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The UK Pay-or-Play Solution: A Horribly Flawed Idea


We desperately need new anti-infective drugs to avoid life threatening infections. Let’s make that happen by punishing companies who don’t invest in R&D for these specific drugs.

We desperately need new anti-infective drugs to avoid life threatening infections. Let’s make that happen by punishing companies who don’t invest in R&D for these specific drugs.

Ed Schoonveld

No, this is not a bad joke, but rather a slightly paraphrased recommendation of a UK government-commissioned Review of Antimicrobial Resistance (AMR). Let’s look at the details.

Antimicrobial resistance is considered one of the most serious health threats that our society is facing. Periodic health emergencies, such as the recent Ebola outbreak, cause considerable public anxiety. Taking measures to avoid or effectively handle these events are clearly important from a public health perspective. In this spirit, the UK Prime Minister, David Cameron, commissioned the Review on Antimicrobial Resistance under the leadership of Jim O’Neill.

Overview of recommendations

In the foreword of the final report, O’Neill is contemplating why he was chosen to lead the AMR effort as an economist. Ironically, I challenge the soundness of the business and economics side of the recommendations, not the infectious disease and global awareness considerations.

There are four parts to the recommendation in the report:

  • Organize a global public awareness campaign: Develop education on general hygiene to avoid spread of infections and awareness of proper prescribing practices of antibiotics.

  • Ensure availability of a new generation of drugs in light of AMR: New antibiotics are needed to eradicate bacteria against which older antibiotics are no longer effective due to antimicrobial resistance.

  • Sparing use of antibiotics in humans and animals: Unnecessary use of antibiotics is known to speed up resistance development.

  • Address excessive use of antibiotics in agriculture: Widespread preventative use of antibiotics in agriculture and subsequent spread in the environment is believed to have a harmful effect on drug-resistance development.

Most will probably agree with the report’s high-level conclusions since the problems on anti-microbial resistance are not really new but merely reaching a more alarming level. Agricultural use is perhaps a political issue, as there seem to be different perspectives on this topic on each side of the Atlantic. I will leave that topic for others to comment on.

The need for new antimicrobial drugs

I certainly agree with the urgency in need for new drugs, but the report is suggesting levying a tax on drug companies that don’t engage in R&D efforts for anti-microbial drugs. It is referred to as “play or pay.” This proposed tax solution is horrifying for many reasons. It may very well cause significant harm rather than address the issue.

The complexity is that we need access to new and effective anti-infective drugs for healthcare emergencies-such as Ebola, MRSA, etc.-but you only want to actually use them in those cases where you really need them to avoid the development of anti-microbial resistance. It’s like an insurance policy: You need it but hope to never ever use it. Also, you would want to have these new treatments available before it becomes a widespread need. You want to avoid a pandemic by “catching it early.”

Some sort of market entry reward or a guaranteed stockpile order for these critical drugs would indeed create a natural incentive for the pharmaceutical industry to invest in these programs, which would otherwise yield little revenues. But let’s talk about funding because this is where the report is flawed.

It will take additional incentives to motivate a competitive industry to invest in risky discovery and development programs for anti-infective drugs that we hope will only be used sparingly. This is not just a matter of pumping billions of dollars into some kind of drug-design machine, as is suggested in the report through its analogy to post-war reconstruction funding. This area is scientifically complex, so we need to make sure that the best and the brightest are organized to work on these programs. It’s both scientifically fascinating and emotionally concerning how microbes and viruses evolve to make themselves less vulnerable to the drugs that help our body’s immune system eradicate these organisms. Many of the new drug programs will fail, which will redirect our scientists to better solutions and, ultimately, a successful invention.

Merck CEO Ken Frazier put it very nicely: The drug R&D business is not innovation (like a new iPhone version), it is invention, which is much more complex and uncertain.

This is where the report is horribly flawed. A tax to force invention? Forcing every pharmaceutical company to spend resources on anti-microbial drug development to avoid tax punishment is an equivalent of “the beatings will continue until morale improves!” All this will do is encourage all, rather than only the most talented in AMR, to spend money on anti-microbial research programs, preferably those that qualify for the tax exemption, but still give a relatively low-risk return on investment. It will drain intellectual resources from those companies that are better situated to truly invent new solutions in this space.

Incentives for invention

Stimulation leads to invention, never taxation. Private or government funds to create financial pay-off for new inventions of effective drugs is what will drive solutions. The financial pay-off needs to be well thought-out and needs to preserve market competition. Here are some thoughts:

  • The best option may be a stockpile order guarantee. After all, the cost of actual drug manufacturing is insignificant in comparison to the cost of invention and development. It will also address the issue of drug availability in (or before!) a pandemic situation.

  • Patent extensions may help in some situations, but may not be all that effective in this space. It does not solve the high need versus (hopefully) low-usage dilemma.

  • Allowing much higher prices would work, but society may not accept those. It seems to be hard to accept that when you spend, on average, $2.6 billion to develop a new drug, the price will have to be high if it is only used for a few patients.

Obviously, any potential solution needs further careful consideration. It would be good to collaborate between the government and the private sector to further think this through and build consensus on some real solutions.

Ed Schoonveld is Managing Principal at ZS Associates.

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