Why Big Pharma Refuses To Take On The Threat Of Antibiotic-Resistant Germs

-Analysis-

HAMBURG — Some 40 million people will die from antibiotic-resistant germs in the next 25 years, according to the latest estimate. All reasonable experts agree: New medicines must be developed urgently, otherwise we will face the threat of living in a post-antibiotic era, an era in which people die from simple infections because doctors can no longer treat them.

Yet although the problem and solutions are obvious, there are very few new antibiotics in the research pipelines of the big pharmaceutical companies. More and more companies are even closing down their antibiotics divisions. The reason? Antibiotics are not profitable.

Companies will rather focus on another cancer drug that marginally improves the prognosis for lung cancer; another cholesterol-lowering drug that is slightly more effective than its predecessor and is so inexpensive to develop that it brings in billions without any major risks; or yet another anticoagulant.

And so billions of dollars in development costs are spent on drugs that have little impact on people’s health, while virtually nothing is spent on developing drugs that could save millions of lives. It is a blatant injustice.

Not profitable enough

Not all pharmaceutical bashing is justified: There are good reasons behind companies not investing in the production of antibiotics.

First and foremost is the simple fact that newly developed antibiotics are not widely used at first but end up on the shelf as a backup. That is because a drug to which bacteria have not yet developed resistance is only to be used if all established drugs fail. That means that new antibiotics cost a lot of money but bring in very little — especially in the beginning. And that is precisely where the problem lies.

Pharmaceutical companies have to make money from drugs as quickly as possible, as long as patent protection applies and cheap copies, so-called generics, are not yet permitted. If a new drug ends up on the shelf as a backup for years, it becomes a loss-making business for the company that owns it.

It’s our profit-driven economies that lead to Big Pharma diligently developing products that do not meet the world’s needs — and not only in the area of antibiotics. That is also the case when it comes to developing drugs that could help poorer countries combat neglected diseases, such as worm infections or other parasites that often lead to disabilities or even death.

But those countries are not lucrative sales markets, and no pharmaceutical company can afford a “market failure”.

Which model? 

So what should we do? One could — and this is certainly the first reaction for many — argue for nationalizing the pharmaceutical industry, or at least research, so that the development of drugs can then be set in a way that is more or less planned.

After all, the provision of drugs is a public service, just like clean drinking water or public transport. Germans, for example, can see what has happened to the national railway company Deutsche Bahn since its privatization.

And yet, private companies have shown time and again, most recently with the COVID-19 vaccines, that they can be engines of innovation. In 2020, possible vaccines were identified within a few days, within a few months they were in advanced clinical testing, and it took less than a year for three vaccines to be ready for the market. State research would not have managed that.

It is precisely competition that drives down the prices of many essential medicines.

From an economic point of view, there are of course considerable doubts about its usefulness: It is precisely competition that drives down the prices of many essential medicines. It is quite possible that the costs of research and production would explode if there were no more competition.

And so politicians are left with one path: using targeted incentives and subsidies to get companies to develop the medicines the world needs, especially antibiotics. There are many ideas about what additional measures could be taken, such as extending patent protection, or directly subsidizing research in certain fields.

Another option is a kind of Netflix model, which would see every company that brings a new reserve antibiotic onto the market paid a certain amount of money every year — regardless of how often the drug is prescribed and used.

A systemic problem

A good 75% of the antibiotics currently being developed come from small to medium-sized companies that would most likely go bankrupt without some sort of public support. But the fact that so few new antibiotics are coming onto the market shows us that these subsidies are not enough.

One reason is that when calls are made for subsidies and public support for the pharmaceutical industry, voters feel indignant and ask why governments are giving their billions in taxes to an industry that is actually highly profitable.

Do we really have to put up with pharmaceutical companies making money at the expense of the general public, to whom they owe their safety? Because that’s what they are making: money.

State subsidies seem to be increasingly being pocketed as nice bonuses.

Take Moderna, for example: The company that produced one of the first COVID-19 vaccines received around .5 billion in subsidies from the United States for this. In 2021 and 2022, the company then recorded profits totaling billion. With annual earnings of almost 0 million, Moderna CEO Stéphane Bancel is not only one of the best-paid pharmaceutical executives, but also the highest-compensated executives in the world.

It’s a systemic problem. And it is bigger than the pharmaceutical industry: State subsidies seem to be increasingly being pocketed as nice bonuses, rather than being used for real changes that benefit the general public. Want a few examples?

Before the global financial crisis in 2008, banks were doing business that was as lucrative as it was risky. When that went wrong, the government stepped in; and during the energy crisis, the German state generously subsidized fuel prices while the oil companies were making record profits.

A bold approach

This is precisely why we need to change our approach. If private companies are making gigantic profits through public subsidy policies, shouldn’t the public also demand that companies share in these profits accordingly?

American-Italian economist Mariana Mazzucato outlined that approach several years ago. In her book State Capital, she explains that most of the technical innovations of recent times can be traced back to state-funded research projects. This applies to smartphones, which would be unthinkable without GPS, touchscreens and the internet – all things that were made possible with billions from the US defense budget. The situation is similar with drug research.

Mazzucato says that state biomedical agencies have pumped almost a trillion dollars into the pharmaceutical and biotech sector over the decades — and in doing so, turned it into an economically significant branch.

Mazzucato argues that the state should be entitled to some of that money. That would be an elegant compromise between fair distribution and efficiency, between research security and promoting competition. And pharmaceutical companies would feel less worried about the development costs, especially for essential medicines such as antibiotics. At the same time, taxpayers could enjoy the fact that the return on their investments flows back into public structures. Win-win, fair and just.

It is also about ensuring that the public sector does not lose interest in investing in innovation.

Just measures would also include higher taxes – Moderna’s effective tax rate in the United States was just 14% in 2022, when the company made record profits. Equally conceivable would be cleverly designed private-public partnerships in drug development, or agreements in which public universities hold shares and thus earn money if their research is one day successful. In short: There are many ways to recoup parts of the private profits that would never have been achieved without government intervention.

Why aren’t we doing this already? It is probably targeted lobbying that prevents companies from skimming off profits. And perhaps, it takes creative and bold politicians, willing to say out loud that a more self-confident state is what we need: a state that doesn’t just distribute money like a watering can, but one that will fight for its fair share.

But it is not just a matter of fairness. It is also about ensuring that the public sector does not lose interest in investing in innovation. If subsidies and state-funded research are not a financial one-way street, they are much easier to justify to the public. And maybe they will save lives, let’s say 40 million.