Bankruptcies in the Antibiotics Market: An Impending Crisis

Without antibiotics, many everyday medical procedures would become deadly. Antibiotics treat bacterial infections that can arise from a range of causes including surgery, chronic conditions that weaken the immune system, dialysis, and cancer care.[1] However, the ability of the bacteria to adapt and become resistant to certain drugs that previously killed them, called antibiotic resistance, makes them unlike any other illness. Each year in the United States, almost 3 million people contract an antibiotic resistant infection, and around 35,000 people die as a result.[2] These numbers have been increasing because of both the limited number of new antibiotics available and the over-prescription and inappropriate use of antibiotics. The CDC estimates that close to 30 percent of antibiotic prescriptions are unnecessary.[3] An abundant line of products is needed to counteract the threat of an “antibiotic crisis,” however, with multiple recent bankruptcies in the antibiotic market, that is not likely. Venture capitalists have historically funded antibiotic research and development, but have now started to pull out of antibiotic involvements and are wary of investing in any future ones because of the poor business success rate. The root cause of the problem lies in systemic flaws of the hospital payment system for antibiotics and the biological uniqueness of antibiotics themselves. The development costs for antibiotics are no greater than those for other therapeutic drugs, however the potential for return on investment is diminishing.

Recently, startups and Big Pharma alike have felt the disastrous effects of the flawed system. Many of the antibiotics that are in use today came from small, startup companies that were then acquired by Big Pharma in order to fund clinical trials and market drugs. Antibiotic startups Achaogen and Aradigm both filed for bankruptcy in early 2019 and larger pharmaceutical manufacturers Novartis and Allergan recently shut down their respective antibiotic development departments.[4] Most recently to follow in the bankruptcy trend was Melinta Therapeutics, which was once one of the largest U.S. developers of antibiotics, but filed for bankruptcy in January 2020.[5] It’s anticipated that the remaining antibiotic developers have limited cash on hand, maybe each less than one year’s worth.[6]

Companies, funded by venture capitalists, usually spent millions of dollars each year to develop antibiotics. Recently though, the misaligned financial incentives within hospital payment systems, which halt the ability of these companies to recoup those production costs, have led to financial defeat. New antibiotics sell poorly because doctors often hold them in reserve until they’re absolutely necessary, worrying about drug resistance, but hurting manufacturers. Within hospital payment systems, doctors are incentivized to prescribe older, cheaper antibiotics to patients, even when they may not be as effective against antibiotic-resistant infections.[7] New drugs never even have the chance to reach patients, further limiting drug makers from recouping investment costs. In attempts to save money and limit the potential for antibiotic resistance, hospitals would rather prescribe age-old penicillin over a brand new $1,000 antibiotic. It is a problem unique to the antibiotic market, evidenced by a comparison to the lucrative cancer therapy market: it is relatively non-controversial to spend $500,000 on a brand new cancer therapy that may potentially prolong life for a few months, but it seems shocking to spend $1,000 on a 7-day treatment of a life-saving antibiotic.[8]

In addition to the flaws within the payment system and the difficulties monetizing the effectiveness of antibiotics, there are unique problems with the nature of antibiotics themselves. Unlike medications for chronic diseases that are taken long-term, antibiotics are only prescribed for a matter of days— usually a 7 or 10-day prescription. This not only limits the amount of revenue for production companies, but if patients fail to complete their already-short treatment, it also contributes to the possibility of a bacteria developing antibiotic resistance. In addition, with the constant talk of a “super bug” outbreak, doctors are increasingly reluctant to prescribe new antibiotics. This issue is unique to the antibiotics industry because the drugs have the ability to evolve; they can cause potential negative impacts in the future even though they were once effective in the past. Furthermore, it is quite difficult for scientists to create new and effective antibiotic compounds. There have only been two new classes of antibiotics in the last twenty years, as most of the “new” antibiotics on the market are variations of existing ones.[9] The combination of these systemic and biological problems in the antibiotics market has caused a steep decline in the survival rate of antibiotic companies— in 1980, there were 18 companies developing antibiotics and today there are only two.[10] Health care venture capitalists theorize that if the issue isn’t addressed, the remaining manufacturers will go broke and investors won’t have any incentives to return to the antibiotics market for another decade or two.[11] By that point, it may be too late.

Looking ahead, long-term solutions to reduce the number of deaths due to antibiotic resistance will require increased antibiotic stewardship among prescribers and reforms to address the root problems in the payment system. Regarding antibiotic stewardship, physicians should always prescribe antibiotics with the primary goal of enhancing patient health, as well as stemming overuse and limiting antibiotic resistance.[12] Prescribers should also consider the use of alternative treatment options that can be as effective as antibiotics, but do not harm the “good bacteria” in the human body.[13] In order to address the misaligned financial incentives, there have been a handful of proposed solutions. Reforms like the Combating Antibiotic Resistant Bacteria Biopharmaceutical Accelerator (CARB-X) use “push” incentives to support antibiotic research and development. CARB-X provides funding for research and business mentoring services through public-private partnerships.[14] In the case of antibiotic startup Achaogen, however, the additional funding from CARB-X was still not enough to remain profitable.[15] Other possible solutions include “pull” incentives that encourage market entry and reward research after the fact, rather than paying the costs up-front. The Generating Antibiotic Incentives Now (GAIN) Act was passed in 2012 to encourage market entry with marketing exclusivity and fast-track drug designation, but didn’t fix much. In Congress, the bicameral and bipartisan legislation called the Developing an Innovative Strategy for Antimicrobial Resistant Microorganisms (DISARM) Act seeks to remove disincentives for prescribing new, more effective antibiotics by removing antibiotics from bundled payment systems in hospitals. The DISARM Act, introduced in both chambers in 2019, would reimburse hospitals for prescribing new antibiotics. Unfortunately, progress on the bill is hindered by congressional unwillingness to touch legislation that benefits drug manufacturers in this time of the ongoing politically sensitive drug-pricing debates. That being said, most, if not all, solutions to the flaws in the antibiotic market will ultimately benefit pharmaceutical manufacturers in the short-run. It is still necessary to understand that the number of antibiotic resistant infections is increasing, and the incentives for developing new antibiotics are decreasing. Addressing the problem sooner, rather than later, is in the best interest of the nation’s long-run health and economic outcomes.

[1] https://www.cdc.gov/drugresistance/pdf/threats-report/Threat-Modern-Medicine-508.pdf

[2] https://www.cdc.gov/drugresistance/about.html

[3] https://www.cdc.gov/media/releases/2016/p0503-unnecessary-prescriptions.html

[4] https://www.businessinsider.com/major-pharmaceutical-companies-dropping-antibiotic-projects-superbugs-2018-7

[5] https://www.nytimes.com/2019/12/25/health/antibiotics-new-resistance.html

[6] https://thehill.com/opinion/healthcare/478488-reframing-the-antimicrobial-resistance-crisis

[7] https://www.nytimes.com/2019/12/25/health/antibiotics-new-resistance.html

[8] https://thehill.com/opinion/healthcare/478488-reframing-the-antimicrobial-resistance-crisis

[9] https://www.nytimes.com/2019/12/25/health/antibiotics-new-resistance.html

[10] Id.

[11] Id.

[12] https://www.cdc.gov/drugresistance/pdf/threats-report/2019-ar-threats-report-508.pdf