A healthy recovery

04 November 2021

How governments, investors and businesses can make better choices to help improve our healthcare systems in the wake of the pandemic.

The Coronavirus pandemic has provided a huge setback, and indeed has highlighted the weaknesses of the current system and the need for systemic change. Nowhere is this more evident than in the global health system.

However, we believe the pandemic could and should be a catalyst for accelerating the move towards a more responsible capitalism, and an opportunity to direct resources towards a more sustainable and fairer healthcare sector.

Healthcare’s blindspot

As we noted in our 2019 report Responsible capitalism, long-term profits depend on a healthy, well-paid, socially mobile workforce. But capitalism doesn’t always allocate capital to the areas where it is most needed. One such area is the global healthcare system, and more specifically antibiotics, on which modern healthcare is built.

It would be hard to overstate the success of antibiotics in saving lives, and their importance to the functioning of the global economy. In the pre-antibiotic age, the simplest of bacterial infections could prove fatal, rendering everything from surgical procedures to childbirth potentially life threatening.

Widespread overuse has enabled infectious bacteria to evolve and strengthen their resistance to antibiotics. Consequently, antimicrobial resistance (AMR) is now recognised as one of the most significant threats to public health. It’s estimated that about 70,000 people die each year from infections that are resistant to antibiotics, and that number is forecast to grow to 10 million a year by 2050 if the current trend continues, dwarfing the death rate of COVID-19. According to a 2016 report by former Goldman Sachs Chief Economist Lord O’Neill, that would shave 2 to 3.5 percentage points from annual global GDP growth. The pharmaceutical industry is aware of the problem, but investors have not yet grasped the full implications.

The issue is that the pharmaceutical industry is not incentivised to address the AMR crisis. The world has become so dependent on antibiotics, while expecting them to be cheap: their true worth is not reflected in their price. Hence there are many more lucrative options for pharma companies to pursue. Not surprisingly, investment in new antibiotics has slowed to its lowest rate in history, and big pharmaceutical companies have largely abandoned the field.

More recently, of course, the focus of governments around the world has been on vaccine development in response to the Covid crisis. These are today’s urgent challenges, and a healthy, functioning responsible capitalism is needed to address them.

Capitalism as a force for good

Given that the normal forces of capitalism do not apply to antibiotics as they do to other pharmaceutical products, how can the pharmaceutical industry be incentivised to produce them?

In response to that crisis, the AMR Industry Alliance was formed in 2016, with representatives from over 100 pharmaceutical and biotech companies and associations across 20 countries. It has since invested a combined $2 billion in AMR research and development (R&D). In 2018, the not-for-profit Access to Medicine Foundation launched an AMR Benchmark, tracking progress among the most active companies in this area

Governments also have a huge role to play. There are two fundamental approaches at their disposal, known as ‘push’ and ‘pull’ incentives. So far, incentives have generally involved public-private partnerships allocating grants to small companies for early-stage R&D. These grants have been sufficient to help companies successfully develop new antibiotics, but not enough to get them from there to profitability. That’s where ‘pull’ incentives come in. As the name suggests, rather than pay upfront R&D costs, they reward success with larger amounts of money.

 ‘Pull’ incentives were the brainchild of the British government’s multi-year Review on Antimicrobial Resistance, which was headed by Lord O’Neill and completed in 2016. The review proposed giving a one-time “market entry reward” of $1 billion for new antibiotics – enough to cover typical R&D costs and enable the antibiotic to be profitable without encouraging overuse.

In 2019 the NHS announced an incentive scheme for pharmaceutical companies to provide new antibiotics to UK patients for the first time in decades. This first-of-its-kind subscription model, part of a UK action plan to contain and control AMR by 2040, pays providers upfront based on the value of their antibiotics to the public health system, rather than on the amount used.

Another encouraging development stemming from such efforts has been the recently announced creation by leading pharmaceutical companies of the AMR Action Fund. The fund aims to start operating this year, investing more than $1 billion in small biotech firms, with the goal of delivering two to four new antibiotics by 2030.

Government incentives, which will cost huge sums of money and deliver profits to the pharmaceutical industry, may be politically unpalatable. However, they may prove effective in tackling the AMR crisis, and are a great example of responsible capitalism in action — an opportunity for investors to do well by doing some good.

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