The Public Health Emergency Medical Countermeasures Enterprise Innovative Strategies to Enhance Products from Discovery Through Approval: Workshop Summary (2010) / Chapter Skim
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Appendix E: Synthesis of Business Models and Economic and Market Incentives for Vaccines and Therapeutics
Appendix E: Synthesis of Business Models and Economic and Market Incentives for Vaccines and Therapeutics
Pages 113-180
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By James Guyton, Hannah McClellan, and Fanni Li Public Health and Biodefense Practice PRTM ABOUT THIS PAPER Background and Charge This paper has been developed to support an HHS Secretary-directed review of the Medical Countermeasures Enterprise (MCME) that addresses public health emergency threats including chemical, biological, radiological, and nuclear (CBRN)
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issues related to pursuing these new and innovative policies, strategies, and incentives. Scope This paper focuses primarily on policies, business models and incentives for increasing industry involvement in the MCME's programs for medical countermeasures for CBRN threats.
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A bibliography and list of interviewees are provided at the end of the paper. This paper has benefited from multiple interactions with participants in the February 23–24, 2010, Institute of Medicine workshop on The Public Health Emergency Medical Countermeasures Enterprise: Innovative Strategies to Enhance Products from Discovery through Approval as well as members of the National Biodefense Science Board's Markets and Sustainability Working Group.
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A more effective business model for MCM development could increase industry engagement by more successfully meeting the core needs of experienced pharmaceutical companies. To that end, we have identified three principal conditions that must be addressed: • Product Requirements: Developers need specific requirements for the MCM, including what the product should be (Target Product Profiles [TPP]
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• Push and Pull Incentives: Incentives provided by the government to increase industry interest in MCM development opportunities. Incentives Incentives are a critical component of the business model, as they provide toolkits for executing strategic and operational plans.
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USG should explore opportunities to promote collaborations, whether these are bilateral partnerships between companies or public–private partnerships. • Incentives: The most critical incentive the USG can provide is to create a reliable market for MCM products.
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Implementation Plan for CBRN threats (Table E-1 below) require development programs to achieve either approval/licensure for new MCM products or new indications for existing products.
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To date, no novel products and only a two new indications of previously licensed products have been approved under the Animal Efficacy Rule. 8 Moreover, many threats do not yet have proven animal models available.
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Engaging Experienced Industry Players Has Proven Challenging The mission inherently requires close collaboration between the USG and private sector companies. While stakeholder opinions varied about the type of industry participation needed, the majority believed that some level of experienced pharmaceutical engagement, particularly in late stage development, was a necessity to building a successful MCM development enterprise.
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15 Because no one entity is necessarily responsible for funding end-to-end MCM development, it is important to ensure funding dollars are appropriately distributed across all stages of the product development pipeline. Despite these challenges, most subject matter experts still believe that seasoned industry firms can play a role in MCM development, 13 Optimizing Industrial Involvement with Medical Countermeasure Development: A Report of the National Biodefense Science Board, 2010.
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CURRENT UNITED STATES GOVERNMENT APPROACH TO MCM DEVELOPMENT The Enterprise's CBRN program investments to date have primarily focused on biological threats. The approach that has been followed to date for developing MCMs against these threats can be summarized as follows: • Policy decisions on how MCM products against biological threats will be used emphasize post-event response with stockpiled MCM products.
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• The MCME is partnering with MCM developers to manage the entire MCM development chain from research, to development, and finally to production by employing a variety of incentives, including "push" mechanisms and "pull" mechanisms (e.g., grants, contracts, government/industry collaborations, liability protections, tax credits) and "pull" incentives (e.g., regulatory and exclusivity rewards, procurement contracts)
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22 Drawing from that NBSB report, an extensive review of current literature, and the stakeholder interviews, we have identified the three principal conditions that must be met in order to attract experienced pharmaceutical companies and VC funding to the MCME: 22 Optimizing Industrial Involvement with Medical Countermeasure Development: A Report of the National Biodefense Science Board, 2010.
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With these requirements clearly stated, companies can then balance product requirements against their current capabilities and constraints in order to determine if an opportunity is worth pursuing. • Regulatory Clarity: In addition to a clear set of product requirements, MCM developers must have a clearly defined regulatory path that can be navigated to success.
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As public companies with a fiduciary duty to shareholders, experienced pharmaceutical manufacturers in particular must ensure the returns are worth their investments of R&D dollars and time. One SME noted that a critical difference between pharmaceutical companies and other industries that regularly contract with the USG is the fact that "Wall Street expects a much higher rate of return from pharma companies." Two key factors influencing the expected return of an MCM development project are margin and volume.
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As one SME noted, "You have an uncertain regulatory path to approval, the government determining procurement volumes, and the government reserving the right to change its mind. That makes it all kind of scary." A MEDICAL COUNTERMEASURES BUSINESS MODEL FRAMEWORK FOR INDUSTRY PARTICIPATION Resolving the observable disconnect between industry needs and today's MCME requirements will take more than tactical additions and adjustments to the current business model.
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Players 4. Push and Product Use Strategies and Roles Pull Incentives "Vision" "Market attack "Interface with partners and "Value proposition" strategy" customers" FIGURE E-3 MCM business model framework spans across strategic, operational, and tactical planning.
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TABLE E-2 MCM Business Model Applied to Pandemic Influenza, Neglected Diseases, Rad/Nuc Threats, and Biological Threats 1. Policies 4.
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As described in the summary of the current approach for biological threats, the policy emphasis to date has been on post-event response using stockpiled MCM products. Alternative policy decisions would have significant implications on the usage scenarios and CONOPS for MCM products.
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New Indications for At-Risk Populations While each category presents a unique set of advantages and challenges, each one also plays an important role in maintaining a robust portfolio of MCM products and represents a different scope and scale of industry involvement. New Products with No/Limited Commercial Markets In the absence of related products that may be leveraged, CBRN MCMs must be developed and manufactured essentially for a single customer, the U.S.
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29 The White House's Homeland Security Presidential Directive 18 and the PHEMCE Strategy and Implementation Plan of 2007 both recommended addressing this problem by developing broad spectrum countermeasures and platform technologies. 30 One SME touted the value of broad spectrum products, platforms, and technologies, stating, "I want to have multiple plays because I know most products fail." Despite widespread enthusiasm for this product strategy, broadspectrum approaches have so far had limited success beyond new indications for some antibiotics.
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Incentives such as those currently in place for pediatric indications for commercial products could be pursued. PLAYERS AND ROLES The third component of the MCM Business Model Framework addresses operational and organizational roles for successful MCM development and procurement.
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• Research and Development by Experienced Pharmaceutical Companies Under this model, experienced pharmaceutical companies take responsibility for the end-to-end discovery, development, scale-up and manufacturing of new MCMs. This approach could entail adapting current commercial products to fit the requirements of a bioterrorism threat or developing novel products.
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Moreover, experienced pharmaceutical companies are not necessarily in the best position to execute early discovery work, as small companies tend to drive innovation. 33 As one SME noted, "discovering good drug candidates is not a prerogative of big pharma." Successful examples of experienced pharmaceutical industry participation in the CBRN space do exist, as evidenced by the Pandemic Flu vaccine program.
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36 • Experienced Company/Innovator Company Partnership The goal of this model is to take advantage of the unique and valuable contributions both experienced pharmaceutical and innovator companies can make toward MCM development by encouraging them to form product development partnerships. Under this strategy, experienced pharmaceutical companies support early stage development of smaller, more innovative biotechs by providing financial backing, resources, and expertise.
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PPPs offer a wide array of potential benefits: Offsetting Opportunity Cost -- As public companies with a fiduciary duty to shareholders, pharmaceutical firms must structure their portfolio to pursue only the most profitable projects. However, government support of PPPs may allow pharmaceutical companies to
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37 Technology and Talent Development -- A PPP also provides the opportunity for pharmaceutical companies to explore and test new technologies that could benefit both biodefense and commercial projects. SMEs noted that major pharmaceutical companies are often hesitant to pursue a new technology that could improve a marketed product for fear of encountering a complication in the development, such as a clinically adverse event, that could affect the marketing of the commercial product.
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, specialized facilities that test biothreat formulations and other types of intellectual property or technical resources. 39 Several industry experts remarked that the virtual pharmaceutical company model requires a manager with experience at a large pharmaceutical company who understands all development phases, particularly for processes related to late-stage development.
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the sole customer for MCMs and generally limits purchases to one-time bulk acquisitions and warm base manufacturing contracts. As alternatives to the current MCM business model are considered, it is important to note that any changes to policies and product strategies will have direct implications to the size and characteristics of the MCME customer base.
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Most interviewees suggested that a combination of incentives could be effective in attracting companies to the MCM Enterprise and that these mechanisms could be used to augment the current MCM model. One SME summarized the issue as follows, "One thing is for sure in establishing such external incentives: one size does NOT fit all because of the varying sizes, capabilities, and capacities of companies who could address MCM development." Combinations of push and pull incentives may be sufficient, depending on policy and strategy decisions for each MCM program, as well as where the incentives are applied along the development chain.
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The most significant problem with push incentives, according to several of our SMEs, is that pharmaceutical companies want a market, not lowered development costs. While push mechanisms certainly help to incentivize industry participation, they may be inadequate by themselves, particularly for large pharmaceutical companies with higher opportunity costs.
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Currently, the MCME's main pull mechanism is Project BioShield, a $5.6 billion SRF aimed at creating a market for vaccines against bioterrorism agents. 47 Thus far, the funds have not succeeded in attracting large pharmaceutical companies to MCM development, but have instead engaged smaller developers with limited infrastructure or experience bringing a product to market.
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• Market Exclusivity Rewards and Patent Extensions • Prizes • Leverageable Capital Asset Investments Push Incentives Enhanced Tax Credits Tax credits are a means of incentivizing an activity for which there is an insufficient reward or return on investment (ROI) ; they can also compensate the developer for creating products that serve the public good, which in this case is the development of MCMs.
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54 • Strategic Partnership Tax Credits: The USG can issue a tax credit for experienced pharmaceutical companies who partner with innovator biotechs to develop MCMs. This may motivate large companies to actively seek out innovator companies who are working on promising technologies.
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Careful restriction of tax credits to include only activities related to MCM development would help to curb improper accounting. 57 Implementation Issues Implementing new tax credits would require congressional action, and the US government would pay for tax credits through reduced tax revenues.
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The thrill of cracking a scientific challenge provides a lot of motivation for them." As such, pursuing an open innovation approach is one way to jump start this type of widespread collaboration and generate a lot of activity in the early stage MCM development space. Open source innovation allows the USG to capitalize on the experienced resources that make large pharmaceutical companies so successful at late stage development.
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Successful licensure of MCMs conceived through open source early stage research would likely require the support of a PPP or other commercial operation to see candidates through late stage development and into production. Implementation Issues Political Challenges: Open source approaches may not be favored if the USG prefers to hold certain biodefense-related IP confidential for security purposes.
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These gaps will differ on a case-bycase basis. As such, the participating government agency should perform exhaustive due diligence into what its private sector partners require, whether that is funding, personnel, technology resources, animal models, manufacturing capabilities, and/or regulatory insight.
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Advance market commitments (AMCs) are pools of funding used to guarantee a market price for these products as a means of "pulling" development along.
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Since R&D costs are extremely high, and if we assume R&D spans over 10 years, with another 10 years to recoup the initial investment, the perception is that this becomes a very long horizon. Pharmaceutical companies may be concerned with the government reneging on the promised offer, given that government priorities may change over the course of 20 years.
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If multiple products are purchased, the perception of risk is lower, and the resulting price offered to the developer may be lower as well. 67 To give an example of the magnitude of the cost, the necessary size of an AMC to incentive R+D from large pharmaceutical companies has been estimated to be around $3 billion for a malaria vaccine -- enough to equal the expected revenue of developing one commercial drug.
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Potential Benefits For USG: PRVs generally have fairly low social costs and are more politically acceptable than patent extension vouchers. Whereas granting patent extensions would delay the introduction of generics to consumers, PRV vouchers allow consumers to benefit from having new drugs and vaccines earlier than under the regular review process.
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77 A PRV is estimated to be worth $300 million dollars when used on the top decile of compounds currently on the market, and $100 million dollars when used on the second decile. 78 Potential Weaknesses For USG: A potential social cost of transferable priority review rights is that it could slow down the approval of other equally deserving or more urgently needed drugs in the United States.
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80 Under this legislation, however, this list could not include MCMs to counter chemical and Rad/Nuc agents. Enhanced Market Exclusivity Rewards Enhanced market exclusivity rewards ensure that the MCM product is the only one on the market for a period of time that is more extensive than what is currently guaranteed by patents or the 7-year market exclusivity reward under the Orphan Drug Act.
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83 Additionally, an MCM would already be very likely to have market exclusivity as an Orphan Drug, so any market exclusivity contract should take that into account.
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For Industry: With many large pharmaceutical companies facing patent cliffs on their blockbuster drugs, a patent extension on any of their blockbuster products can add up to several hundred million dollars in revenue. Potential Weaknesses A transferable patent extension will likely be immensely valuable for industry.
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the calculation of the length of the extension. Negative Political Climate: Transferable patent extensions are likely to be unpopular amongst legislators for the fairness issues described above.
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90 Potential Weaknesses Our industry experts generally agree that prizes will not induce large pharmaceutical companies to participate in MCM development. They cite that leading pharmaceutical corporations are generally interested in enterprises that have a predictable, sustainable, and profitable market for the MCM product.
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Implementation Issues Prize designers must consider four main factors -- prize size, payment timing, prize specifications, platform technology potential -- to ensure an efficient design that will sufficiently incentivize industry players. Prize size: Setting the size of the prize can be challenging.
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Several of our subject matter experts have commented that big industry players prefer to work on projects where the R&D they are performing has commercial applications, such as testing the addition of adjuvants in vaccines, or designing platform manufacturing capabilities. This approach allows commercial players to access economies of scale for both the development of their commercial products and the MCMs.
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. Potential Benefits For Industry: Our industry experts agree that access to multiuse manufacturing infrastructure has the potential to induce participation from large pharmaceutical companies.
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The process adds another layer of complexity and risk that companies may be averse to taking. However, one industry expert had a much more optimistic view of utilizing facilities for dual-use, stating that equipment used to manufacture a vaccine or therapeutic for an infectious disease should take one to two weeks to clean, and that such a routine is common for large pharmaceutical companies.
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According to one SME, experienced pharmaceutical firms won't engage "unless the president himself asks for it." Such leadership was seen as a necessity by several interviewees to demonstrate the kind of commitment required to make MCM development successful.
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The effectiveness of different incentives depends on context of policies, products, and players. • Minimizing disincentives may be enough to "tip the scale" and would "send a signal that the MCME is committed to collaborating with industry." Most Frequently Cited Opportunities for Increasing Participation Under the current policy of focusing on post-event response based on stockpiled product, opportunities to increase industry participation exist across the latter three segments of the MCME Business Model Framework.
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Examples of this product strategy include vaccine platforms and multiple indications on a single drug product. Players and Roles: To date, the MCME's business model has primarily attracted innovator companies to manage the entire development chain, from early stage discovery research through late stage development and production.
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With $5.6 billion allocated over 10 years to purchase at least 14 CBRN threat agents, BioShield is unlikely to draw participation from large, pharmaceutical companies. 102 No matter how funds are shared among push and pull mechanisms targeted at pharmaceutical companies for MCM research, it is unlikely that $900 million dispersed among various incentives would appear more attractive to industry than a $3 billion commercial drug.
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• Relevance: Provides excellent model of public–private partnership success Nuclear Technologies • Goal: Stimulate interest in the nuclear power industry where liability, in the case of a nuclear accident, was a serious obstacle • Incentives: Liability protection through the Price Anderson Act, which provided more than $9.5B in insurance coverage • Relevance: Like MCME, concern over indemnification hinders industry participation Biotechnology Incubators • Goal: Foster growth of innovative technologies and ideas from start up ventures who cannot reach commercialization alone
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. Advance market commitments for vaccines against neglected diseases: Estimating costs and effectiveness.
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. CSC's DynPort Vaccine Company to continue plague vaccine development.
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. Alternative models for medical countermeasures development.
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2010 (Feb.) The Public Health Emergency Medical Countermeasures Enterprise: Innovative strategies to enhance products from discovery through approval.
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2006. Drug and vaccine development for infectious diseases: The value of Priority Review Vouchers.
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2007. HHS Public Health Emergency Medical Countermeasures Enterprise implementation plan for chemical, biological, radiological and nuclear Threats.
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2009. Developing medical countermeasures: From BioShield to BARDA.
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Jennifer B Alton, Bavarian-Nordic Marguerite Baxter, Novartis Ernst Berndt, MIT Sloan School of Management Luciana Borio, HHS/FDA Carla Botting, Malaria Vaccine Initiative Mike Callahan, DARPA Francesca Cook, PharmAthene Jodie Curtis, Alliance Secretariat Jeffrey Fu, Merck Thomas Fuerst, HHS/ASPR/BARDA John Grabenstein, Merck; National Biodefense Science Board Henry G
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Scannon, Xoma; National Biodefense Science Board Bradley Smith, UPMC Center for Biosecurity CONTACT INFORMATION Michael Mair, MPH Program Analyst Policy, Planning, and Requirements Division Office of the Assistant Secretary for Preparedness and Response Department of Health and Human Services Michael.Mair@hhs.gov 202-260-1343 James Guyton Principal PRTM Management Consultants, LLC 1750 Pennsylvania Avenue NW Suite 1000 Washington, DC 20006 jguyton@prtm.com 410-428-3259 Hannah McClellan Associate PRTM Management Consultants, LLC 1750 Pennsylvania Avenue NW Suite 1000 Washington, DC 20006 hmcclellan@prtm.com 617-680-4500
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APPENDIX E 179 Fanni Li Consultant PRTM Management Consultants, LLC 1750 Pennsylvania Avenue NW Suite 1000 Washington, DC 20006 fli@prtm.com 781-526-8191
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