This presentation was given at a recent OHE Lunchtime Seminar by Kevin Outterson of the Boston University school of Law and Chatham House. It addresses the increasingly critical issue of antimicrobial resistance and the need for new antibiotics. This presentation identifies practices and norms that seem to fight against new antibiotics and the appropriate use of both new and existing one, reviews collaborative international efforts to develop a series of "design questions" that must be answered if efforts are to be effective, and identifies several functional areas that must be part of any new approach. For other important OHE research and activities that address this topic, please see http://news.ohe.org/category/innovation/countering-amr/

1. New Business Model for Antibiotics
OHE Lunchtime Seminar • 23 April 2014 • London
Boston University School of Law
Chatham House
Kevin Outterson

2. Funding & Disclaimer
• RWJF Public Health Law Grant 2009-2011
• DHHS/FDA Incentives for the Development of New Drugs,
Vaccines, and Rapid Diagnostics for Bacterial Diseases, SP
11-003 (2011-present)
• Member, CDC Antimicrobial Resistance Working Group
(2011-present)
• Visiting Fellow, Royal Institute for International Affairs
(Chatham House) Antimicrobial Resistance Working Group
(2013-present)
But these comments today are my own, and do not
necessarily reflect the views of any funder or agency

3. Assumptions
• AMR is an urgent problem
• Antimicrobial susceptibility is a global
common pool resource with uncoordinated
withdrawals and insufficient additions
– Ecological & evolutionary models
• Necessary but insufficient responses:
– Reduce (inappropriate) utilization/demand; or
– Increase production/supply of new molecules
– Both are required, simultaneously
Kesselheim & Outterson, Improving Antibiotic Markets for Long Term Sustainability, Yale J Health Policy, Law & Ethics
2011; Health Affairs 2010; Outterson, Legal Ecology of Resistance, Cardozo L Rev 2010; Outterson, Chatham House
2014.

4. Existing Business
Model

5. Volume-based sales
• Many stakeholders across the supply chain have financial
incentives to increase volume, driving resistance
• Time-limited property rights (patents) may be particularly
inappropriate (tort of waste)
• Resistance is too slow (generics remain cheap & effective)
• Infection control & stewardship undermine demand
• NI trials and narrow definition of inventive step allow
market entry of numerous antibiotics with limited marginal
utility and modest safety data

6. Conventional wisdom:
Short course of treatment is why
companies can’t make money on
antibiotics

7. Short course of treatment is
NOT the problem

8. New antineoplastic & immunomodulating NME agents approved by
the FDA (1980-2009), marketed drugs & linear trend
Outterson, Powers, Seoane-Vazquez, Rodriguez-Monguio, Kesselheim. Approvals and
withdrawals of new antibiotics and other antiinfectives in the Unites States, 1980-
2009. Journal of Law, Medicine & Ethics 2013.

9. Quandaries
• Best clinical practices undercut the
market for new molecules

10. Date of download: 2/25/2014
Copyright © 2014 American Medical
Association. All rights reserved.
From: National Burden of Invasive Methicillin-Resistant Staphylococcus aureus Infections, United States, 2011
JAMA Intern Med. 2013;173(21):1970-1978. doi:10.1001/jamainternmed.2013.10423
National Estimated Incidence Rates of Invasive MRSA Infections, Stratified by Epidemiologic CategoryaData are
given for methicillin-resistant Staphylococcus aureus (MRSA) infections reported to the Emerging Infections
Program–Active Bacterial Core surveillance (United States, 2005-2011).aDefined as MSRA isolated from a
normally sterile source.
Figure Legend:

11. Quandaries
• Best clinical practices undercut the market for
new molecules
• Financial incentives across the supply chain
often are at odds with best clinical practices
• Companies have a lower eNPV for antibiotics,
generally underinvest in sector
– New antibiotics chase larger markets (UTIs, otitis
media, cSSSIs, now MRSA, broader spectrum),
neglecting highest risks (GN) and diagnostics

12. Private eNPV by Indication
• Private eNPV variable
across indications
• CUTI has the highest
private eNPV & HABP
the lowest
• Large variation in
private eNPV for all
indications
• Lower bound private
eNPV < $0 for all
except ABSSSI & CUTI
-$50.0 $0.0 $50.0 $100.0 $150.0 $200.0 $250.0
ABOM
ABSSSI
CABP
CIAI
CUTI
HABP
ABOM ABSSSI CABP CIAI CUTI HABP
PrivateENPV $60.8 $70.5 $48.6 $54.9 $146.6 $31.6
PrivateENPV (in $ million), by Indication
PrivateENPV
Note: Error bars represent 90% confidence bounds around the
mean value
Source: Preliminary data from ERG analysis for HHS (pending, 2014) 12

13. Further quandaries
• Companies can’t raise prices
• Companies can’t ethically boost volumes
• Powerful new antibiotics face tightly
regulated utilization (much slower
adoption, appropriately)
• Many antibiotics reaching the market are
underwhelming

14. Withdrawn NME antibiotics
1980-2009
• 26 out of 61 NMEs withdrawn (more than triple
the rate of all other NMEs)
• Few had priority review status (n=2)
• Few were ever commercially successful (n=3)
• Many were follow-on cephalosporins (n=10) and
fluoroquinolones (n=9)
• Six had safety-related withdrawals
Outterson, Powers, Seoane-Vazquez, Rodriguez-Monguio, Kesselheim. Approvals and
withdrawals of new antibiotics and other antiinfectives in the Unites States, 1980-
2009. Journal of Law, Medicine & Ethics 2013.

15. Outterson, Powers, Seoane-Vazquez, Rodriguez-Monguio, Kesselheim. Approvals and withdrawals of new
antibiotics and other antiinfectives in the Unites States, 1980-2009. Journal of Law, Medicine & Ethics 2013.

16. Further quandaries
• Companies can’t raise prices
• Companies can’t ethically boost volumes
• Powerful new antibiotics face tightly regulated
utilization (much slower adoption, appropriately)
• Many antibiotics reaching the market are
underwhelming
• Everyone is underinvesting in the sector,
including NIH

17. US NIH Research Spending on Antimicrobial Resistance Research
(FY 2010 – 2015, adjusted annually for US CPI, FY2010 base)
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 (est) FY 2015 (est)
ARRA
NIAID
Source: NIH Research Portfolio Online Reporting Tool, Estimates of Funding for Various Research, Condition, and
Disease Categories (RCDC) (March 7, 2014) http://report.nih.gov/categorical_spending.aspx. From Outterson et
al, Chatham House (pending 2014)

18. New Business Models

19. Legal tools
TYPE CONSERVATION PRODUCTION
Property Intellectual property (IP) used as
conservation tools to privately
constrain demand
Intellectual property (IP) used as
incentives to bring new antibiotics to
market
Regulation Public health infection control and
antibiotic stewardship programs
regulate demand for antibiotics
FDA regulations relaxed to speed
approval of new antibiotics. Tax
subsidies support R&D
Contract Prizes, grants, and value-based
reimbursement support antibiotic
conservation.
Prizes, grants, and value-based
reimbursement support new
antibiotic production.
Tort Patients sue for hospital-associated
infections, increasing institutional
incentives to promote safety through
antibiotic conservation
Federal law designed to preempt
state tort law, waiving drug company
tort liability for antibiotics
Source: Kesselheim and Outterson, 2010
Note: IP collectively refers to Patents, Data Exclusivity (DE), Marketing Exclusivity (ME), Patent Term
Adjustments (PTAs), Patent Term Extensions (PTEs), and Supplementary Protection Certificates (SPCs).
Even though these are treated in a similar fashion in the model, they vary in terms of purview, structure, and
expected impacts. 19

20. Process to date
• Chatham House Roundtable October 2013
– Explored 9 models
– Working Paper 1 published Jan. 2014, available
on Chatham House website

21. Delinkage models
• Prize Fund
• aHIF
• SAR
• Global Licenses
• RADARS
• GSK
• LPAD Plus
• CMS P4P
• Capitation
• AQC
Public Private
US
Global
Outterson et al. Chatham House WP 1 (Jan. 2014)

22. Process to date
• Chatham House Roundtable October 2013
– Explored 9 models
– Working Paper 1 published Jan. 2014, available
on Chatham House website
• Expanded WG Summer 2014
– Moved to functional analysis
– Report due October 2014 for IMI kickoff

23. Key delinkage elements
• Delink revenues from sales volume;
• Increase total incentives for antibiotics;
• Permit long-term coordination by
stakeholders; and
• Preserve access without regard to ability
to pay.
Kesselheim AS Outterson K. Health Affairs 2010; Yale J. Health Policy, Law & Ethics
2011; Chatham House 10.2.13

24. Design parameters
• Simultaneously solve for both production
and conservation
• Begin with inpatient & OPAT antibiotics
• The ecology of resistance is a complex
system – the solutions might also require
complex, integrative designs
• Common pool resource coordination issues

25. Design questions 1
• Who has the best information?
• Who is best positioned to change behavior?
• Who do we need to incentivize?
• What data do we want to collect?
• How do we measure success?

26. Design questions 2
• Are returns to antibiotic R&D declining? (if
so, conservation is more valuable)
• Will cross-resistance undermine company-
based conservation? (if so, less voluntary)

27. Design questions 3
• Funding/OECD rbx
• Setting & measuring realistic global
conservation targets
– Industry capture
– Info on health impact & efficacy

28. Design questions 4
• Price/access for LMI patients
• IP ownership & coordination

29. Functional elements
• Structuring the reward
• Geographic scope
• Product scope
• Financing
• IP ownership
• Control over marketing & utilization
Source: Chatham House Inception Report (pending, 2014)

30. Functional elements
Some personal, tentative observations
Source: Chatham House Inception Report (pending, 2014)

31. Functional elements
1) Structuring the reward
2) Geographic scope
3) Product scope
4) Financing
5) IP ownership
6) Control over marketing & utilization
Source: Chatham House Inception Report (pending, 2014)

32. Reward
• Social value greatly exceeds private value
• 5% global boost = US$ 1.5b/year
• Paid over 10 years
• 5 high-quality molecules over a decade =
US$300mm/molecule/year

33. Functional elements
1) Structuring the reward
2) Geographic scope
3) Product scope
4) Financing
5) IP ownership
6) Control over marketing & utilization
Source: Chatham House Inception Report (pending, 2014)

34. Product scope
• All antibiotics, or just higher quality
antibiotics?
• History of poor NME quality in
antibiotics
• Recent experience with GAIN Act
• Match the incentive to the problem

35. Functional elements
1) Structuring the reward
2) Geographic scope
3) Product scope
4) Financing
5) IP ownership
6) Control over marketing & utilization
Source: Chatham House Inception Report (pending, 2014)

36. Financing
• Pre-clinical PPP model
• Clinical regulatory cost reduction & orphan
drug model
• Post-authorization delinkage (rbx system)
Source: Chatham House Inception Report (pending, 2014)

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