TREADING WATER: Antibiotic companies in the Age of Resistance (Part 1)

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If the antibiotic pharmaceutical industry were a book, the past year and change would undoubtedly have been called Bleak House. That’s how grim their fortunes have been. And if you were a small-/medium enterprise named Melinta Therapeutics, you could take it one step further and smack the title Hard Times on for good measure. It’s been that bad.

The last proper earnings call by the antibiotic company seemed innocuous enough. Sales of Baxdela, the company’s flagship product, disappointed. It wasn’t completely unexpected. The antibiotics market was troubled, to say the least. Without sufficient income from sales, a portion of its sales force needed to be let go. That’s never a good thing for a business centered around sales volume. But that’s how it was. Times were rough. Again, it wasn’t much of a surprise.

John H. Johnson, the company’s CEO, opened the call with a Baxdela update. His steady voice and intonation assumed a near-monotone roll of words as he read a pre-prepared statement. When speaking freely, he manufactured as much optimism as the situation allowed. He trumpeted the drug’s success in clearing Phase III clinical trials the previous year and subsequently winning FDA approval for use against community-acquired bacterial pneumonia. In essence, they had expanded Baxdela’s marketability, albeit incrementally. It should have felt like a positive development.

John H. Johnson

With the good news out of the way, it was time for some bad news.

According to Johnson, “We have been executing our cost-saving initiatives that we had developed late last year. As you may recall, we disclosed that we had implemented cost-cutting plans that would drive $50 million to $70 million in savings in 2019 compared to 2018.”

In not so plain English, it meant that Melinta had shed jobs in order to save money on salaries. While it may have helped their balance sheet on one level, it inflicted damage on another. The CEO continued,

“As we went through the cost-saving initiatives discussed a moment ago, a large number of sales reps were impacted in terms of the number of positions, management changes in the field and importantly customer coverage.”

For an industry wholly dependent on product sales, it was dire news (though layoffs are normally cheered by Wall Street investors). With fewer sales representatives to go around, Melinta found itself in the unenviable position of having its hands tied when it came to convincing health care professionals to adopt their products.

“A softness in Baxdela and Orbactiv demand combined with quarterly channel inventory reductions and long stocking from last year for Baxdela resulted in a decrease on product sales year-over-year for each product.”

As the conference call progressed, the notion of financial stewardship emerged as a common theme. It didn’t take a business genius to figure out that they were in deep financial trouble and hadn’t figured out a solution.

On January 17, 2020, Melinta filed for bankruptcy protection and initiated a search for potential buyers. A promising antibiotic project failed yet again. Miserably.

By rights, Melinta deserved better. It had done enough things right to have avoided such an ignominious end. More disheartening, the company wasn’t alone in its circumstances and fate. There were others – past, present, and future. What went wrong? Even more importantly, why?

The Rise of Resistance and Fall of an Industry

There was a time when the antibiotic companies made money like they were growing it in fermentation vats. While antibacterial drugs such as Prontosil (a sulfonamide) and gramicidin preceded it, the discovery and mass production of penicillin from a mold called Penicillium notatum opened the gates to a novel industry. Since much of the scientific information surrounding its properties and production were in the public domain, profits were limited. You could theoretically produce penicillin in your garage if you had the patience, equipment, and know-how. In fact, during the later stages of World War II, thousands of civilians offered to grow the antibiotic in high school chemistry labs, kitchens, and basements.

One drug changed everything.

The isolation of the Aureomycin (oxytetracycline) by Yellapragada Subbarrow and Benjamin Duggar at American Cyanamid paved the way for a new type of medicine — the so-called broad-spectrum antibiotics — that would cause seismic shifts in the pharmaceutical industry. Prior to its discovery, antibiotics were characterized by narrow susceptibility ranges. In other words, they only acted on a limited number of bacteria. For example, penicillin was effective against gram-positive bacteria such as staphylococci, streptococci, and listeria, though there were limited exceptions. Streptomycin was similarly limited, though with different bacteria. Aureomycin, on the other hand, was effective against a much wider swath of prokaryotes. Instead of a guided missile, oxytetracycline hit like a nuclear bomb, unwanted collateral damage and all.

American Cyanimid’s antibiotic sales outpaced their competitors. Everyone wanted to emulate their success, part of which was due to the fact that Aureomycin treated so many infections. The trajectory of antibiotic R&D shifted away from very specific narrow-spectrum antibiotics like the sulfonamides and penicillin. Eventually, scientists began expanding the range of bacteria susceptible to new antibiotics. In less than five years, the antibiotics market was dominated by broad-spectrum antibiotics. They sold remarkably well and made fortunes for an industry that had previously been a stone’s throw from snake-oil salesmen. The industry never looked back. They should have. Instead, they went wild.

Pharmaceutical companies stuffed everything with antibiotics. Cough drops. Tooth paste. Deodorant. You name it. Making matters worse, they produced mixtures of drugs that combined antibiotics as a mechanical way of broadening the spectrum. Early reports suggested a degree of synergism between penicillin and streptomycin. This cleared the way for companies to concoct more so-called fixed-dose combination antibiotics. These “new” drugs were supported by aggressive advertising campaigns that boasted extravagant claims supported by specious facts. One of their top selling points: fixed-dose antibiotics killed resistant bacteria. (By 1950, antibiotic resistance had already emerged as a problem.)

According to Scott Podolsky, “Antibiotic resistance reflected a business opportunity for the pharmaceutical industry, eager to market ‘specialty antibiotics’ to confront resistant organisms.”

It’s worth noting that Aureomycin played a pivotal, if not singular role, in the adoption of antibiotics as animal growth promoters in the agricultural industry. The discovery by Thomas Jukes, an animal scientist at American Cyanamid, that the addition of subclinical doses of oxytetracycline to feed caused animals to grow faster and larger would become a significant source of income for pharmaceutical companies. It would also become a major driver of antibiotic resistance around the world. Without a doubt, it served as the “gateway” drug for the agricultural industry.

Antibiotics producers also created their own problems, inadvertently and by design. The race to bring antibiotics to the market caused an almost immediate glut. Novelty didn’t matter. When Lederle released Aureomycin to the public in 1948, it was the sole broad-spectrum antibiotic in the market. The following year, Pfizer introduced Terramycin and Parke-Davis chloramphenicol— both being broad-spectrum antibiotics as well. The market failed to differentiate between the brands and treated them the same. Rather than having three separate antibiotics on store shelves, the market reacted as if triple the amount of the same drug was being sold. A year after first coming out with Aureomycin, Lederle was forced to cut prices. Other companies followed suit and the race to the bottom had begun. [1]

Pharmaceutical companies had seen enough and decided to do something about it. In order to ensure profits and in true cartel fashion, American pharmaceutical companies joined forces and negotiated a pricing bottom, in effect manipulating the market. A look at the prices of early broad spectrum antibiotics is instructive.

When Lederle introduced Aureomycin, 16 250mg capsules sold for $15.00 (retail) and $25.00 (consumer). Two months later, its prices had already dropped to $10.00 (retail) and $16.67 (consumer). By October 1, 1951, Aureomycin was being sold at $5.10 (retail) and $8.50 (consumer). That price point would prove to be the floor. [2]

Similar price action could be seen with Parke-Davis’ chlormycetin. On March 25, 1949 it sold for $10.00 (retail). A little over a year later, it had dropped to $6.00 (retail). By October 1, 1951, the antibiotic sold for $5.10 (retail). What’s more, they added a consumer version that sold for $8.50. [3]

The other big broad-spectrum antibiotic, Pfizer’s Terramycin, was more of the same. In April 1950, it sold for $8.40. A little under two years later, in September 1951, the price of the drug dropped to…

You guessed it, $5.10 (retail) and $8.50 (consumer). [4]

Other antibiotics also sold for the same set price. Eventually, the not so subtle price manipulation came to the attention of the Federal Trade Commission who launched an investigation.

With sales volume as king, the pharmaceutical industry was plagued by impropriety, the most egregious being the use of so-called testimonials to promote antibiotics. Marketers understood human psychology and exploited the tendency to accept the opinions of peers. In the case of testimonials, pharmaceutical companies promoted product endorsements to doctors from satisfied peers. After all, if Terramycin worked for Dr. So-and-So, why wouldn’t it work for me? It worked like a charm. The only problem was that an untold number of those satisfied doctors never existed. They were pure fabrications meant to sell product. The scandal eventually came to a head with the Kefauver hearings. [5]

The Golden Age had a darker side. Broad Spectrum antibiotics effectiveness eventually proved their downfall. Doctors and nurses were increasingly forced to increase doses in order to elicit a minimal amount of activity against bacteria. The first signs of danger came from hospital maternity wards, first in Australia then in the United Kingdom. Strains of Staphylococcus aureus were exhibiting resistance to drugs that were effective months before.

The true body-blow to the antibiotics industry had nothing to do with resistant bacteria. The discovery of statins such as Mevacor (lovastatin) changed the pharmaceutical industry forever. Rather than curing acute conditions which limited sales, pharmaceutical companies shifted to treating chronic conditions where patients became lifetime customers. In an ironic twist, the same deep fermentation techniques invented to grow penicillin also led to the commercial scaling of lovastatin.

One by one, companies that practically owed their existence to antibiotics abandoned the space. Funding slowed to a trickle with investors unwilling to accept the inherent risks antibiotics presented. The responsibility of developing new antibiotics would fall on so-called SMEs, or Small- to Medium-enterprises.

Melinta Therapeutics: The History, The Science, The End

Prior to the formation of Melinta Therapeutics, the company went by the name Rib-X. Founded in 2000 by Nobel Prize winner Thomas Steitz, William Jorgensen, and Peter Moore, it planned on taking advantage of Steitz’s expertise with ribosomes, hoping to develop an antibiotic discovery platform that would target bacterial replication. Antibiotic resistance had depleted doctors’ arsenal of drugs capable of controlling infections. Coupled with the paucity of pharmaceutical companies still developing antibiotics, the situation was dire. To their credit, Rib-X threw its hat into the arena when very of their peers did. They understood the seriousness of the burgeoning crisis. Perhaps, they also saw antibiotic resistance for what it was: a business opportunity. [6]

Over time, bacteria have developed a host of defensive mechanisms designed to protect them from threats ranging from hostile environments to deadly viruses. Other microorganisms can produce chemicals that are harmful to them. Many of those substances were later isolated and purified in laboratories then mass produced by pharmaceutical companies. They would come to be known as antibiotics. For bacteria, the ability to neutralize dangerous chemicals released by other microorganisms inhabiting the same physical space was a matter of life or death.

“Bacteria are amazingly resilient,” says Anders Rosendahl of the Novo Nordisk Foundation, an organization on the frontlines fighting AMR. “They will over time develop resistance to any traditional antimicrobial medicines used to combat bacterial infections.”

Two of the primary mechanisms bacteria employ against potentially deadly antibiotics are breaking the substance down using enzymes — one of the major examples being beta-lactamases — or by actively pumping them out through their cell walls before any internal damage can be inflicted. Both methods are remarkably effective and efficient.

Antibiotics come in two forms – bactericidal or bacteriostatic. Bactericidal antibiotics like penicillin and vancomycin inhibit the synthesis of bacteria’s cell wall causing them to die. On the other hand, bacteriostatic antibiotics like chlortetracycline and azithromycin interfere with aspects of its metabolism, whether it be DNA replication or protein production. The antibiotics Rib-X hoped to develop would fall under this category. They designed a platform specifically for this purpose. [7]

The RX-04 antibiotic discovery platform took advantage of the company’s expertise with crystallography in order to identify targets on ribosomes. The plan was to design broad spectrum antibiotics that targeted the highest priority pathogens as defined by the World Health Organization and the U.S. Centers for Disease Control. These included Enterococcus faecium, Staphylococcus aureus, Klebsiella pneumoniae, Acinetobacter baumannii, Pseudomonas aeruginosa, and the entire Enterobacter species.

In 2011, the Chief Scientific Officer at the time, Erin Duffy, described RX-04 to investors. “In the RX-04 program, we applied our Nobel-prize-winning crystallography platform in combination with computational design tools to break new ground in antibiotic discovery with the creation of three completely new classes of antibiotics that target a previously unexploited region of the large bacterial ribosome for the treatment of multi-drug resistant (MDR) Gram-positive and Gram-negative superbugs.” [8]

The platform resulted in the development of three novel antibiotic classes: pyrrolocytosines, the phenoxazinocytosines and the isocytosines. As of 2018, the company still had not brought its lead RX-04 product, a pyrrolocystosine, to clinical trials. However, their work was promising enough to garner considerable interest from pharma giant Sanofi. [9]

On the heels of that the company filed for an Initial Public Offering (IPO) in 2011, hoping to raise $80 million from investors. A date was set for 2012. However, as the IPO drew near, interest lagged expectation and they lowered the price to $65 million. Just day’s before, the company slashed its offering price in half from $12-14 a share to $6-7. The IPO ended up being cancelled, dealing a significant blow to the company’s financial health. [10]

Ultimately, it was a business deal that provided Rib-X with its showpiece product. In 2006, Rib-X entered into an agreement with Wakunaga, a Japanese company, to develop and commercialize WQ-3034, a broad spectrum quinolone antibiotic. WQ-3034 was originally identified by Japanese scientists and had been shown to be safe and effective in Phase II human clinical testing. The drug would come to be known as Baxdela (delafloxacin), a broad-spectrum fluoroquinolone. [11]

While the company experienced promising periods, their proprietary platforms came up short and the company underwent numerous executive turnovers. In a rebranding attempt, Rib-X ditched its name and adopted Melinta. In 2017, the company completed a reverse merger with another struggling antibiotics producer, Cempra, that was listed on the NASDAQ. As a result, Melinta was able to realize its long-held ambition to become a publicly traded company, albeit gaining access through the backdoor. In the process, it also added three more antibiotics to its stable. In 2018 it acquired another company, Infectious Disease Business (IDB) from The Medicines Company along with its antibiotic portfolio. [12]

Ever since being rebranded, Melinta’s showpiece drug has been Baxdela. According to one paper written just before its FDA approval, delafloxacin had “shown a good in vitro and in vivo activity against major pathogens associated with skin and soft tissue infections and community-acquired respiratory tract infections. DLX also shows good activity against a broad spectrum of microorganisms, including those resistant to other fluoroquinolones, as methicillin-resistant Staphylococcus aureus.” [13] The antibiotic has been shown to be effective against gram-positive and gram-negative bacteria.

Melinta Therapeutics took advantage of government incentives meant to promote antibiotic development. They applied for and won approval for Baxdela to be designated a Qualified Infectious Disease Product under the Generating Antibiotics Incentives Now (GAIN) Act of 2012. This entitled the company to double the time they possessed marketing exclusivity from five years to ten. On top of that, once the drug cleared every regulatory hurdle and made it onto the market, they were able to leverage the drug’s broad-spectrum properties and submitted a supplemental New Drug Application. They proposed that the antibiotic be allowed to also treat adult patients with community-acquired bacterial pneumonia caused by high-priority pathogens. On October 24, 2019, Melinta announced that they had won approval from the FDA. [14]

Two months later, Melinta Therapeutics filed for bankruptcy protection.

How could that have happened?

Truth is, the writing was on the wall for months.

Once Baxdela completed its Phase III trials (or even before it), the company should have been swimming in seas of Benjamin Franklin greens. Instead, the unthinkable happened, especially for a company whose product just received FDA clearance. It failed to get acquired by a larger pharmaceutical company. For a small/medium enterprise (SME) like Melinta, being acquired is the Holy Grail. It’s what the long hours and crippling burden of debt are supposed to guarantee. Yet when the time came, Melinta remained a privately owned company. From there, it was a short road to bankruptcy.

Melinta Therapeutics wasn’t alone in its fate. It had good company. Earlier in the year, Achaogen, another antibiotic company, fell victim to an unfavorable market. Meanwhile, the lucky ones were just holding on. Tetraphase, a company with a number of promising drugs in the pipeline, declared that if additional sources of funding was not secured, they only had a few months of solvency left. It was only a matter of time until they joined the rest of them.

WORDS: Marc Landas

IMAGE SOURCE: Creative Commons

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