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As a virus ravages the world, antibiotic makers are in disarray
The antibiotics industry has suffered an alarming collapse that has become even more troubling as secondary bacterial infections threaten patients with COVID-19. Why has production of these vital medicines stagnated, and what can be done to address the problem? Economics correspondent Paul Solman reports on why lifesaving drugs don't necessarily translate to lucrative businesses.
Last night, our economics correspondent, Paul Solman, reported on the ominous collapse of the antibiotics industry, just as bacterial infections are increasing as a side effect of the coronavirus.
Tonight, he explains why.
And please note, much of the video for this story was shot before the pandemic.
It's part of our regular series Making Sense.
So, you warned us this was going to happen, right?
I wish I'd been wrong, but yes.
That's antibiotics pricing expert Kevin Outterson, whom we previously interviewed in 2017, when antibiotics start-ups were worth hundreds of millions of dollars. What's happened to the industry since?
Four out of the last 14 drugs approved by the FDA went into bankruptcy in 2019. And there'll be more drugs that are going to fall into bankruptcy in 2020.
As a result, big pharma has dropped antibiotic development, and small firms making effective new drugs are nearly worthless.
And the pandemic is making things worse because of the need for new antibiotics to prevent and treat dangerous secondary infections in COVID-19 patients, especially those on ventilators.
It's horrifying, because you just can't get your breath. And all you can think in your head is, am I going to end up on a ventilator?
Here's the quandary, though. The economic problems facing the industry were perfectly clear three years ago.
The first, as one-time pharma exec John Rex put it, doctors were reluctant to prescribe new antibiotics.
When you invent a new antibiotic that hits the very most resistant bacteria in the world, what we as a community want you to do with it is, sit on it, OK, and save it for just that rainy day.
That's because using a new super drug too soon could spur the evolution of resistance, rendering the new drug worthless.
Once we have found this precious jewel, we need to protect it, because every use of an antibiotic, even a correct use, drives resistance.
Stewardship, it's called, but not a great way to make money.
A second hurdle, said infectious disease specialist Lindsey Baden:
Often, the treatments are short, a week or two, and intermittent. And that's very different than for hypertension, diabetes, hypercholesterol, where it's a treatment every day for the rest of your life.
OK, so why not just hike the prices of superbug drugs, for the sake of discussion, oh, say $10,000 a treatment. That's what they're worth, says Outterson.
When you consider what oncology drugs, cancer drugs or orphan drugs that are being priced at hundreds of thousands of dollars, even a couple above a million, you know, when you think of an antibiotic that saves the life of the person, they're going to die from this infection, $10,000 is really a bargain.
And that's why pharma start-ups are usually so attractive, says investor Richard Anders.
There are a lot of drugs which make a lot of money at very high prices.
But, he says, investors have come to realize new antibiotics can't be priced that high.
Because the political system would be in an uproar, and the drug companies want nothing to do with that, because of all the flak they're already taking for fighting these battles on other fronts.
Because of the societal good of antibiotics, they feel like they can't charge more.
Infectious disease specialist Dr. Helen Boucher.
The reason that we have been told that big pharma has disengaged is because they're not making enough return on their investment, plain and simple.
But only big pharma can efficiently get these new drugs to market.
As an early-stage life science investor, I think, when I invest in a company, how is that company going to get acquired by a larger company? And if the larger companies aren't acquiring, then it's really difficult to invest in companies that are early in the market.
Compare that to drugs for viral diseases. Even before the frantic search for a coronavirus cure, the antiviral market was booming, more than doubling over the last decade, while the antibiotics market shrank.
But what, besides the increasing aversion to raising antibiotic prices, has changed in the last three years? The economics of hospitals.
If you go into a hospital with bacterial pneumonia, the hospital gets a fixed payment. If they use the cheap antibiotic or the expensive antibiotic, the hospital gets paid the same.
Not true for antivirals, by contrast, which face no such reimbursement constraints.
Meanwhile, says Kevin Outterson, hospitals have come under increasingly intense cost pressure, made even worse by the decrease in elective surgeries during COVID. So, new antibiotics are simply too pricey, given cheaper alternatives.
A course of treatment of a common generic might be $150 over an entire hospital stay. And for the most expensive antibiotic, it might be $8,000 to $10,000.
Ted Schroeder's drug, Xenleta, is actually just $1,000 a treatment, and even that's too much.
So, the economic problem really is a reimbursement problem.
And three years ago?
I don't think anyone anticipated that hospital margins would fall so low so quickly.
Finally, Tetraphase CEO Larry Edwards, whose drug Xerava is also $1,000 for a course of treatment, but his business was moribund.
What can he say to doctors, he asks, who tell him:
I had a patient that came in with an intra-abdominal infection, we gave them your drug, and it saved their life.
Tetraphase sold itself in March to another small pharma firm for a song:, one-tenth its market value just three years ago.
Now, before you despair completely, there are even newer antibiotics in the pipeline.
We have supported 56 small companies at this point, with millions of dollars.
Kevin Outterson runs Carb-X, a public-private partnership that invests in new antibiotics. This meeting occurred before physical distancing rules were put in place.
Erin Duffy, Carb-X R&D chief, says it's a constant battle against bacterial resistance.
It has happened in as short as a six-month period of time, which is the whole reason that we have to keep innovating.
And innovating, they have been. But will the new drugs ever get to market?
There is a bill in Congress to allow for higher prices. And the world's largest drug companies just announced a billion-dollar fund to help bring two to four new antibiotics to FDA approval.
But then what, asks John Rex, given the reluctance to use the new antibiotics already out there.
You need to have $350 million in revenue over the first 10 years in the marketplace just to break even on a cash flow basis. That's not repaying anybody that's invested in you today. It's just keeping the lights on, so the drug is manufactured and it's out there in pharmacies.
So, as scientists exit antibiotics research in droves for other drugs, who will create the next generation to fight the next generation of germs, perhaps in tandem with the next generation of viruses?
We wish we had a therapeutic for COVID-19 right now. And the lack of that is costing us — I can't even begin to guess how much it's costing us. You know, if we had a bacterial infection, it could have a similar effect.
If we lose our antibiotic infrastructure, that's the real threat. We lose our ability then to create the innovations we need when we need them.
Like now, when the dangers of underinvestment to prevent catastrophe are all too apparent.
Paul Solman from Boston for the "PBS NewsHour."
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Paul Solman has been a business, economics and occasional art correspondent for the PBS NewsHour since 1985.
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