Background and Challenge
For the past few decades, antimicrobial resistance has been accelerating, creating a serious public health problem worldwide. The Center for Disease Control and Prevention (CDC) estimates that each year, more than two million people acquire serious infections with bacteria that are resistant to at least one antibiotic, resulting in 23,000 or more patients dying from these infections in the U.S. alone. Despite the significant unmet need, approvals of new antibiotics have been waning because few companies have been actively developing new antibiotics (ABX). Consequently, we are seeing limited investments in ABX, which can be attributed to several barriers that have led to low returns.
While most market participants recognized the public health threat posed by growing resistance, multiple perspectives about which barriers were most critical and what measures would best address them created much uncertainty. Not surprisingly, both government and many of the leading players in the market were unsure where to invest.
In the face of this uncertainty, one of the leading players in the market enlisted L.E.K. to analyze the myriad barriers, identify which were the biggest impediments to achieving an acceptable ROI, and develop a practical, integrated strategy to address these barriers and more appropriately reward investment and innovation within ABX.
Approach and Recommendations
To develop a winning strategy, we conducted rigorous quantitative analysis and leveraged both our network of key opinion leaders (KOLs) within infectious disease and in other therapeutic areas that have faced similar challenges, such as founders and leaders of top 10 biotechnology companies. During this process, we uncovered critical connections between several key barriers contributing to low returns that had not been linked before. The most important inter-related barriers were depressed pricing, empiric treatment that restricted novel ABX to a last resort, and a challenging development and regulatory process. We then modelled the net present value (NPV) impact of several options, such as value pricing, extending exclusivity periods, and even de-linkage schemes, such as advanced market commitments that seemed to be gaining favor. This analysis helped us determine that the most significant value drivers were pricing and appropriate utilization, and that our client should focus their strategies in these two areas.
Next we collaborated with our client to devise a three-pronged approach to help improve the pricing and utilization dynamics within ABX:
- Change the pricing paradigm, which currently prevents ABX manufacturers from capturing value on par with other areas of high unmet need, by removing some of the barriers related to DRG-based reimbursement.
- Focus on targeted patient populations with high unmet need, which would help justify premium pricing, while also slowing resistance and promoting greater stewardship.
- Cultivate a multi-stakeholder consortium aimed at accelerating rapid diagnostic tools development, which would help target more specific populations, increase access to the right therapy for the right patient, and may help reset the pricing paradigm.
Alongside this strategy, we created an evidence-based report to help educate and drive consensus around key themes and dynamics, both within the client organization and among the broader group of key stakeholders, including other biopharma players, infectious disease KOLs, diagnostics manufacturers, public and private payers, and even members of government.
This project helped re-focus our client’s overarching strategy within infectious disease and provided a concrete set of objectives for them to help transform the market paradigm. As a result of our work, our client rapidly assembled several cross-functional teams and prioritized investment dollars to support each recommended initiative. Within 12 months, they are already reaping several benefits from our work, including:
- Valuable partnerships: Our client was able to sign several valuable public-private and private-private partnerships that are accelerating the development of some of the most promising point-of-care diagnostics, a critical enabler in both changing the economic paradigm and improving patient outcomes.
- Practical solutions: Recognizing practical solutions to the issues that limit ROI has coincided with renewed investment and activity in the ABX space. This includes the re-entry of several large pharma players and significant M&A activity, including Merck’s recent acquisition of Cubist for $9.5 billion and Actavis’ $25 billion merger with Forest Laboratories. (Note: Total Merck/Cubist deal value includes $1.1 billion of debt that Merck has assumed.)
- Awareness and alignment: After sharing our report with several governmental bodies to help frame the issues and propose a potential course of action, there appear to be signs of greater awareness and alignment among key stakeholders. Most notably, within 12 months of the project, the White House issued a request for guidelines promoting the development of ABX and called for funding to help advance the development of rapid diagnostics. Similarly, the U.K. issued a £10 million prize for ABX diagnostics innovation and is considering opportunities to ease regulatory and pricing constraints.