Health funding to support drug innovation

As health care struggles with the growing problem of antibiotic resistant infections, public health officials worry about the lack of innovation on the area of antibiotic development. Between 2003 and 2007 the FDA only approved 5 new antibiotic products, according to the New York Times. Now health policy experts are pondering whether government subsidies are necessary to make progress.

Antibiotics present an interesting business challenge for developers. Since they are taken short term to cure infections, they are not nearly as profitable as drugs taken to manage-- but not cure-- chronic conditions, which must be taken for a lifetime. In this way their very effectiveness is a business disincentive. Additionally, a new antibiotic is not likely to be blockbuster, instead it would ease into the sector, initially being used sparingly in cases where existing treatments aren't effective, or might increase the risk of resistance. They also represent a perfect contradiction in how business ethics can conflict with public health.

Some advocate for more government investment in research, which doesn't seem likely: In the short term the Republican dominated congress isn't expected to be generous to science, and in the long term the US budget deficit may make additional investment in health sciences unfeasible. Others argue for subsidies to spur innovation they would have to amount to around $1 billion per product. Its not clear where that magical sum comes from, but it sounds a lot like the $800 million figure often cited by the pharmaceutical industry as the cost of bringing a new drug to market. Unfortunately, its not possible for health researchers to confirm that figure, since no one has been willing to actually break down the costs (often citing the need to keep that information secret from competitors.)

Perhaps an alternate strategy would be to promote new drug development with innovation subsidies. One approach could identify priority drugs for development, in this case antibiotics. Companies would have to support the upfront development expense, which is the cost of dong business in this health sector. Once a successful product hits the market, let the company take the entire development cost as a tax credit. Spent $800 million in development costs? Fine, you have an $800 million tax credit. That means even if your new antibiotic is a slow seller, you can use your tax credit to offset taxes from more profitable products.

Here's the catch: The company claiming the tax credit has to itemize the expenses. We won't just take your word for it, just like any other tax filer, the pharmaceutical developer would have to let us know where they spent their resources. A side effect here is transparency: We'd finally get a look into the black-ops world of drug development. Perhaps there could also be a partial subsidy that allows companies to claim a partial tax credit for drug evolution that ends in failure (with the same transparency rule applying). If you get beyond a certain point in the development process, but ultimately fail to gain approval, you will still be rewarded for your attempts, though not to the same extent as those who succeed. Competition in business is, after all, about succeeding. Unlike kindergarten, not everyone is a winner.

Too simplistic? Un-realistic? Got a better idea? Please share!

Photo credit: The author, via flickr