At present, drug development is only profitable if combination of prices and sales volumes is sufficiently high
The World Antimicrobial Resistance Awareness Week takes place from November 18-24 every year.
Bacterial infections are becoming increasingly resistant to our stock of antibiotics, and unfortunately, the pipeline for new types of antibiotics is blocked. The reason for this blockage has as much to do with economics as with hard science. Without the right incentives, drug companies are unlikely to develop the new antibiotics that are so badly needed.
The revenue that companies make from new drugs, including antibiotics, depends on the volumes they sell and at what prices. Drug development is expensive and so it is only profitable if the combination of prices and sales volumes is sufficiently high.
Unlike most other drugs, once an effective new antibiotic is developed, there is a need to restrict its use so that bacteria do not quickly become resistant to it. This reduces the volumes that are likely to be sold, often to the point where antibiotic development can be loss making. In sum, the traditional economic model does not provide good incentives for companies to develop novel antibiotics.
How can we fix the model
It is widely agreed that two things are needed. First, state interventions that reduce the cost of research and development (R&D), such as research grants and tax credits, are needed. However, this alone is not enough. We also need incentives that provide assurance to companies that, once they manage to develop safe and effective new antibiotics, they will receive sufficient rewards.
Because of the pressure to restrict the use of new antibiotics, the rewards offered need to be “delinked” from sales prices and volumes. There have been small positive developments in this direction. In the United Kingdom, for example, the government has been testing a subscription model, where annual lump-sum payments are made for two existing antibiotics.
The size of these payments is based on analyses of their value to the UK National Health Service, in terms of their overall health benefit, rather than on the number of doses that are sold. This approach has been dubbed the “Netflix model” – for a fixed subscription rate, the buyer is entitled to use the antibiotics as much as they want, while the supplier is guaranteed a steady income stream.
Even so, progress remains very slow. This is partly because it is difficult to estimate the value of new antibiotics and therefore, how much the subscription fee should be. Estimating the value of antibiotics is difficult compared to other drugs.
With other new drugs, it is relatively easy to evaluate how much health benefit they provide compared to existing drugs. If they are only equally effective as older drugs then, unless they cost less or the older drugs are difficult to supply, their value will be limited.
In contrast, new antibiotics are likely to be very valuable, even if they are no more effective than current antibiotics. This is because, over time, bacteria are likely to develop further resistance to our current antibiotics. Much of the value of the new antibiotic may come from the options it provides us in the future, if it remains effective when current antibiotics become less so.
However, evaluation is not the biggest obstacle. As the UK pilot has shown, well-designed analyses can provide useful, pragmatic estimates of antibiotic value. The biggest barrier to fixing the broken economic model is finding and coordinating countries or institutions that are willing to pay the sums that are needed.
Making the development of a novel antibiotic profitable is estimated to cost somewhere in the region of $3 billion. To put this number in context, the current subscription scheme in the UK pilot provides only £100 million (approximately $125 million) over a 10-year period. Significant global coordination is likely to provide the funding needed for incentivising the development of completely new antibiotics.
One proposed approach to co-ordination is the Health Impact Fund (HIF). This would be a government-funded agency that offers annual rewards pools, from which new drugs would receive a share. The share that each drug would receive would be based on an evaluation of the drug’s overall impact on global health.
Those drugs that contribute most to global health would receive the greatest rewards from the pool. In this way, firms would be rewarded according to the health impact of their drugs rather than the volumes they sell. In fact, part of the idea is that the firms would be obliged to sell their drugs at or below cost price — so that their remuneration would be purely value-based.
Countries could contribute a certain percentage of their gross domestic product (GDP) to the HIF. If enough countries got involved, only a very small share of GDP would be needed to create a fund big enough to make a major contribution to unblocking the antibiotic pipeline.
The HIF could also go a long way towards overcoming barriers to the development of other drugs that the market currently underfunds, most notably those for so-called diseases of the poor like tuberculosis and malaria.
As with tackling the climate crisis, significant investment in innovation must also be a major part of the solution to the antibiotic resistance crisis. However, in addressing both of these major issues, we must not lose sight of the importance of conserving the precious resources we currently have in the hope of new technology.
Just like extreme inequality in carbon footprints across and within countries, the excess use of antibiotics co-exists with a lack of access to essential lifesaving antibiotics. Finding ways to optimise the use of antibiotics, ensuring that they are used where they should be, and not used when they should not be, must also be an important focus for public policy.
Laurence Roope is a senior researcher at the Health Economics Research Centre (HERC), part of the Nuffield Department of Population Health at the University of Oxford.
Views expressed are the author’s own and don’t necessarily reflect those of Down To Earth
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