24. Economic Incentives for Antibiotics 24 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
  25. 25. Economic Incentives for Antibiotics 25 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)
  26. 26. Economic Incentives for Antibiotics 26 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
  27. 27. Economic Incentives for Antibiotics 27 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
  28. 28. Economic Incentives for Antibiotics 28 Effect of Uncertainty on AMC - Price • Growth in HAIs over 20 years • No growth - $29m/year at $120/day • 5% annual growth - $28m/year at $120/day • Variation in prevalence • High prevalence - $27m/year at $120/day – E. coli resistance to 3rd generation cephalosporins • Low prevalence - $31m/year at $120/day – (quarter of high)
  29. 29. Economic Incentives for Antibiotics 29 Effect of Uncertainty on AMC - Price • Growth in HAIs over 20 years • No growth - $29m/year at $120/day • 5% annual growth - $28m/year at $120/day • Variation in prevalence • 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
  30. 30. Economic Incentives for Antibiotics 30 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
  31. 31. Economic Incentives for Antibiotics 31 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?
  32. 32. Economic Incentives for Antibiotics 32 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

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