GSK (LSE: GSK), he company formally known as GlaxoSmithKline when it had a consumer healthcare business as well as a pharmaceutical one, released promising results from its Eagle-1 phase three clinical trial for gepotidacin in uncomplicated gonorrhoea yesterday. You would not know that by looking at the GSK share price which declined through to today.
This should be a big deal. If phase one trials ask if is it safe, phase two trials ask if it works, and phase three trials ask if is it worth it, then positive phase three results, especially when announced by a big pharma company make it fairly likely the drug will hit the market.
The GSK share price did not register the phase three trial news
Gepotidacin is described as a “first-in-class” triazaacenaphthylene antibiotic that inhibits bacterial DNA replication by blocking two essential topoisomerase enzymes. That’s roughly the same mechanism of action as an existing class of antibiotics called quinolones, so maybe calling it “first-in-subclass” would be more appropriate. The development of this antibiotic might be viewed as an iterative, rather than innovative step unless of course, you classify antibiotics by molecule and delivery mode rather than mechanism of action.
Positive phase three trial results (Eagle-2 and Eagle-3) concerning the use of gepotidacin in uncomplicated UTIs were reported on 15 April 2023. I think I am safe in saying uncomplicated UTIs are more common than gonorrhoea, so that’s a bigger use case, so maybe investors have already popped the corks on the celebratory champagne. But there was not much of a move on that day either, and the stock price declined from the middle of the month onwards.
GSK is not a small biopharma company that will live or die by getting one of a handful of drugs approved. I wouldn’t expect a 25% gain in one day on the back of late-stage trial data. But nothing? That’s surprising, especially for a drug that has been touted as having blockbuster—more than $1bn of annual sales—potential. Investors might be questioning when this blockbuster potential will be realised, and as we all know a stream of payments starting today is worth more than the same stream that starts in ten years.
There is a problem with antibiotic resistance. A novel antibiotic should be exciting. The trouble is that these drugs tend to be held back and only prescribed in cases where resistance is noted. It is possible that if gepotidacin gets approval it ends up sitting on a shelf only to be prescribed when existing antibiotics fail. And that’s if physicians and hospital groups think of prescribing it and ordering it, as it takes time for new drugs to end up on prescription pads and purchase orders. Maybe there is a worry that patents expire before much of the stuff gets prescribed. Or maybe the similarity to quinolones is a worry for investors fearing that resistance might pop up quickly—such resistance exists against quinolones. All, some or none of these thoughts might explain why the GSK share price failed to muster any cheer yesterday, despite seemingly good reasons to do so.
How to make antibiotic development attractive for pharma companies like GSK and their investors
If approved, gepotidacin would be the first new antibiotic for uncomplicated UTIs in 20 years, and it looks like a new line of treatment for gonorrhoea. As said previously, the world needs antibiotics. Now let’s just assume that investors are not fussed about this potential blockbuster drug for the reasons described. Why then would any pharma company develop an antibiotic?
A lack of interest might explain why the pipeline has run so dry for 20+ years, indeed the last true class of antibiotics was the quinolones, which were discovered in 1987. Antibiotics might not pay. They get related to third or fourth-line agents when released. Then, when they are bumped up to first or second, they get prescribed for seven days and that’s it. They don’t get taken daily for decades and decades. They don’t get given in mass like annual vaccinations. They don’t command the premium prices of novel cancer treatments. Prescribing antibiotics regularly goes against stewardship models designed to combat resistance: volumes are ideally kept as low as possible. This all adds up to a real risk of patent expiry before the inventing company can make good on its R&D, and developing drugs costs a boatload of cash. And its CEO can’t even point to a nice price pop in the GSK share price when good news is released about progress to approval.
A way to make antibiotic R&D and approval pay has to be found. Extending patents to run until a certain revenue threshold has been hit, discounted back to the approval or release date could be a way. Having hospitals or the like pay some sort of licence for access to an antibiotic that is not linked to volumes is another. The NHS England has pioneered a subscription-based funding pilot for two new antimicrobial treatments which have gained regulatory approval. Using what has been learnt there a proposal for a UK-wide scheme has been drawn up. Companies would get a fixed annual fee for delivering a new antibiotic that works, regardless of the actual sales of the product. Companies and investors get a fixed return. That should encourage development, but in practice, I bet there will be a call for participation above certain volume sales.
DISCLAIMER: James J. McCombie owns shares in GSK. The Storied Investor has no beneficial ownership position in any of the stocks or securities mentioned. No comment in this article should be construed as a recommendation of, or opinion regarding the future performance of, any stock or security or collection of them mentioned herein. Opinions expressed are the author’s and do not represent the views of The Storied Investor.
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