Biotechies Need to Get Serious About Antibiotics, Where There is Money to Be Made

Xconomy National — 

There are lots of exceptions to the rules in the biotech business, and a big one jumped out me this past week, related to antibiotics.

One day, Reuters ran a story about the overall abysmal state of the world’s pipeline of new antibiotics. Next day, there were reports about how San Diego-based Optimer Pharmaceuticals appears poised to sail through a meeting scheduled for tomorrow of an FDA advisory panel that will size up the merits of its new antibiotic.

Having followed a number of antibiotics developers for the past few years, it strikes me there is no shortage of ideas for fighting dangerous bacterial infections. There are interesting companies all over the map: South San Francisco companies like Achaogen and Theravance (NASDAQ: THRX); Watertown, MA-based Tetraphase Pharmaceuticals and Lexington, MA-based Cubist Pharmaceuticals (NASDAQ: CBST); New Haven, CT-based Rib-X Pharmaceuticals; and a pair of San Diego companies, Trius Therapeutics (NASDAQ: TSRX) and Optimer (NASDAQ: OPTR).

There is government funding available to support this work—Achaogen alone has raked in $155 million in support from government and philanthropic support, not to mention $95 million from venture capitalists. The drugs themselves often perform relatively consistently from early-stage to late-stage studies. And when they work, they can make sizable amounts of money—see Pfizer’s linezolid (Zyvox), which generated $1.18 billion in worldwide sales last year.

Yes, there has been some shifting of regulatory standards at the FDA, which put a crimp in many antibiotic business plans over the past year. But given all the forces properly aligned to support antibiotics, this shouldn’t be a classic case of market failure. And yet here we are, with only five new antibiotics approved by the FDA from 2003 through 2007, as Andy Pollack reported in the New York Times in November. FDA commissioner Margaret Hamburg has said the number of new antibiotics in development is “distressingly low.” Only five of the 13 biggest Big Pharma companies work on antibiotics now, which partly reflects their enduring fixation on blockbusters that can move the financial needle at their overly bloated organizations (but that’s another story, covered here last week.)

The lack of innovation in the antibiotics field is worrisome. Public health officials fret that because of the overuse of the antibiotics on the market today, we are encouraging the rise of more drug-resistant “superbugs” like the sometimes deadly MRSA and C.difficile. More, undoubtedly, will evolve in the future.

This is really just a hunch, but I would argue that a big part of the problem here is an overall lack of will in the biotech industry to create new antibiotics. While everybody talks about the hot new breast cancer drugs or the new thing for diabetes—which are sort of like biotech’s versions of the iPad and iPhone in terms of glamour—the only people who seem really interested in antibiotics are the people at those companies mentioned above. There have been some painful regulatory setbacks (Cambridge, MA-based Targanta Therapeutics comes to mind) so it could be there’s a perception out there that it’s too hard to bring antibiotics through the FDA. Or, it could be that they don’t make enough money to justify the time and expense of development.

Optimer has an opportunity to challenge both ideas. The company was founded in 1998, and had racked up a $222.8 million deficit through the end of 2010, according to its annual report. A big part of that investment went into generating data from a pair of pivotal clinical trials that enrolled more than 1,100 patients with C.difficile infections. Optimer showed in those trials that it could cure patients more than 90 percent of the time (about the same as the standard treatment, vancomycin). That was expected, but the Optimer drug, fidaxomicin, excelled by cutting the recurrence rate in half. Those are the most dangerous cases that cost the health system a lot of money, and cause doctors a lot of heartburn.

While the FDA regularly rips drug applications from makers of cancer or diabetes meds, it had nothing really harsh to say about the Optimer antibiotic in briefing documents posted online on Friday.

Optimer’s stock climbed 11 percent on that positive report. Investors are clearly wagering the firm will get an OK from the FDA panel, and the official clearance to start selling its new antibiotic in the U.S. later this year. Optimer’s market valuation has grown to $606 million as of last Friday. If the drug is approved, $250 million in peak annual worldwide sales is “easily achievable,” said Eun Yang, an analyst with Jefferies & Co., in a note to clients on Friday.

While that kind of return on investment might not do much if you’re trying to boost the bottom line at Pfizer, it’s pretty darn good if you are Optimer or any other company with a market cap of less than $1 billion. If all goes well, the Optimer drug should offer a decent return to investors and entrepreneurs, and should help make an impact against a dangerous public health threat.

Few people in biotech seem to be paying much attention, but this is shaping up to be a story of how the industry is supposed to work. The country needs a few more stories like it.

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6 responses to “Biotechies Need to Get Serious About Antibiotics, Where There is Money to Be Made”

  1. Ted says:

    There is a big problem for companies developing antibiotics: Public health practitioners want to limit the use of novel, effective new drugs to the subset of patients faced with resistant infections. There are very obvious reasons for this, unfortunately, they are simply at odds with the pharmaceutical profit motive.

    This is actually a very rare case where I believe an extension in patent coverage would serve the public good. Because new antibiotics are typically held back from use as “front line therapy” there is a much longer financial path before breaking even. This is pretty unique to the antibiotics arena (after all, no one really wants to “save” new oncology drugs for metastatic cases…).


  2. Joshua says:

    The indefatigable Megan McArdle gave a good talk for this for the Kauffman economic forum, talking about ways the incentives are designed in a way which produces those superbugs due to the nature of patents, profits and differing drug markets.

    I found it interesting.

  3. Here is another one you forgot to mention :)
    Labege France-based ANTABIO;
    Great article BTW.