The Economics of Resistant Pathogens and Antibiotic Innovation | Page 3
Published Online: April 23, 2014
Michael R. McKellar, BA; Michael E. Chernew, PhD; and A. Mark Fendrick, MD
Stymied Growth in New Approvals Paradoxically, at the same time that the cost and health impact of resistance is rising, the approval of new antibiotics has decreased precipitously over the past 30 years. While the scientific difficulty in developing new antibiotics may be increasing as microbes become resistant to an ever-increasing array of treatments, the most commonly cited explanation of the decrease in approval is that the market lacks sufficient economic incentives.24
As of 2013, several major pharmaceutical companies have either discontinued or considerably scaled back their antibiotic practices. And among the drugs that are in the pipeline, very few seem likely to target resistant pathogens specifically.25-28 From 1983 to 1987, 16 new antibiotic agents entered the market versus 2 that came to market from 2008 to 2012.29 The reduction in financial incentives to innovate stems in part from stewardship efforts to reduce utilization of novel antibiotics.
As a result, new drugs must compete for a relatively small slice of the total antibiotic market. In addition, antibiotics may face a shorter market life span due to resistance rendering the drug less effective over time. Since the current market is dominated by generics that are currently effective at treating many pathogens, a manufacturer must also consider that there is substantial competitive price pressure for any new entrant. The relatively short prescription length of 4 to 6 days also poses a problem, as patients (and payers) may balk at the relatively high price of a single antibiotic dose compared with the price of a single dose of a medication that is taken daily.
Policies aimed at addressing the gap in innovation for “orphan” disorders over the last 30 years provide a useful comparison to the current antibiotic situation. Drugs that treat rare orphan disorders, such as enzyme replacement therapy for Gaucher’s disease, face a substantial quantity restraint. Prior to the 1980s, drug manufacturers saw orphan disorders as offering a comparatively low potential return on investment when the alternative was investing in a drug with a larger user population. Acknowledging the gap in innovation for orphan disorders, the United States passed the Orphan Drug Act of 1983, which conferred several benefits on manufacturers conducting research in qualified diseases, including tax advantages and enhanced patent protection.
Changing the incentives for innovation. Incentives to innovate depend on profit relative to R&D cost; several policy options should be considered to ensure access to effective antibiotic therapies.
Research Subsidies One approach would be to subsidize R&D for antibiotic innovation. There are several drawbacks to this strategy, most notably that research subsidies are difficult to target. Simple costbased subsidies (eg, paying a set percentage of R&D cost) would encourage inefficiency in research, just as cost-based reimbursement in healthcare encouraged inefficiencies in care delivery.
Subsidies would need to be targeted toward the most promising areas, yet such targeting is difficult given the uncertainty of R&D. Despite these concerns, many policies have been aimed at reducing the costs associated with drug discovery by trying to expedite the regulatory approval process, and will likely encourage more focus on this area. Whether these current incentives are enough to stimulate innovation is yet to be seen.
Extended Market Exclusivity An alternative approach is to encourage innovation by offering extended market exclusivity, thus allowing manufacturers to maintain high prices for a longer period. The GAIN Act, for instance, extends the market exclusivity period from 5 years to 10 years for certain antibiotics.21 However, the extension of exclusivity may not be enough to overcome the downward pressure on utilization and prices, especially if the effective life span of new antibiotics is shortened by the development of resistant pathogens.
Increase Reimbursement Given the concern over resistance, expanding the market by increasing utilization (above the societal best level) is not an appropriate strategy to improve innovation incentives. In fact, because of the relatively small pipeline of antibiotics and the increase in resistant pathogens, there is great concern that new drugs will not keep up with developing pathogens. If this turns out to be the case, it will put even more burden on policy makers and practitioners to reduce utilization of newer antibiotics. Under the assumption that policies will continue to put downward pressure on the utilization of novel antibiotics, the only remaining mechanism to incentivize innovation is to increase price. Smaller markets of higher-priced drugs have been successful in certain specialty medication areas, such a smaller markets. The added expense would be incurred on a small number of patients and thus may not add significantly to the overall premiums.
Moreover, given the cost-effectiveness of these agents when used appropriately—even when priced very high—a strategy of limited use at a higher price would increase the value generated by the healthcare system. There are already a few examples of policies aimed at increasing the reimbursement for new antibiotics. In the United States, the New Technology Add-on Payment (NTAP) program introduced in 2001 provides a mechanism for new medical developments to be paid separately to inpatient diagnosis-related groups (DRGs).30 Since DRGs bundle payments for an admission into 1 prospective payment, the introduction of new (and expensive) technologies is discouraged, even if the services provide substantial value.
Carving out an additional payment reduces a hospital’s incentive to minimize costs associated with new technologies thereby reducing the price pressure on manufacturers of the technology.
In 2012, Optimer Pharmaceuticals Inc obtained approval for one of its antibiotics (Dificid) to be covered under NTAP. The designation was renewed in 2013. Together, these actions suggest that other antibiotic manufacturers may be able to receive the same add-on payment. Other federal programs could work in a similar way. For example, new antibiotics could be excluded from 340B pricing. The 340B Drug Discount Program requires drug manufacturers to provide outpatient drugs to certain health facilities, such as critical access hospitals, at significantly reduced prices. Excluding novel antibiotics from this requirement would decrease the price pressure on manufacturers and create more economic incentive for potential developers that hope to see a
promising return on investment.
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