Treading Water (Part 3): Minor repairs for a broken market.

Anyone familiar with the problem of antibiotic resistance knows that the crisis extends much further than the prokaryote kingdom. While it’s a story about Nature’s ability to overcome anything humankind throws its way, it is also a cautionary tale about humanity’s foibles and failings. It’s very much a warning against complacency. Most of all, it has done more to highlight capitalism’s shortcomings than the entire socialist/communist canon ever could hope. The market continues its failure to pricing the value of antibiotics correctly and the pharmaceutical industry have been unable to adjust to the uncertain climate.

In the first two installments of Treading Water, we focused on the struggles antibiotic companies face. First, we examined the bankruptcy filing of Melinta Therapeutics, a company that had succeeded in bringing novel antibiotics to market but was unable to remain financially viable because of inadequate sales.

After that, we pulled back and examined the broader industry and took a closer look at the current business model that places the overwhelming financial burden on small- medium-sized enterprise (SMEs). Making matters worse, the need to hold back use of new antibiotics for emergencies makes it impossible for SMEs to garner the sales to survive.

This reality hasn’t been lost on potential investors, forcing them to steer clear of the entire sector, further exacerbating the financial distress among SMEs. The dire state of antibiotics pipeline reflects the uncertainty and apathy investors and the pharmaceutical industry as a whole feel about the space.

“Not enough new antimicrobial drugs, especially antibiotics, are being developed to replace older and increasingly ineffective ones,” says Aleks Engel, the head of REPAIR Impact program at the Novo Nordisc Foundation. “Companies are not financially incentivized to invest in development of new antibiotics, and there are no drivers for taking potentially promising candidates from the early stages of research and development all the way to commercialization. Consequently, the necessary continuous flow of novel antibiotics towards the market does not exist.”

That view is spread across the industry. Jennifer Robinson, a spokesperson for CARB-X, offers an even more straightforward assessment of the current situation and no less bleak.

“Drug companies are hesitant to invest in antibiotics research,” she says. “Any resulting new treatment would be used only in limited, emergency cases, and it has proven to be impossible to recoup the costs of developing a new antibiotic, much less of earning a profit. There are also economic disincentives built into some health care systems.” 

At the top of the built-in disincentives list is what’s known as diagnostic related groupings (DRG). In essence, it entails pricing a patient’s hospital stay according to an estimated disease-determined cost. It’s a practice insurance companies rely on to reimburse healthcare providers for their services. Unfortunately, it creates a situation where healthcare providers employ the cheapest possible antibiotics in order to squeak out a minor profit. While it may help the hospital’s bottom line, it exacerbates the antibiotic industry’s problems as well as antibiotic resistance.

The rot eating away at the antibiotic industry lies all the way at its foundation. A profit model based on sales volume dooms the overwhelming majority of SMEs from the start. It’s the default for the pharmaceutical industry as a whole. While it worked for antibiotics for a while, the cracks appeared early and as early as the 1950s, companies conspired to artificially maintain the prices of their products. Eventually, the FCC put a decisive end to the practice.

A solution exists. The technical term is called delinkage. At its most basic level, it entails separating antibiotic profits from sales volume. Pretty straightforward, right? 

Only, it isn’t. 

You can’t just swap one business model for another on an industry-wide basis. 

As a result, solutions tend to represent half-steps, the way the Affordable Care Act attempted to address healthcare coverage in the United States (though calling it a half-step is being generous). Rather than approaching delinkage directly, solutions have taken indirect approaches, breaking the drug development process into two parts.. 

“The European Union, Germany, the United Kingdom and the United States have all commissioned reports laying out strategies to incentivize antibiotic innovation,” says Christine Årdal and David McAdam in a paper, “Antibiotic development— economic, regulatory and societal challenges.”

“The recommendations of these reports are largely aligned around two main themes: more public investment is needed in antibacterial research and development (‘push’ incentives); and incentives are needed to ensure that new antibiotics that meet unmet public health needs can be profitable (‘pull’ incentives).“

While neither approach solves the main problem facing the antibiotics industry, they are designed to relieve some of the financial pressure placed on the companies by the SME model and lagging sales.


Push incentives tend to focus on easing some of the financial burden from the Research and Development process. Typically, SMEs spend a considerable portion of their time and effort making sure they stay afloat long enough to bring their drugs to market. This involves identifying and courting potential investors and meeting with current ones. If the option of going public through an initial public offering (IPO) is on the table, most companies take advantage of the investment dollars that are available through the buying and selling of their stock, particularly from deep-pocketed institutional investors. Most of the SMEs R&D and operating expenses are financed through organized funding rounds and sales of their stock. Other forms of funding such as taking out loans or contract work can also plug potential budget holes.

CARB-X, based out of Boston, Massachusettes, is one of the major players in the “push” side of funding. The organization is a global non-profit partnership with Boston University at the helm. Their partners include the Biomedical Advanced Research and Development Authority (BARDA), the US Department of Health and Human Services, the Wellcome Trust, Germany’s Federal Ministry of Education and Research (BMBF), and the Bill & Melinda Gates Foundation, to name a few.

CARB-X does not conduct research themselves. They essentially play the role of a middleman between their partners and SMEs. They support companies that are in the early stages of R&D, normally through funding provided by their partners. They are very specific with regards to the types of projects they take on. In particular, they are interested in potential drugs that target the most serious antibiotic resistant bacteria identified on the World Health Organization’s 2017 list of high-priority bacteria. In addition, their partners establish priorities which CARB-X uses in their approval process. In addition, their interests extend beyond simply drug development to also include the development of rapid diagnostics, vaccines, and other products.

“Since it was established in 2016, CARB-X has received more than 1000 applications for funding,” says Jennifer Robinson. “As of Feb 4, 2020, CARB-X has selected 56 projects and has provided more than $190 million in non-dilutive funding to support these projects. As of Feb 4, 2020, the CARB-X portfolio has 37 projects in development – antibiotics, vaccines, diagnostics and other antibacterial products.”

Another push-side organization is the Global Antibiotic Research and Development Program (GARDP) a not- for-profit GARDP created to address antibiotic resistance. They accelerate the development of treatments by taking a portfolio approach, making a long- term commitment to their partners and projects by building global collaborations.

“By conducting research and development with partners through preclinical and clinical studies, pharmaceutical quality and chemistry, manufacturing and control, regulatory activities, production and supply, GARDP can absorb substantial development risks,” says Manica Balasegaram, the partnership’s Executive Director. “GARDP can also separate the cost of developing new treatments from traditional sales approaches, ensuring appropriate margins while establishing sustainable access measures with partners.”

Yet, for all the benefits of public private partnerships, they’re far from perfect solutions.

In 2017, Entasis Therapeutics and GARDP agreed to co-develop the first-in-class antibiotic, zoliflodacin, in a global Phase 3 clinical trial. In parallel with the Phase 3 trial, which is sponsored by GARDP/DNDi (Drugs for Neglected Diseases initiative), GARDP and Entasis scientists are collaborating on non-clinical activities – including microbiology surveys to ensure that the product is effective against recent and geographically diverse strains of gonorrhea.

Under the partnership agreement, GARDP is responsible for the phase 3 trial and pharmaceutical development activities for zoliflodacin to support regulatory approval and market access and availability. GARDP will retain commercial rights to zoliflodacin in up to 168 low- and select middle-income countries, while Entasis retains commercial rights in the rest of the world.

Unfortunately, the funding isn’t designed to remedy the ultimate problem.

“All it does is reduce investment you put into research and development, but it doesn’t change anything for the amount of return,” says Manos Perros, President and Chief Executive Officer of Entasis. “If your return is so low that you can’t even pay the salaries of your sales force, there’s no amount of push incentives that is going to make it profitable for anyone to invest in the space.”

That isn’t to say that public-private partnerships don’t work because clearly they do. Any injection of funding is that much more that can be used to address expenses. Assuming a portion of the costs incurred during the clinical trial and regulatory phase, as GARDP does, provides SMEs like Entasis with a degree of breathing room.

“They’re absolutely effective,” continues Perros. “But they just aren’t substitutes for a better reimbursement model.”


Pull incentives are only awarded once a drug has cleared every regulatory obstacle and has made onto the market. This is the stage where true delinkage needs to occur. Some strategies are designed to give SMEs some breathing room while they figure out how to sell their products on the market. They also reduce the time needed for companies the recoup the money they expended during the R&D process.

While DRGs are usually cited as the single most debilitating obstacles facing antibiotic drug makers, it’s far from the only one. One of the major pull-side challenges facing antibiotics companies is communicating the fact that antibiotics are a public good which they are. Unfortunately, they aren’t viewed that way. Treating them as something that benefits the greater good would possibly nudge governments into taking more active roles in creating a solution. With more direct involvement, markets could be transformed and new models adopted. For some, this is the only viable alternative because they believe that the era of purely private investment in new antibiotics is drawing to a close. 

Another factor that needs to be taken into consideration is the impact of policies designed to fight antibiotic resistance. Most notably, any successful proposal will need to not only overcome the restraints of antibiotic stewardship. The practice of saving the newest, most effective antibiotics only as a last resort almost guarantees that the companies that develop them will struggle to stay alive.

Vouchers and Extending Patent Exclusivity

One proposed pull incentive involves lengthening the amount of time an SME’s window of exclusivity where they retain the antibiotics’ patent for a longer duration. The plan assumes that given more time, the antibiotic company can recoup the funds they put out. Early incarnations of the plan were known as wildcard patents. Now, it’s most commonly referred to as a voucher system and mostly mentioned with regards to the United States..

According to the way it is envisioned, the Food and Drug Administration would grant a voucher to an antibiotics company. This would allow the SME to sell it to another pharmaceutical company in order to extend patent exclusivity on the new antibiotic. In theory, the use of vouchers would delay the entry of a generic version that protects it against competition. Under this system, antibiotic companies would be forced into making binding commitments regarding antibiotic stewardship. 

The subject of vouchers is primarily championed in the United States where it offers a degree of political benefits for Congress while doing the bare minimum in terms of actual problem solving on their part.

According to Kevin Outterson and Anthony McDonnell, “Most of the discussions about antibiotic vouchers have occurred in the US context, where this idea enjoys the powerful lure of not requiring annual appropriations from Congress. Through what some might call a budget gimmick, antibiotic vouchers can achieve a zero budget impact score from the Congressional Budget Office (CBO), so long as higher drug prices from the delayed entry of generic drugs do not occur during the ten-year CBO scoring window for assessing federal budget impact. The costs are shifted to government programs such as Medicare and Medicaid, private health plans, and other payers’ health budgets in future decades.”

Some proposals for these vouchers also call for donations to public entities such as the National Institutes of Health or an antibiotic innovation fund, further spreading the burden.

Unfortunately, the voucher system has more than a few kinks to be worked out and hasn’t even had a test run in the real world. 

Of the various pull proposals, the one that garners the most praise is the subscription-based approach implemented in the United Kingdom and Sweden. Compared by some as a Netflix-style approach, it entails healthcare providers paying a flat-rate for access to new and existing antibiotics. By securing a defined amount of money from a subscription, antibiotic SMEs are guaranteed a source of revenue that is at least consistent. In turn, it ensures that healthcare providers have access to important new antibiotics (referred to as “access pilots”). Most importantly, the subscription approach is as close as anything gets to the holy grail of delinkage.

According to Manica Balasegaram, the subscription model “is an important development that demonstrates a change in thinking regarding antibiotic reimbursement, from paying for consumption to paying to ensure access to a critical antibiotic. If other countries join Sweden and the United Kingdom, this may have a stabilizing influence on the market, easing investor concerns.”

While the subscription model offers the prospect of a defined revenue stream and secure access for existing and new antibiotics, it’s still early days. There are lingering questions about proper subscription rates, financing, and scalability. Regardless, it’s as promising as anything out there and is being tested under real world conditions.


Another antibiotic R&D strategy currently being explored by an organization called TB Alliance entails a variation of the partnership models discussed earlier. Like CARB-X and GARDP, TB Alliance is an entirely not-for-profit endeavor. It also does not conduct any research of its own, relying on the expertise of its academic, research, and commercial partners. In much the same fashion as CARB-X and GARDP, the TB Alliance reaps the benefits of facilitating cooperation between the different antibiotics stakeholders. Specifically, they call themselves a not-for-profit product development partnership (PDP).

Where TB Alliance differentiates itself is in its relationship to the antibiotics it deals with. Unlike the other two non-profits, the TB Alliance retains complete control of whatever drug is developed. Its pipeline is theirs as are the products. In 2019, they were the first fully non-profit organization to bring a novel antibiotic to market. Called pretomanid, the new drug belongs to a new class of antibiotics called nitroimidazoles. It has been cleared for use with extended-spectrum resistant tuberculosis (XDR-TB) or treatment-intolerant/non-responsive MDR-TB, in combination with bedaquiline and linezolid, as part of the BPaL regimen.

Clearly, on paper, a non-profit company would appear less reliant on how their drugs sold since their funding comes from grants and other traditional non-profit sources. If their product sells well, wonderful, but if it does not, there aren’t any investors or shareholders to address. However, anyone who has dealt with non-profits can tell you that they can be wildly inefficient. What’s more, non-profits are beholden to fundraising, much more so than privately held companies. Will they be able to raise enough cash year after year if their products only enjoy moderate success? It will be interesting to see how they turn out.


An interesting approach to alleviating the financial pressure placed on antibiotic SMEs involves working within the existing business model but reframing the who-what-and-whys of the drug discovery process. Entasis Therapeutics is one of the companies leaning heavily on this strategy. Rather than trying to develop antibiotics that are effective against the broadest swath of bacteria, they’ve whittled down their targets beyond even narrow-spectrum drugs. They’ve essentially adopted a one-drug-one bacteria approach which they call “pathogen-target”. In particular, the company has taken aim at one of the most concerning antibiotic-resistant pathogens — carbapenem-resistant Acinetobacter baumannii — with sulbactam-durlobactam.

Entasis’ precision antibiotics strategy works on a few fronts. On one level, it makes their R&D process more efficient since they know exactly which pathogen their drugs will need to be active against. So rather than relying on the traditional antibiotic discovery process that relies on mass screening of compounds for potential effectiveness — a very mid-20th century approach — they can be more specific. When successful, it can result in a less costly R&D process.

Taking such a specific approach is also beneficial from an antibiotic resistance standpoint. It all but guarantees that the right drug/right bug rule of thumb is not broken. Too many times in the past, physicians have prescribed a less effective antibiotic for an infection when better ones were available. This is a major contributor to the rise of resistant bacteria. Moreover, by being so specific, drugs like sulbactam-durlobactam alleviate much of the selective pressures that accelerate the evolution of antibiotic resistant pathogens.

Finally, having a pathogen targeted antibiotic can offer financial benefits, particularly when it comes to growing awareness of new products and facilitating purchases from healthcare providers. 

“If you have a well identified patient with good clinical information and a clear medical need and your product is unique and differentiated, then you don’t have to put a lot of effort in promoting it,” says Perros. “That’s because it is a product physicians are aware of and reach out for when they need to prescribe medicine.”

This can significantly lower the post-approval operating expenses that have kneecapped many antibiotics companies like Melinta Therapeutics who employed legions of salespeople until it became unsustainable.


The antibiotic resistance crisis is a public health disaster on the verge of exploding. When it does, it has the potential of making the current COVID-19 pandemic look modest. That is how bad it can get. Every little cut, every niggling cough, every minor condition that requires surgery will be potentially fatal. Luckily, things don’t need to get to that point.

AMR is also an opportunity for the pharmaceutical industry to rethink the antibiotics business. If approached correctly, it can also be a way to make money. A lot of it. In the process, companies can ensure that new generations of antibiotics are both brought to market and used in ways that ensure responsible access to those who could benefit the most from these antibiotics.

“To solve this crisis, greater financial incentives are needed to support antibacterial R&D and to ensure that new antibiotics and other life-saving products reach patients who need them. Improved access and stewardship are also essential. These cannot be achieved without government leadership, and action and coordination at a global level.”

WORDS: Marc Landas

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