New proposal addresses challenging market dynamics for antibiotics

A strategy that combines a market entry reward with population-based payments from insurers could provide the kind of "pull" incentive that US pharmaceutical companies need to bring new high-priority antibiotics to market, according to a new paper by a team of experts from Duke University.

The proposal, dubbed the Priority Antimicrobial Value and Entry (PAVE) award, would use limited public funds to cover the majority of revenue for the first 1 to 2 years a new antibiotic is on the market, but that revenue would be phased out over 5 years and replaced by revenue from population-based contracts with health insurers. Rather than paying for the antibiotic on a per-volume basis, the insurers would be paying the company that developed the antibiotic to guarantee that the new drug would be available for any patients who develop high-risk infections from multidrug-resistant bacteria.

The purpose of the PAVE award, the authors said in their recent Journal of the American Medical Association paper, is to guarantee a return-on-investment for antibiotic developers by "de-linking" the revenue of new antibiotics from the volume used and to promote stewardship of those drugs, so that thy remain effective and available.

"The proposal described here is designed to provide a strong, leveraged financial incentive for priority antimicrobial development within the U.S.," the authors write. "With the growing threat of antimicrobial resistance, and the urgent need to develop a more sustainable way of assuring the availability and appropriate use of priority antimicrobials in the United States, the time for implementation is now."

Push and pull incentives

The PAVE award emerges from a growing global movement to spur new antibiotic development by addressing the financial challenges that are unique to antibiotics. On one end are the "push" incentives from groups like CARB-X (the Combating Antibiotic Resistant Bacteria Biopharmaceutical Accelerator) and BARDA (the Biomedical Advanced Research and Development Authority), which provide funding to companies during the pre-clinical and clinical trial phases of antibiotic development.

These incentives help companies working on new antibiotics—many of them small, start-up biomedical companies—overcome the intense resource burden of clinical development, Gregory Daniel, PhD, MPH, co-author of the PAVE paper and deputy director of the Duke-Margolis Center for Health Policy, said in an interview.

But they don't solve the other problem: lack of return on investment. Because the effectiveness of antibiotics is reduced the more they are used, any new antibiotic—especially those for serious, multidrug-resistant infections—would need to be held in reserve to maintain its effectiveness. And in a market that's focused on volume-based reimbursement, companies that develop new antibiotics are unlikely to earn back the money spent on research and development. "Push incentives don't really recoup return-on-investment," Daniel said.

That's why many in the field recognize there need to be incentives on the other end that guarantee pharmaceutical companies are reimbursed for the new antibiotics they develop. "We really think push incentives are important, but in combination with good pull incentives," Daniel added. "That's what's really needed to help solve the economic challenges for getting these really high priority drugs into patient's hands."

While much of the discussion around pull incentives has focused on market entry rewards, a model in which companies that develop new antibiotics would get a large, up-front payment primarily funded by public sources, Daniel and his colleagues argue that model is difficult to envision in the United States. For one, it would require massive funding—$1 to $2 billion for each new antibiotic to provide a sufficient return on investment. In addition, in most proposals the drugs would be administered through a government program, an approach much more suited to countries with single-payer healthcare systems.

The PAVE award uses the concept of a market entry reward as part of a financial incentive, but since relying solely on public funding is unlikely in the United States, it combines it with population-based payments from the private sector. In this model, insurers would pay the companies a certain amount per-member and per-month to ensure that all their members have access to the new antibiotic, and they would be encouraged to promote prudent use of the drug so that it remained effective.

"The reason that the payer would do this is it guarantees when any of their members gets these rare, high-risk infections, that the most novel, appropriate antibiotic would be available for those members," Daniel explained. "Spreading this across the membership makes a lot of sense because it's not based on the volume used, so it does accomplish delinkage, and it provides that protection that the drug will be there when it's needed."

This model, Daniel added, recognizes that new antibiotics—particularly those that address the high-priority gram-negative pathogens identified by the World Health Organization and the US Centers for Disease Control and Prevention—should be reimbursed based on their public health value. It also fits in with a broader movement in US healthcare away from fee-for-service payments and toward payment linked to quality and value.

Public and private money

Under the PAVE proposal, the market entry reward funding for a developer of a new antibiotic could come from a combination of public and private sources. One idea is a tax on pharmaceutical companies that aren't involved in antibiotic development; the argument for such a tax is that many other types of drugs, such as chemotherapy drugs, are dependent on effective antibiotics. Another idea is a transferable exclusivity voucher, under which a company would receive a 6- to 12-month exclusivity extension on the development and launch of a high-priority antibiotic. The company would be able to apply that voucher to the new antibiotic or another drug in its portfolio, or even sell it to another company.

Daniel said further discussion is needed with stakeholders on how to structure the market entry reward, but he envisions "a combination of general funds from Congress and some additional support from the private sector." In either case, though, the market reward entry money would phase out after a few years, and the majority of a company's revenue would then come from the contracts with insurers.

Daniel said he and his colleagues will continue developing the idea with stakeholders and interested parties. Some of the next steps will involve discussions with lawmakers, since the market entry reward component of the plan would likely need to be incorporated into legislation. The population-based payments from insurers could be pilot-tested by pharmaceutical companies and insures to see how the payments would be structured.

While it may take several years to implement PAVE, Daniel is encouraged by the momentum he's seeing on solving the market dynamics that have stunted new antibiotic development. "It's very promising," he said. "The recognition is there…and we're starting to get some high-level consensus on what the solutions look like."

John Rotschafer, PharmD, a professor at the University of Minnesota's College of Pharmacy who was not involved in the proposal, said in an interview that when it comes to addressing the unique economic challenges of antibiotic development, all ideas are appreciated.

"Any form of economic incentive such as PAVE that can help level the playing field would be a welcome addition and would hopefully drive more interest in antibiotic development," he said.

See also:

Aug 3 PAVE Award paper

Aug 3 JAMA viewpoint

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