Next Generation Antibiotics: Failed business model or Value opportunity?

[DocSnowball]

Drug resistant bacteria are rising rapidly, and are projected by World Health Organization to be among the top causes of death by 2050, increasing from 700,000 currently to over 10 million annually and exceeding cancer deaths https://amr-review.org/sites/default/files/160525_Final%20paper_with%20cover.pdf. For antibiotics, the commercial return on R&D investment has historically looked unattractive until widespread resistance has emerged against previous generations of drugs, by which time the new antibiotic may no longer have patent protection or may soon lose it. After they hit the market, newer antibiotics are considered precious resources whose use is restricted by hospital-wide antimicrobial stewardship programs to limit both hospital stay costs and drug resistance.

 

The total market for antibiotics is relatively large: about 40 billion US$ of sales a year, but with only about 4.7 billion USD of this total from sales of patented antibiotics (that is about the same as yearly sales for one top-selling cancer drug). Given all of the above reasons, it is no wonder that big pharma has not been spending much into R&D to create next generation antibiotics, leaving it to small biotechs which they may end up acquiring after they are derisked. One player, Allergan, recently decided to sell its Anti infectives unit and get out of the business altogether.

 

On the other hand, resistance rates in the US are still much lower than EU and rest of the world, giving the total market plenty of room to grow and it is increasing at a compounded 20% rate yoy, and there is ongoing lobbying to change the payment models that could serve as tailwinds. The GAIN act now in place extends patent protection by an additional 5 years for newer “QIDP” designated antibiotics by the FDA . Newer business models are being proposed, including funding for companies brining new drugs to market either by a licensing based SaaS like business model https://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm610503.htm or  a transferable voucher to extend patent protection for one additional year http://www.cidrap.umn.edu/news-perspective/2018/06/bipartisan-bill-proposes-new-pull-incentives-priority-antibiotics . The probabilities of if and when any of these changes happen is not clear to me; if the latter happens it will be the equivalent of adding at least 500 million in market cap. 

 

Achaogen (AKAO) and Paratek (PRTK) are two exciting companies in this unloved sector filling unmet needs, have QIDP designated products in areas where generics do not work well or have significant toxicity, and save system costs by having a once a day FDA approved intravenous drug active against the most resistant bacteria on Earth (Achaogen) or an intravenous and oral formulation of a next gen antibiotic for pneumonia (Paratek) that can facilitate “go home (earlier)’ and “stay home” strategies reducing hospitalization costs. 

 

It is very challenging to value these early stage biotechs. At this point, fwiw, they are trading at 52 week lows and >10% below DCF intrinsic valuation even with inputs of 14-15% discount rates, and 20% likelihood of failure. Part of the reason is high costs of capital being cash flow negative at this stage of their life cycle, high operational costs for a small company to set up a sales force to market just one drug if no buyout, lack of recent big Pharma purchases, history of serial dilutions to raise capital, and high short interest. Baupost is a long term investor in Paratek, now at >50% decline from their purchase price.

 

After studying the area and companies for the last two years, seeing their market caps go up 1000% in 2016-2017 then down 70% in 2018, I'm scratching my head how this story unfolds. It seems valuations may be reaching margin of safety zones with the companies executing and getting the drugs FDA approved, but the business model remains broken keeping investors away.

[Jurgis]

This might not be a bad area to invest socially - unless you expect them to do Shkreli on the patients.

Financially though, biotechs are IMO tough. You really need to know what are the chances of the drug approval, the market of the drugs, the chances of takeover, etc. Might be best to hold a basket of small positions - which is what Baupost does even though they claim to have a coterie of experts in predicting things above.

Still tough to know when to hold, when to sell. E.g. you sell on X runup and then it runs up another 5X or whatever. Or you don't sell and it crashes back 70% or something.

 

My results with biotechs and even big pharmas are bad. I probably should not invest in the area. Currently I'm still holding some GILD and a tiny bit of something that's likely gonna go to 0.  8)

 

Edit: I should add that I'm not a medical/pharma/biotech expert or even knowledgeable at all.  8)

 

Good luck

[DocSnowball]

This might not be a bad area to invest socially - unless you expect them to do Shkreli on the patients.

Financially though, biotechs are IMO tough. You really need to know what are the chances of the drug approval, the market of the drugs, the chances of takeover, etc. Might be best to hold a basket of small positions - which is what Baupost does even though they claim to have a coterie of experts in predicting things above.

Still tough to know when to hold, when to sell. E.g. you sell on X runup and then it runs up another 5X or whatever. Or you don't sell and it crashes back 70% or something.

 

My results with biotechs and even big pharmas are bad. I probably should not invest in the area. Currently I'm still holding some GILD and a tiny bit of something that's likely gonna go to 0.  8)

 

Edit: I should add that I'm not a medical/pharma/biotech expert or even knowledgeable at all.  8)

 

Good luck

 

I missed GILD back in 2012-13 when I was indexing, not sure what will happen to it in the future, could go either way.

 

Yes it is a great area to invest socially because it will save lives. That may not be enough for it to be a good investment or to discuss on this board. Personally, this is my area of specialization and studying it during my MBA and Valuation class has taught me a lot, alongwith a 50% plus return averaged over the 3 years of active investing (including the negative return in the last 12 months). Without having a corporate role, it is the next best thing to understanding the industry from a bigger picture level. It can also lead to tremendous confirmation bias though.

 

What does make the sector interesting from a value standpoint, as evidenced by wide price changes and drops while the companies continue to execute, is that

1) it is not an efficient market if the price has varied from 2.70 to 27 to 7.61 in one case or from 11 to 29 to 10.35 in the other example. We are all looking for areas where Mr Market has large mood swings, although the question here is what is your edge to parse through the situation. This is why Kalrman at Baupost or David Swenson at Yale have dedicated teams in the biotech field, and look at multiple shots at goal as the formula for success to decrease failure risk.  The edge could be analytical or some sense of intrinsic valuation or simply long time horizon.

2) either changes in business model, or a buyout or even consolidation among the little players to reduce the operational costs, will further increase intrinsic value and

3) current valuations have some pessimism baked in due to the perception that these companies will remain cash flow negative for a while even after bringing the drugs to market

4) they are poorly correlated with the broader indexes which is helpful given where we are in the cycle

[Jurgis]

4) they are poorly correlated with the broader indexes which is helpful given where we are in the cycle

 

I cannot comment much about the other things you wrote.

 

Regarding this, my experience has been mixed. On one hand, you are right, companies like that don't necessarily drop when market drops. Their holders are likely holding them because of reasons that are not affected by recession, crisis or just market drop. On the other hand, if you have a prolonged or severe slump like GFC (though possibly less severe), at some point stocks like that crash too. Their holders start seeing other cheap opportunities with lower risk or start hoarding cash and they crash too, possibly even to ridiculous valuations (below net cash, etc.). Just FYI.  8)

[DocSnowball]

One more bites the dust...Novartis joins the Big Pharma exodus out of antibiotics, dumping research, cutting 140 and out-licensing programs

 

https://endpts.com/novartis-joins-the-big-pharma-exodus-out-of-antibiotics-dumping-research-cutting-140-and-out-licensing-programs/

[DocSnowball]

https://www.bloomberg.com/news/articles/2018-07-13/superbugs-win-another-round-as-big-pharma-leaves-antibiotics

[Cigarbutt]

DocSnowball,

-Do you feel comfortable with these biotech holdings constituting a large part of your portfolio?

-Are you considering other related or unrelated fields?

 

-It seems that no major new class of antibiotics has been developed since the 1980's

-New drugs seem to be effective for some time due to a different resistance profile only

 

Because of the above, for an industry perspective, I see the evolution of R+D giving rise to the possibility of diminishing returns on investments. IMO, the more difficult regulatory environment is used somewhat as an excuse to justify the exit of large firms that you describe.

 

Microbial resistance will get more complicated and hopefully the industry can connect with basic science in academia to look at alternative scenarios. But, during the transition, many alternatives may represent substitutes to what "traditional" small biotechs may eventually offer (keeping in mind the two examples mentioned).

 

https://www.nejm.org/doi/pdf/10.1056/NEJMp1215093

 

Amazing but progress in the antibiotics area is relatively recent. In 1924, President Coolidge's son died as a result of of a simple skin blister that became secondarily infected. Some pessimists mention that drug resistance may give rise to similar scenarios in the near future. Hopefully, multi-resistance will be dealt with and I wonder if the answer will involve more than simply developing relatively minor variations on already existing molecules.

 

 

[DocSnowball]

 

https://www.nejm.org/doi/pdf/10.1056/NEJMp1215093

 

Amazing but progress in the antibiotics area is relatively recent. In 1924, President Coolidge's son died as a result of of a simple skin blister that became secondarily infected. Some pessimists mention that drug resistance may give rise to similar scenarios in the near future. Hopefully, multi-resistance will be dealt with and I wonder if the answer will involve more than simply developing relatively minor variations on already existing molecules.

 

Thanks for sharing your thoughts. The article you quoted is written by arguably three of the best minds in the field, which is perhaps why they saw in 2013 what is playing out now. Yes, novel approached to fighting infections are now closer to primetime, including monoclonal antibodies, modifying T-cells and phages to kill bacteria. All of them will still have to face the economic realties of return on capital being less than cost of capital unless the business model changes. Yes progress on infections is recent but not that recent - so much progress was made by 1960s and 1970s that  mainstream experts were enthusiastic about defeating infections and needing few infectious disease experts. Now we have come full circle, this publication from European CDC from 2016 shows countries like Greece and Italy with over 25% of some strains of bacteria with multi drug resistance, while leaving most of Europe (and US) with a lower rate with plenty of runway. https://ecdc.europa.eu/sites/portal/files/media/en/publications/Publications/carbapenem-resistant-enterobacteriaceae-risk-assessment-april-2016.pdf

 

DocSnowball,

-Do you feel comfortable with these biotech holdings constituting a large part of your portfolio?

-Are you considering other related or unrelated fields?

 

My personal journey has gone from beginner level Peter Lynch invest in what you know and >60% weighted to this sector in 2016, to more sensible asset allocation with around 50%-60% total US equity out of which just less than half is devoted to my field of Infectious diseases. I'm comfortable with a high allocation to the sector because of my day job is to watch it very closely, and being an active investor means I'm getting to learn a lot about the industry over time. Some companies in the sector are priced below what I feel is intrinsic value even if no changes to the business model occur, so it is an asymmetric bet albeit with a time horizon of >2-3 years and quite volatile. I think companies that can do very well in time will create win-wins for customers and payors by saving lives and helping people stay home instead of being admitted to the hospital thus decreasing system costs.

 

Interesting related fields are of vaccines or technology to prevent infections (like Novavax), companies working on newer diagnostics to diagnose infections quicker or better (like T2 Biosystems), and back end support companies including those providing IT or CRM infrastructure (Veeva). I'm not comfortable investing in any of them at present either because of my own lack of understanding or their being priced higher than my perceived intrinsic value.

[Cigarbutt]

The article you quoted is written by arguably three of the best minds in the field, which is perhaps why they saw in 2013 what is playing out now. Yes, novel approached to fighting infections are now closer to primetime, including monoclonal antibodies, modifying T-cells and phages to kill bacteria. All of them will still have to face the economic realties of return on capital being less than cost of capital unless the business model changes.

 

I spent some time on the names you mentioned. Working on the assumptions that value added to antibiotic ecosystem will be adequately rewarded as there is still runway along the resistance spectrum, I agree that money can be made. Especially with a basket approach like Jurgis described above. Not a specific area where I have a significant competitive advantage though. Good luck to you and please provide feedback along the way.

 

An interesting component of this set of opportunities is that it lies at the confluence of biologics, pharma economics and public policy. Here's a relevant link that expands on the "innovation crisis" that the entire pharma industry is going through (not only for antibiotics):

https://www.bmj.com/bmj/section-pdf/187604?path=/bmj/345/7869/Analysis.full.pdf

 

It is fair to assume that, even if regulated and even if the process is not a straight line, investors are likely to be rewarded in correlation to the positive outcome provided. However, my opinion is that we have entered an evolutionary phase (not revolutionary) in the cycle for the biologic part.

 

There is a risk of generalization here but some suggest that this may be more systematic than just with pills but that's another story:

http://economics.weinberg.northwestern.edu/robert-gordon/files/RescPapers/NBER%20wp%2024554.pdf

 

Standards of living will improve but looking forward to increased volatility in the interim.

[RUFeebz]

First post here, been lurking for a while.

 

Great post. Doc.  I actually was reading up on paratek and their CAP candidate today and was curious if anybody discussed it here. Looking way into the future if it displays the C.diff sparing properties of the the tetracyclines (i.e. doxycycline) it could have a nice little niche/market. Considering taking a position but still doing my DD. I was reading a nice little summary on upcoming candidates on www.infectiousdiseaseadvisor.com but I can't seem to find the article. I'm curious if there's any signal re: mortality. I'm concerned if it exhibits any of the issues associated with tigecycline.  Any thoughts on the liklihood of approval?

 

Also have an interest in the rapid diagnostic space, not ready to take a poisition but T2 and AXDX are pretty interesting.  AXDX's product is pretty neat, theoretically it should get better with network effects.

 

I'm primarily an indexer and am just getting into buying individual stocks.

@Jurgis - I'm long GILD

[DocSnowball]

First post here, been lurking for a while.

 

Great post. Doc.  I actually was reading up on paratek and their CAP candidate today and was curious if anybody discussed it here. Looking way into the future if it displays the C.diff sparing properties of the the tetracyclines (i.e. doxycycline) it could have a nice little niche/market. Considering taking a position but still doing my DD. I was reading a nice little summary on upcoming candidates on www.infectiousdiseaseadvisor.com but I can't seem to find the article. I'm curious if there's any signal re: mortality. I'm concerned if it exhibits any of the issues associated with tigecycline.  Any thoughts on the liklihood of approval?

 

Overall the sentiment for the antibiotics business continues to worsen. So when things improve, I hope we see improvement in prices both from an improved business viability standpoint, and improvement in sentiment for the sector. This can take years from where we stand unless the REVAMP act passes. 

 

Re: Paratek: advisory committee voted in favor of approving both skin/soft tissue infection and pneumonia indications, stating it met regulatory concerns for both indications, there is a need for new antibiotics. Those members with No votes wanted more data on the safety signal of 8 deaths in the pneumonia trial vs 3 deaths in the comparison group (not statistically significant, and in review of deaths no reason found). “We would recommend for you to require a follow on study of high quality in a population similar to that in which the risk signal was seen”. I see this is their getting the drug approved, but needing to do either one more iv to oral trial or an oral only trial in pneumonia including hospitalized patients. So period to becoming free cash flow positive may be extended a little bit (I had projected 2020, this may push it out to 2021). Full info here:

https://www.fda.gov/AdvisoryCommittees/CommitteesMeetingMaterials/Drugs/Anti-InfectiveDrugsAdvisoryCommittee/ucm587657.htm

 

I think the market is underestimating the selling potential of a new oral pneumonia drug. Total market is not only pneumonia, but 3-4 times bigger to include those individuals with a lower respiratory tract infection but not pneumonia like asthma exacerbation, acute bronchitis on the severe side, chronic lung disease exacerbation (take a look at these two studies on antibiotic prescribing in respiratory infections). This makes the upside potential much larger, but even with just pneumonia as the TAM my valuation gives me projections 20% above current market cap.

https://jamanetwork.com/journals/jamainternalmedicine/article-abstract/2687524?utm_source=twitter&utm_campaign=content-shareicons&utm_content=article_engagement&utm_medium=social&utm_term=072618

https://www.nejm.org/doi/full/10.1056/NEJMoa1802670

 

Re: Achaogen- the REVAMP bill is not moving, and although there was approval to get some extra reimbursement for inpatients, so did a competitor. The company laid off nearly its entire early research arm, focusing on core portfolio to reduce cash burn. The company is running out of cash in the next two quarters, so we will either see a raise at firesale prices, or selling of the EU rights, or sale of the entire company. I'm saving some capital in case of a fire sale.

[DocSnowball]

FDA Commissioner Scott Gottlieb's Full Statement on FDA's Strategic Approach for Tacking Antibiotic Resistance

https://www.fda.gov/NewsEvents/Speeches/ucm620495.htm

 

Excepts (emphasis mine):

"I’m deeply concerned that without stronger “pull” incentives that encourage more research and development, we’ll see a far less robust pipeline of products than we need to address antimicrobial resistance. The problem is that the ideal drug is one that will be seldom used.

 

Under the current reimbursement scheme for drugs, profits are driven off of the number of prescriptions that get written for a drug.

 

But when it comes to developing a medicine to treat multi-drug resistant microbes, the goal is to hold such a drug in reserve and try not to use it. In other words, the reimbursement scheme is in direct conflict to our public health goals.

 

And what we’re seeing, as a result, is a classic externality problem.

 

Creating new antibiotics isn’t any easier than developing any other drug class. And, the commercial challenges are more daunting. Generic antibiotics are also inexpensive and widely effective, making them first line treatments. Medicare’s in-patient prospective payment system for hospital care is pegged to the price of generics.

 

So novel drugs eat into the profits of hospitals. And when new and better antibiotics are available, these novel drugs are reserved for “last-line” cases when their unique profiles, and higher prices, are justified because “first-line” drugs have failed.

 

This is completely justifiable behavior. If a new product is overused, it can reduce effectiveness by increasing antimicrobial resistance. In-hospital stewardship has improved a lot.

 

This is all good news.

 

But holding a drug in reserve also shrinks product revenues early in its patent life, when those revenues are most valuable to companies and investors. So the economics of this category, and our public health prerogatives, are not entirely in sync.

 

Contrast this with markets for new antivirals for HIV and Hep C, where new medicines have rapidly replaced a number of older drugs, becoming first-line treatments.

 

And investment has followed these economic realities.

 

If we want to maintain a robust pipeline for antibiotics, it is necessary to change the perception that the costs and risks of antibiotic innovation are too high relative to their expected gains—without weakening antibiotic stewardship.

 

It is important to pursue new policies and reimbursement approaches now, to shift the investment landscape right away. And it is important to develop these products now, so they’ll be available when we need them later.

 

One constructive way to start would be to develop innovative payment mechanisms that allow companies to capture a greater upfront share of the social value of antibiotic drug development.

 

The long run human and economic cost of antimicrobial resistance is enormous, including: death and disability from sepsis; extended and expensive hospital stays; and the need for dialysis or organ transplant in the wake of systemic infections.

 

The CDC estimates that the direct costs of antimicrobial resistance on the U.S. economy is $20 billion annually. When you factor in the economic consequences of lost productivity, it adds an additional $35 billion in costs. 

 

Reimbursement reforms could include a mix of milestone payments and subscription fees for developers of FDA-approved products with high economic and clinical value, targeted at multi-drug resistant organisms and linked to proven clinical outcomes.

 

A subscription-based model could see hospitals paying a flat rate for access to a certain number of doses of an important new antimicrobial. These subscription fees could be priced at a level to create a sufficient return on the investment to develop drugs with a certain profile. This should have the effect of creating a natural market for drugs that meet certain important specifications.

 

The FDA is discussing potential approaches, and continued innovation in similar payment pilots, with other agencies, including CMS. New approaches to reimbursement that could be explored might also include new technology add-on payments for certain new antibacterial drugs that meet critical patient and public health needs."

[DocSnowball]

Listening to Paratek's presentation about 1Q 2019 launch and strategy details for their new pneumonia drug - worth a listen. This is the right team, with the right drug and the right strategy IMHO. The entire sector is in the toilet, and it will not be until months 12-24 post launch that it will be clear whether the strategy is working or not. But if there is a bellwether in this sector, this is the company that may change the trend.

 

http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=253770&eventID=5275814

[DocSnowball]

Two recent developments:

Business model changes proposed in UK:

UK unveils new antibiotic buying plan, pharma incentives

http://www.pmlive.com/pharma_news/hancock_proposes_new_antibiotic_buying_plan_for_nhs_1276081?SQ_DESIGN_NAME=2

 

Health minister compares upfront payment model to Spotify

24th January 2019   

Health Secretary Matt Hancock has revealed the UK’s next five-year plan to handle the rising threat of antimicrobial resistance (AMR), estimated to claim at least 700,000 deaths a year worldwide.

 

US:

http://www.cidrap.umn.edu/news-perspective/2019/02/letter-urges-congressional-action-stimulate-antibiotic-development

Co-authors include the Infectious Diseases Society of America, the premier organization for ID physicians in the country

https://www.idsociety.org/globalassets/idsa/policy--advocacy/current_topics_and_issues/antimicrobial_resistance/10x20/legislative-efforts/020519-joint-letter-to-senate-help-and-finance-re-economic-incentives-for-antibiotics.pdf

 

"Calls for government action

The letter adds to the growing calls for government action to address antibiotic resistance, which is threatening many of the current antibiotics used to treat serious bacterial infections, and the dearth of new antibiotics. Of the 42 antibiotics currently in clinical development—a fraction of the 1,000-plus cancer drugs currently in development—only 11 target the pathogens on the World Health Organization's list of priority pathogens. And perhaps only two of those candidates will make it market.

 

The main issue is the lack of economic incentive for making new antibiotics. Compared with medicines for chronic conditions, which patients may have to take for many years, antibiotics are used for a short period of time. In addition, since most current antibiotics still remain effective, new antibiotics are kept in reserve to prevent development of resistance. Because the current drug reimbursement system links profits to the volume of drugs sold, this means that pharmaceutical companies don't get a significant return on their investment in new antibiotics.

 

As a result, many large drug makers—including AstraZeneca, Sanofi, and Novartis—have abandoned their antibiotic development programs in recent years in favor of more lucrative drugs. Only a handful of large pharmaceutical companies remain in the antibiotic development space.

 

And while there are many small biopharmaceutical and biotech companies working on new antibiotics, with financial support from government agencies like BARDA (the Biomedical Advanced Research and Development Authority) and public-private partnerships like CARB-X (the Combating Antibiotic Resistant Bacteria Biopharmaceutical Accelerator), these companies lack the financial resources to get drug candidates through late-stage clinical development and Food and Drug Administration (FDA) approval and on to the market.

 

To address these challenges, many antibiotic development advocates believes new incentives are needed. These incentives, the group writes, could include a mix of tax incentives, novel "pull" incentives that increase the value of new antibiotics, and changes in how pharmaceutical companies are reimbursed for antibiotics.

 

"We, the undersigned, believe the solution requires a package of incentives that address both the short-term need to stabilize the market and policies to address the broken market that makes antibiotic development economically infeasible for both small and large companies," the letter states. "The ultimate goal is to create an ecosystem that supports sustainable discovery, development, and commercialization of novel, innovative antibiotics in order to preserve these vital drugs and health care advances they make possible."

 

New reimbursement models

One potential idea to delink profits from the volume of antibiotics sold was presented by FDA Commissioner Scott Gottlieb, MD, in September 2018, when he announced the agency's strategy for fighting antibiotic resistance. Gottlieb suggested the development of a new reimbursement model that would combine milestone payments and subscription fees for new FDA-approved antibiotics that have high clinical and social value—such as drugs that target multidrug-resistant organisms. The subscription fees for access to the new drugs would be priced to create a sufficient return on investment.

 

Gottlieb said this idea and other potential payment strategies, which would be linked to the promise of effective stewardship efforts by hospital and drug makers, are being discussed with the Centers for Medicare and Medicaid Services.

 

Other governments are considering similar ideas to spur antibiotic development. Last week, the British government announced that it will launch a pilot program in which the National Health Service will experiment with buying an antibiotic "service" from pharmaceutical companies, paying them up-front for access to effective new antibiotics.

 

Among the other pull incentives that have been previously suggested are market entry rewards, in which companies would receive a large up-front payment for development and approval of a critical new antibiotic. DRIVE-AB, an international consortium of public health organizations, academic institutions, and pharmaceutical companies, last year proposed a market entry reward of $1 billion for regulatory approval of a new antibiotic, with funding coming from governments and philanthropic organizations.

 

The letter suggests that any pull incentive package approved by Congress should require that incentives be paid after FDA approval, should aim both to stabilize the current market for new antibiotics and ensure viability of future development, should provide predictability for drug developers, and should be aligned with appropriate antibiotic stewardship and surveillance."

 

PRICE vs VALUE:

Meanwhile Paratek sees its market cap decrease in the days after publishing the results of two of its trials as the lead articles in the New England Journal of Medicine. That's how loved this sector is right now  :'(

Omadacycline for Community-Acquired Bacterial Pneumonia | NEJM

https://www.nejm.org/doi/abs/10.1056/NEJMoa1800201

[Jurgis]

I think it's very hard to get the incentives right in such situation.

 

Perhaps the right way is to create a government-funded non-profit with a pot of money that would acquire approved "reserve" drugs. The non-profit could potentially recoup some money if/when the drugs go off-reserve. It might not if drug stays on reserve for 10-20 years...

 

But I'm still not sure this would be attractive to big pharmas or even smaller companies. I.e. wouldn't for-profit corporation work on a possibly multibillion blockbuster rather than on a drug that at best gets them XX million from government?

[DocSnowball]

Mainstream media starts to chime in, both NYTimes and WSJ within the span of two weeks. Wonder if it is motivated by much needed lobbying to get the DISARM act moving in 2020. 

 

https://www.wsj.com/articles/antibiotic-makers-find-rewards-for-tackling-superbugs-are-scarce-11578259557?mod=hp_lead_pos4

 

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

 

 

[Cigarbutt]

Mainstream media starts to chime in, both NYTimes and WSJ within the span of two weeks. Wonder if it is motivated by much needed lobbying to get the DISARM act moving in 2020. 

 

https://www.wsj.com/articles/antibiotic-makers-find-rewards-for-tackling-superbugs-are-scarce-11578259557?mod=hp_lead_pos4

 

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

Thank you for the follow-up.

Apologies for more negativity, with perhaps a glimmer of hope.

 

Concerning the antibiotics 'industry', the resistance challenge remains, to this day, largely unrecognized and I've seen credible reports showing that antibiotic resistance related mortality may surpass cancer in the foreseeable future. More drugs are leaving the market than entering and breakthroughs (within the present landscape) have become somewhat elusive.The increasing resistance profile can affect anybody but mostly immunocompromised, frail and older individuals and that's something to think about in an evolutionary way (and perhaps instructive for those considering the achievement of immortality as a short-term goal).

 

I continue to think that the density of needles in this haystack has come down tremendously. There is hope but the way to approach resistance from a drug or specific company point of view has probably not met the light of day yet. And it may come from left field. Anyways, if you're interested in finding residual gems and avoid venture value traps, here are some potentially relevant references. The first is a synopsis of where the industry stands now and where value may occur. The second was released last November and shows how the topic may attract public authority attention (and funding). This topic will eventually make it to the front mainstream page.

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6429336/

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

 

Disclosure: I won't compete with you in this specific area but I've spent time (still too early) preparing to identify value-enhancing propositions with a quoted component in the antimicrobial "stewardship" area.

 

Also, you may be interested in Mr. Bill Bryson's latest book The Body, which has a chapter on microbes and the growing resistance phenomenon. The author is not a scientific expert and will not point to specific investments but his work is well documented and Mr. Bryson is excellent depicting an overall historical perspective and may constitute an input to polish a crystal ball. The third chapter Microbial You takes you from the early discoveries, underlining that great drugs were often found accidentally, has a subsection on Mr. Micheal Kinch who, as you probably know already, published a very relevant book in 2016 about drug development challenges and ends with a discussion about growing antibiotics resistance. You may, like me, end up humble, realizing how little we know and highly dependent we are on the persistence of human ingenuity for a wide gap that has been defined and for which there is still no visible solution.

 

This may not be apparent at first glance but this is a hopeful post.:)  In terms of where we are, I think it is worthwhile to keep looking, keeping in mind what Mr. Alexander Fleming said when he received the Nobel Prize (the year was 1945!): "And we are not at the end of the penicillin story. Perhaps we are only at the beginning."

 

[Jurgis]

I've seen pitch for this in our angel investing group: https://www.acurxpharma.com/

As I understand, this does not really address the general antibiotic resistance.

 

Disclosure: I have no investment in this and I am not an expert in this area at all. Above info is just FYI for this discussion.  8)

[Cigarbutt]

I've seen pitch for this in our angel investing group: https://www.acurxpharma.com/

As I understand, this does not really address the general antibiotic resistance.

 

Disclosure: I have no investment in this and I am not an expert in this area at all. Above info is just FYI for this discussion.  8)

To add food on the table:

https://www.pewtrusts.org/en/research-and-analysis/data-visualizations/2014/antibiotics-currently-in-clinical-development

 

Acurx (based on a very short evaluation) appears on that list and I think tends to focus on the C. difficile. This may be too basic for you Jurgis but difficile means difficult in my language and the Clostridium issue is becoming not only difficult but massive (estimated yearly costs in the US at around 5B, only for acute care facilities). An interesting feature of these infections is that one gets them mostly when one searches for treatment and antibiotics are prescribed (antibiotic use is the main cause of the disease and is unrelated to the initial reason for consultation!). Older folks and sick ones are significantly at risk. It appears that the mechanism is related to the fact that the pathogen is already present in your system (your colon, to be more precise) but the dangerous population is kept under control until an antibiotic reaches the place and cleans up space, disturbing the normal 'flora'. And these guys are becoming increasingly resistant. If we end up neighbors in a long-term care institution one day, these guys will likely be around too. Another interesting feature is that some have been looking at fecal material 'transplants' to restore normal flora instead of, or combined with, the Acurx or related antimicrobials. The underlying problem is that everybody is carrying the resistant bacteria even if you have never taken antibiotics as it has become a population problem. So we'll have to unite to build resistance, I guess. Enough shit talk as this is starting to sound like a Politics thread.

[Jurgis]

Enough shit talk as this is starting to sound like a Politics thread.

 

But this shit is shizz, while the Politics thread is just crap.

[DocSnowball]

Cigarbutt, thanks for sharing those articles and your thoughts. The article on attributes of an ideal antibiotic is really interesting, and I had not seen that before (using Charlie Munger's inversion principle to get to the ideal antibiotic is nice - we do this with students in class to create an imaginary wonder drug and call is CEFA-KILLEM-ALL). The CDC report confirms the problem is real, and can help get an idea of the total addressable market perhaps more realistically than biased alternatives (media, managements). It may underreport the problem a little because it will only include verified data.

 

Jurgis, it is interesting that angel investors were pitched too. Publicly traded antibiotic companies are shorted so heavily that staying private is a better idea for sure. 

 

Backing out from the ideal drug development perspectives, and looking from the value investor perspective, the issue is a broken business model. A modest improvement on current standard of care, either in terms of lesser resistance, lower side effect profile, or ease of delivery (oral versus iv) - is not leading to more prescribing or sales when competing with available options because while resistance is there, is has not geometrically compounded to enough numbers in each center to lead to change in prescribing. This in turn has led to loss of interest from big Pharma, and the small companies crazy enough to be in the space are running out of cash AFTER FDA approval because they can't sustainably bring the drug to market and ramp sales up fast enough to achieve cash flow positivity (trather than be acquired at this stage). The issue in this field isn't just developing new drugs, like we have done for HIV or Hepatitis C, rather it is that the new drugs developed are used so sparingly and for such a short duration that the return on invested capital isn't there unless the business model changes.

[Spekulatius]

The interesting thing I learned here is that hospitals would not use the new antibiotics as a first line, because genetics are cheaper and they want to save them up as second line defense, in case the first line antibiotics don’t work because of resistance. That’s a tough nut to crack and needs to be rightened with incentives for the developer, otherwise it’s hard to make these drugs commercially viable.

 

My wife works in dialysis in ER’s and she often also gives antibiotics as IV’s and hospital often go for the generic stuff. She has seen only 3 different ones applied so far. She also thinks there is a whole lot of inertia with doctors or even hospitals.

[lschmidt]

I believe the decision of which antibiotic to use goes far beyond the hospital's choice structure. Clinical guidelines dictate that the common, more benign (in terms of adverse events) antibiotics be used first. This makes clinical sense, since less common alternatives should remain less common in order to maintain an armement of backup antibiotics which have not developed resistance. In other words, you need sparingly used backups that will remain with rare associated bacterial resistance, because if bacterial resistance develops commonly to all antibiotics, we all lose and mortality rates skyrocket. Rates of bacterial resistance are related, among other factors, to the rate of usage of the antibiotic in question. So you always need backup options that are sparingly used to protect from resistance. So clinical guidelines and good clinical sense dictate the hierarchy of use less than hospital and pharma incentives. The best likely solution to this is for the US government to see antibiotic resistance is a national health threat and spend federal money to subsidize development of new antibiotics.

[Cigarbutt]

^I would say the business model has not failed in the sense that it is the traditional research that has been running out of magic bullets. The new drugs coming out of conventional research are often minor modifications of previous ones and the microbes are increasingly moving targets. We are losing this race. Because of the diminishing return on each successive waves, newer drugs are not really better or game-changers as they often belong in the periphery of a multi-faceted and evolving picture. Entirely new classes and new mechanisms need to be identified and developed and this is likely to come from unconventional research or fundamental research funded in public institutions.

Although hard to predict, it's likely that this resistance challenge will be met but it would be useful to deal with the misuse issue. Antibiotics are unnecessarily prescribed in 30-50% of cases and nonspecific livestock massive use has to be addressed. Also, even if the general use of antibiotics has leveled to some degree, the percentage of the use of broad-spectrum drugs has risen. This is like going to war and reaching the stage when the most advanced technology is already used. You can always build more bombs but a reassessment of strategy may not hurt and guerilla warfare can be surprisingly effective.

https://www.pewtrusts.org/~/media/assets/2017/03/antibiotic_resistance_annual_report_329.pdf

[DocSnowball]

Antibiotic companies still hanging on by life support, COVID-19 or no COVID-19. The markets may be forward looking, but only 6-12 months not multiple years or decades.

 

https://www.nature.com/articles/d41586-020-02418-x