How the Game Changed Against Big Pharma – Creating New Opportunities

In 1985 there was universal agreement that investors should

be heavily in pharmaceuticals.

Companies like Merck, Eli Lilly, Pfizer, Sanofi, Roche, Glaxo and Abbott

were touted as the surest route to high portfolio returns.

Today, not so much.

Merck, once a leader in antibiotics, is laying off 20% of

its staff.  Half in R&D; the

lifeblood of future products and profits.

Lilly is undertaking

another round of 2013 cost cuts.  Over

the last year about 100,000 jobs have been eliminated in big pharma companies,

which have implemented spin-outs and split-ups as well as RIFs.

What happened? In the old days pharma companies had to demonstrate

their drug worked; called product efficacy.  It did not have to be better than existing drugs.  If the drug worked, without big safety

issues, the company could launch it.

Then the business folks took over with ads, distribution,

salespeople and convention booths, convincing doctors to prescribe and us to

buy.

Big pharma companies grew into large, masterful consumer

products companies. Leadership’s view of the market changed, as it was

perceived safer to invest in Pepsi vs. Coke marketing tactics and sales warfare

to dominate a blockbuster category than product development.  Think of the marketing cost in the

Celebrex vs. Vioxx war.  Or Viagra

vs. Cialis.

But the market shifted when the FDA decided new drugs had to

be not only efficacious, they had to enhance the standard of care.  New drugs actually had to prove better in clinical trials than existing

drugs.  And often safer, too.

Hurrumph. Big pharma’s enormous scale advantages in

marketing and communication weren’t enough to assure new product success.  It actually took new products.  But that meant bigger R&D investments,

perceived as more risky, than the new consumer-oriented pharma companies could

tolerate.  Shortly pipelines

thinned, generics emerged and much lower margins ensued.

In some disease areas, this evolution was disastrous for

patients.  In antibiotics,

development of new drugs had halted.

Doctors repeatedly prescribed (some say overprescribed) the same antibiotics.  As the bacteria evolved, infections

became more difficult to treat.

With no new antibiotics on the market the risk of death from

bacterial infections grew, leading to a national public health crisis.  According to the Centers for Disease

Control (CDC) there are over 2 million cases of antibiotic resistant infections

annually.  Today just one type of

resistant “staph infection,” known as MRSA, kills more people in the USA than

HIV/AIDs – killing more people every year than polio did at its peak. The most

difficult to treat pathogens (called ESKAPE) are the cause of 66% of hospital

infections.

And that led to an important market shift – via regulation

(Congress?!?!)

With help from the CDC and NIH, the Infectious Diseases

Society of America pushed through the GAIN (Generating Antibiotic Incentives

Now) Act (H.R. 2182.)  This gave

creators of new antibiotics the opportunity for new, faster pathways through

clinical trials and review in order to expedite approvals and market launch.

Additionally new product market exclusivity was lengthened an additional 5

years (beyond the normal 5 years) to enhance investor returns.

Which allowed new game changers like Melinta Therapeutics

into the game.

Melinta (formerly Rib-X) was once considered a “biopharma science

company” with Nobel Prize-winning technology, but little hope of commercial

product launch.  But now the large

unmet need is far clearer, the playing field has few to no large company

competitors, the commercialization process has been shortened and cheapened,

and the opportunity for extended returns is greater!

Venture firm Vatera Healthcare Partners, with a history of investing in game changers (especially transformational technology,) entered the picture as lead investor.  Vatera's founder Michael Jaharis quickly hired Mary Szela, the former head of U.S.

Pharmaceuticals for Abbott (now Abbvie) as CEO.  Her resume includes leading the growth of Humira, one of

the world’s largest pharma brands with multi-billion dollar annual sales.

Under her guidance Melinta has taken fast action to work

with the FDA on a much quicker clinical trials pathway of under 18 months for

commercializing delafloxacin.  In layman’s

language, early trials of delafloxacin appeared to provide better performance

for a broad spectrum of resistant bacteria in skin infections.  And as a one-dose oral (or IV)

application it could be a simpler, high quality solution for gonorrhea.

Melinta continues adding key management resources as it

seeks “breakthrough product” designation under GAIN from the FDA for its RX-04

product.  RX-04 is an entirely

different scientific approach to infectious disease control, based on that previously

mentioned proprietary, Nobel-winning ribosome science.   It’s a potential product category

game changer that could open the door for a pipeline of follow-on products.

Melinta is using GAIN to do something big pharma, with its

shrinking R&D and commercial staff, is unable to accomplish. Melinta is helping

redefine the rules for approving antibiotics, in order to push through new,

life-saving products.

The best news is that this game change is great for investors.

Those companies who understand the

trend (in this case, the urgent need for new antibiotics) and how the market

has shifted (GAIN,) are putting in place teams to leverage newly invented drugs

working with the FDA.  Investment timelines and dollars are looking

far more manageable – and less risky.

Twenty-five years ago pharma looked like a big-company-only

market with little competition and huge returns for a handful of companies.  But things changed.  Now companies (like Melinta) with new

solutions have the opportunity to move much faster to prove efficacy and safety

– and save lives.  They are the

game changers, and the ones more likely to provide not only solutions to the

market but high investor returns.

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