Antibiotics could be pharma's credit crunch

Jim O'Neill's government-commissioned report on antibiotic resistance calls for billions in subsidies to correct 'market failure'.

by Adam Gale
Last Updated: 23 Sep 2015

There are some obvious parallels between pharmaceuticals and banking. Both are huge industries entirely necessary for the global economy to function healthily, and both are much maligned for making profits at others’ expense.

Jim 'Mr Bric' O’Neill, former Goldman Sachs chief economist and chairman of the government’s Review on Antimicrobial Resistance, is well placed to think of another. If big pharma doesn’t start acting with ‘enlightened self interest’ on the question of antibiotic resistant bacteria, he says, ‘somebody is going to come gunning for these guys just how people came gunning for finance’ after 2008. That’s enough to make anyone feel queasy.

O’Neill’s report paints a picture of a business plagued with serious market failure. Though he estimates the cost to the global economy of antimicrobial resistance (AMR) to be an eye-popping $100tn (£65tn) over the next 35 years, he believes the pharmaceutical industry is sitting on its hands.

The problem is that, unlike other drugs, a new and expensive antibiotic isn’t actually much better than older, generic types – until, that is, the older ones become ineffective due to AMR. As a result, it’s years before the new ones get used, and by the time they do the patent could well have expired. On top of that, doctors don’t want to use new, effective antibiotics too much anyway, as doing so would hasten the onslaught of AMR to those too.

It’s just not rational for pharma companies to spend a fortune developing drugs they won’t sell when they could spend it on ones that will, such as lucrative anti-cancer drugs. It’s been 30 years since the last new major class of antibiotics came to market. The Review estimates that ‘perhaps only three compounds’ are under development that could be effective on bacteria resistant to the current ‘last line of defence’, carbapenems.

What O’Neill believes big pharma is doing, then, is putting profit margins above its social responsibilities and in doing so risking an eventual hammering from irate governments up to their necks with sick people, and indeed those sick people themselves. Whereas the state took the stick to bankers after their screw up, O’Neill suggests it offers the pharmaceutical industry a few carrots to avert theirs.

The idea O’Neill proposed today, ahead of the publication of his full report next year, is for a global intergovernmental body to guarantee payments to pharma companies that develop effective drugs, severing the link between profits (and therefore development) and sales volumes. It won’t matter how many people use the new drug, just that it works.

O’Neill estimates this new regime could produce 15 new antibiotics a year, but at an extra cost of between $16bn and $37bn over ten years – equivalent to a less-than-10% hike in the world’s annual spending on antibiotics.

Governments may cough up for this, though they don’t exactly have a great track record on dealing with major global problems (here’s looking at you, climate change), but O’Neill wants the industry to dig deep too. He suggests a $2bn innovation fund to subsidise ‘blue skies’ research into new drugs, which the state would only kick start.

‘Big pharma should have a role in paying for this innovation fund: it needs to look beyond short-term assessments of profit and loss, and act with "enlightened self-interest" in tackling AMR, recognising that it has a long term commercial imperative to having effective antibiotics, as well as a moral one,’ the Review says.

Bosses from Roche, GSK and Achaogen all offered their support for the proposals, but didn’t actually commit to action. Significant, guaranteed injections of state money would probably be enough to change the economics of the antibiotic business, but throwing money at healthcare doesn’t have a great track record for producing innovation. And expecting the industry to take the lead – even with the threat of an eventual backlash like the one bankers have faced - is probably wishful thinking.

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