Analytical Framework for Examining the Value of Antibacterial Products. 6 Discussion

04/15/2014

We find that four of the six studied classes (CABP, ABSSI, CUTI and CIAI) had positive ENPVs for developers considering whether to enter the pre-clinical phase of development.  However, in all six classes private value fell below the $100 million threshold identified by industry and other experts as the ENPV threshold commonly used in decisions whether to enter pre-clinical trials.  As such, our findings suggest that incentives are desirable to stimulate research and development for antibacterial drugs to treat the six indications studied, ABOM, ABSSSI, CABP, CIAI, CUTI, and HABP/VABP, especially that the expected societal returns for bringing such drugs to market are significantly greater than the private returns for each indication.

Given the degree of uncertainty associated with different model parameters, it is difficult to ascertain the necessary levels of such incentives.  However, the model does highlight certain regularities, which are relevant for policy-making.  In particular, the extent and magnitude of the incentives needed for those sponsors at different points along the decision tree (e.g., start of Phase 3), decrease the closer the sponsor is to a successful product launch.  This is primarily due to the effect of discounting, whereby the product revenues in out years contribute increasingly less to the net present value.  This dynamic contributes to the fact that intellectual property (IP) extensions are not sufficient by themselves to incentivize a drug sponsor at the start of pre-clinical phase.  Similarly, grants, awards and prizes for later drug development milestones must be quite substantial to induce developers to enter pre-clinical phases.  And in parallel to the findings about other incentives, solely relying on regulatory modifications to shorten drug development process would not be sufficient to entice drug developers to enter pre-clinical research.  It seems that only a combination of incentives has the potential to sufficiently move the ENPV above the $100 million threshold, but identifying the possible combinations was outside the scope of this project.

We should also note that simultaneous institution of conservation mechanisms, such as education campaigns to promote prudent use, and other stewardship programs, along with the types of antibacterial drug production incentives considered are likely to alter the incentive levels identified in this study.   Conservation incentives, by their very nature, tend to reduce the potential market size for new antibacterial drugs thereby necessitating higher production incentive levels to boost private returns to the $100 million threshold.

In addition to high model parameter uncertainty, there are other study limitations that further complicate derivation of reliable incentive levels needed to stimulate development.  The simplified nature of our decision tree is one such factor because it removes considerations such as drug development for multiple indications that directly impact expected private returns, development costs, and success probabilities.  Additionally, even though the model uses the most up to date and comprehensive data, it still lacks some antibacterial drug specific parameter values, such as the costs associated with supply chain activities.  Another limitation includes the consideration of the U.S. rather than the global market in estimating market sizes for the six indications due to data availability.  Limiting market analysis to U.S. likely results in underestimation of the market size for each indication and  therefore underestimates private ENPV in the absence of any incentives.

Perhaps the most important study limitation is our simplified model’s inability to account for other decision criteria that drug developers use internally in deciding which new compounds to pursue.  In addition to private ENPV, developers often consider such factors as peak-year sales value, return on R&D investment and expected returns in comparison to other new product candidates, and whether the compound fits in with one’s existing or planned product portfolio.  These kinds of synergies, especially if accompanied by cost of capital lower than assumed in this model, could translate into higher ENPV value for those players.  Coupled with differing opportunity costs (the $100 million threshold), it is possible that some industry players may have stronger incentives to enter pre-clinical phases of drug development than this average model suggests.

Nonetheless, our model provides a necessary and transparent analytical model with which incentive discussions can be framed, particularly when coupled with a discussion of incentives to stimulate the public state of knowledge about pathogens and disease progression.

For the development of vaccines for ABOM and rapid POC diagnostics for MRSA, we find that incentives are not needed to stimulate development.  The ENPV for an ABOM vaccine is $515.1 million and the ENPV for a MRSA POC diagnostic is $ 329 million; both are greater than a threshold ENPV of around $100 million needed for development.

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