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The first rule of economics – incentives matter

Summary:
There is indeed a problem with the development of antibiotics. Far too many bugs are gaining immunity to the ones we use - largely because we use them and evolution happens. Far too few new antibiotics are being developed. This is a problem we’d like to solve because we’d really not want to return to a world in which sepsis is the likely outcome of any surgery.The problem is one of incentives. It costs hundreds of millions to billions to develop a new antibiotic. The patent which allows that cost to be recouped lasts 20 years from filing, usually about 10 years from approval. But the entire point of having this new antibiotic is that we’ll use it very sparingly as the last resort. Only those infections that don’t succumb to our extant supply will be treated with it. Further, we really

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There is indeed a problem with the development of antibiotics. Far too many bugs are gaining immunity to the ones we use - largely because we use them and evolution happens. Far too few new antibiotics are being developed. This is a problem we’d like to solve because we’d really not want to return to a world in which sepsis is the likely outcome of any surgery.

The problem is one of incentives. It costs hundreds of millions to billions to develop a new antibiotic. The patent which allows that cost to be recouped lasts 20 years from filing, usually about 10 years from approval. But the entire point of having this new antibiotic is that we’ll use it very sparingly as the last resort. Only those infections that don’t succumb to our extant supply will be treated with it. Further, we really don’t want widespread use because that would just encourage that evolution thing to make it not work again.

A system based upon volume sales therefore doesn’t work as a development incentive for new antibiotics.

The answer is, obviously, change the incentives. Some say that therefore drug development, or perhaps just antibiotic, should become a government function. The recent success of that in the development of coronavirus vaccines might show that not to be the path to take. Changing the incentives for the system we know works, those private developers out there, seems more sensible:

And the UK is experimenting with a new subscription-style payment model that pays drug companies upfront for access to novel antibiotics, so decoupling profit from volume sold.

More detail here:

The NHS is offering 2 contracts to pay pharmaceutical companies at the start of their work for access to innovative antibiotics, incentivising them to bring new classes of the drugs to patients across the UK for the first time in almost 30 years.

Of particular interest are antibiotics that can provide alternative treatment options for serious infections, such as bloodstream infections, sepsis and hospital-acquired pneumonia.

The high cost and low returns associated with antibiotic research and development makes it commercially unattractive. This is why the drugs will be paid for by the world’s first ‘subscription-style’ payment model for antibiotics and will be made available to UK patients as soon as possible, potentially as early as 2022.

We do not say that scheme will be perfect - human design never is in this vale of tears. Rather, that the development of antibiotics faced an incentives problem. The answer is to change the incentives. Because, you know, incentives matter.

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Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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