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A Pharma View on Delinkage and New Models for Biomedical Innovation: An Interview with Marc Destito from Otsuka Pharmaceutical

by Mike Frick and Lindsay McKenna, TB Project Co-Directors, TAG

In an interview with TAG’s Tuberculosis (TB) Project, Marc Destito, Senior Director of Public Affairs and Global Alliance Management at Otsuka Pharmaceutical, provides insight into how the development of TB drug delamanid moved the company closer to the principle of delinkage, an approach to biomedical innovation that aspires to separate research and development (R&D) costs from final product prices and volume of sales. Delinkage requires moving beyond traditional approaches of incentivizing R&D that rely on high prices and the temporary monopolies afforded by patents. Although recommended by the 2016 report of the United Nations Secretary-General’s High-Level Panel on Access to Medicines and endorsed in several World Health Organization (WHO) and UN declarations and resolutions, delinkage became a flashpoint during negotiations for the recent UN High-Level Meeting on TB. (see Beyond Declarations) Some countries and blocs of UN member states sought to remove the term from the draft political declaration, and others tried to water down its meaning. Behind these efforts was the influence of the pharmaceutical industry.

The pharmaceutical industry often attempts to justify high drug prices and patent-protected monopolies on medicines by citing the need to recoup investments in R&D. (see Myths) This narrative is especially indefensible in TB, where innovation is scarce and over 60 percent of  funding  for R&D comes from the public sector. In this interview with TAGline, Destito reflects on how Otsuka has approached the concept of delinkage with respect to delamanid, first approved for the treatment of multidrug-resistant TB (MDR-TB) in 2014. Destito acknowledges that Otsuka may be using the term delinkage in a way that differs from how its proponents have defined it. This is partly because at the outset of delamanid’s development, many of the innovative financing mechanisms and incentives that delinkage requires were not available or had not yet been imagined.

Our intent with this interview is to initiate a dialogue with the largest private-sector funder of TB research on the future of financing TB drug and drug regimen development, including the potential for pharmaceutical companies to replace or improve current R&D incentives with needs-driven strategies that promote the availability, affordability, and appropriate use of medicines. We hope this conversation becomes the first of a series on what delinkage means to different stakeholders involved in TB R&D.

This interview, which was conducted over email, has been lightly edited for clarity and length.

TAG: Otsuka is best known for aripiprazole (Abilify), a drug used to treat depression. Delamanid represents Otsuka’s first foray into developing a product for the global public health market. Why did Otsuka decide to invest in TB and the compound delamanid, in particular?
MD: The decision to invest in TB was driven almost entirely by the sheer willpower of one person: Otsuka’s late Chairman Akihiko Otsuka. He was very passionate about TB, having seen the devastating effects of TB in Asia firsthand. He felt there was a huge unmet medical need for new therapeutic options that were effective with better safety profiles than existing medications. Whereas many companies might have been deterred by the cost of development or the financial risks associated with investing in a neglected disease area like TB, he felt these challenges could be overcome and saw contributing innovation to an area that was underserved by other companies as central to Otsuka’s mission and philosophy.

TAG: Did receipt of any public or other financial incentives (e.g., tax breaks, regulatory rewards) play a role in Otsuka’s decision to invest in this area?
MD: No. At the time that Mr. Otsuka made the decision to start investing in TB R&D back in the early 1970s, there were very few, if any, public financing or regulatory incentive programs available, and I don’t think that was ever a consideration for the company.

TAG: According to data provided to TAG, Otsuka is the largest private-sector funder of TB research, spending $522 million from 2005 to 2017. How does Otsuka think of these investments in relation to both the volume of delamanid it expects to sell and the price of delamanid?
MD: I don’t think the two are related. In a way, Otsuka has already demonstrated the concept of delinkage, though perhaps not as it is usually defined. What I mean is that there is no expectation that sales revenues from delamanid could ever recoup the $522 million that was spent over the life of the project. I think the goal—and the directive from Otsuka headquarters—is to ensure that efforts moving forward, including R&D for the new [TB] compound OPC-167832,  are covered using a combination of delamanid revenues, innovative financing mechanisms, collaborations with public, private, and nonprofit entities, and other potential incentives that were not available when delamanid was being developed. Spending another $522 million just won’t work.

At that time, Mr. Otsuka was willing to invest whatever it took to achieve his dream. Today, the company recognizes funding that level of development without the ability to recoup is highly inefficient and threatens the long-term financial sustainability of the TB project. With increasing regulatory and development costs, the price of following the same approach is probably even higher today. Certainly some of the revenues from delamanid will be re-invested into R&D for  OPC-167832 and other TB products including diagnostics, but it will not be enough. Otsuka will need to work much more closely with other partners in the TB community and leverage other financing mechanisms. Collaboration very early in the development process is critical and something that was, frankly, not well utilized by Otsuka during delamanid development.


TAG: Given the above considerations, how did Otsuka determine the current price of delamanid?
MD: As mentioned, Otsuka “delinked” R&D from the price  of delamanid quite early on. The current price of delamanid [US$1,700 for a six-month treatment course in low- and middle-income countries; at least US$30,900 in high-income countries] was driven by the current cost of goods for the product.

[Note from TAG: this may be true for the price offered to low- and middle-income countries at current volumes, which are low, and with manufacturing taking place in Japan].

Unfortunately, delamanid is rather expensive to manufacture compared to other anti-TB medicines. Without  going  into too many technical details, it requires utilizing spray-dry technology and is reactive to oxygen, meaning it requires  nitrogen compression in double aluminum blisters—all of which drive up the cost.

That said, Otsuka is aware that the cost of delamanid is not in line with global expectations for what the ideal MDR-TB regimen should cost, and several activities have been ongoing for more than a year now to reduce manufacturing costs   and thereby price. This has included initiating technology transfer with our license partners, Mylan and R-Pharm, and the possibility of local manufacturing of delamanid in India. This process has started, and we’re optimistic that at least part of the tech transfer can be completed in 2019.

TAG: What steps is Otsuka taking to further reduce the price of delamanid in line with calls from civil society for an all-oral regimen to treat drug-resistant TB that costs no more than US$500? Estimates by Andrew Hill and colleagues indicate that delamanid could be produced for as little as $5–$16 per person per month, including a 10 percent profit margin.
MD: The estimations made by Hill and colleagues are not supported by the data or real-world experience, particularly without having access to key technical information and manufacturing processes that only the companies maintain.

[Note from TAG: Evidence-based refutations of Hill’s work would require companies such as Otsuka to make transparent drug development and manufacturing costs.]

That said, the current price of delamanid needs to be reduced to encourage scale-up and meet international expectations for an affordable fully oral regimen.

While pricing is an issue that will be addressed, I don’t believe that price is the biggest barrier to access right now. We continue to see regulatory challenges in several countries, lack of health system capacity to introduce new innovations, and lack of supportive global and national policy guidance. Even in countries where delamanid is available for free  under access programs designed to spur scale-up, uptake is incredibly small and doesn’t correspond with actual need. There is also a fair amount of donor funding that is available to high-burden countries, and it’s disheartening when some of these funds are left on the table every year.
[Note from TAG: To a significant extent, health systems respond to depth and quality of evidence, availability of compassionate use and preapproval access programs, timeliness and geographical reach of regulatory submissions, and other factors when seeking to introduce new interventions. At the same time, many health systems struggle to introduce new technologies for reasons that are outside of pharmaceutical company control.]

TAG: You argue that Otsuka has applied delinkage and is supportive of this principle. Can you further elaborate?
MD: [We’ve] delinked in the sense that there is no expectation that price or volumes [of delamanid sales] could ever be able to recover the over half a billion dollars that the company has invested in TB R&D over the life of the project. I think this is something very important for other actors in this space to consider moving forward. Even when developing medicines for neglected diseases like TB, which predominantly affect low- and middle-income countries, developers cannot cut corners when it comes to R&D, quality, compliance, pharmacovigilance, and regulatory processes. Developing new medicines that meet the requirements of stringent regulatory authorities still requires costly phase 2 and 3 trials—particularly as these regulatory requirements only seem to increase year after year. Registration fees and regulatory maintenance fees—including for WHO prequalification—are incredibly expensive, particularly when a company is expected to register a medicine in all countries around the world. So if development costs continue increasing but the commercial potential in neglected diseases remains limited, clearly you have an untenable situation which requires a delinked approach that does not rely on traditional market- based incentive structures for R&D

TAG: Based on your experience working on Otsuka’s delamanid development and access program, what is the role of public and philanthropic funders in incentivizing private-sector involvement in TB research and development?
MD: There is clearly a large role for public and private funders at every stage of the development process. Very often we consider that funding is needed on the R&D side, and it is, but funding is also required to assure appropriate introduction and scale-up of new medicines. Demonstrating a viable market for neglected diseases is critical—otherwise innovator companies have no incentive to develop them in the first place. And unfortunately, what we have seen in TB is that there is often  a dysfunctional market where there is not automatic uptake of new innovations the way some companies might expect. That’s where I think international funding can play a larger role: to ensure that there is funding and technical support in place for countries to successfully adopt new medicines and demonstrate demand.

TAG: How has the experience developing delamanid changed the way Otsuka is approaching investments in other TB compounds, such as OPC-167832?
MD: Clearly there is an understanding that Otsuka cannot approach the development of OPC-167832 in the same  way as delamanid or spend the same amount of in-house financing which is simply not available. The sheer size of the Otsuka investment documented by TAG probably gives other companies pause. It does not incentivize other companies or meet Mr. Otsuka’s vision of a self-sustainable public health project. That’s why from the very beginning [of OPC-167832’s development], we began discussions with partners to see how we could work together. Luckily, there was tremendous interest in exploring development of OPC-167832 in combination with other novel  compounds  in  the  hopes  of  developing  a future pan-TB regimen. We have a long way to go but are progressing quickly and have already begun a phase 1b/2a study in South Africa using an innovative approach to speed up the development timeline. In short, I think the biggest lesson learned from delamanid is that Otsuka cannot afford (literally and figuratively) to “go it alone” with the development of its second compound.

TAG: Recent years have seen many calls for “innovative models” for financing and incentivizing R&D for diseases like TB where traditional incentives alone may not be strong enough to attract sufficient, sustained investment from the pharmaceutical industry. Are there any proposals for innovative financing models that you think could work particularly well for TB drug development (e.g., the Life Prize, a product-development partnership model, or something else)?
MD: I think there are a number of interesting approaches that have been discussed, including the Life Prize, which, if it can be implemented, would certainly help attract more innovation. At the same time, I think governments can play a key role to ensure adequate financing and incentives. On the incentive side, the priority review voucher in the U.S. has been important for some companies, and this could be expanded in other regions. Another proposal, called a transferrable exclusivity voucher, gives additional exclusivity on any other product    in a company’s portfolio and  is  viewed  favorably  within the industry.

[Note from TAG: Proponents of delinkage generally do not support incentives based on transferrable exclusivity and have identified serious flaws in the current design of the U.S. Food and Drug Administration priority review voucher program.]

Besides incentives, governments need  to  work  collectively to commit a lot more funding to support health system strengthening, capacity building and other market-shaping activities that support rapid uptake—either through the Global Fund or another type of grant delivery vehicle. The [UN] High-Level Meeting [on TB] presented a great opportunity to spur this kind of creative thinking and multilateral cooperation. The challenge is that, apart from the priority review voucher, we have yet to see a number of these innovative models working in practice with concrete examples to draw from,   so I think it’s important that the community move beyond    the conceptual stage into actual implementation of these incentives. Once it’s been demonstrated how developers can benefit from innovative models, the innovations themselves will follow rapidly.