When Health Is Bad Business

When Health Is Bad Business

Combating the spread of drug-resistant bacteria is a losing business proposition.

Big Pharma has abandoned antibiotic R&D, and small pharmaceutical companies are going bankrupt. Several factors contribute to this trend. From an operations standpoint, it is difficult to justify a product with high costs and low demand. The article highlights the difficulty of reconciling profitability and the public good.

Video Spotlight: Fighting Drug-Resistant Germs

This post is based on The New York Times article, Crisis Looms in Antibiotics as Drug Makers Go Bankrupt, by A. Jacobs, December 25, 2019, and the YouTube video, Data Overview: 2019 Antibiotic Resistance Threats Reportby the Centers for Disease Control and Prevention, November 13, 2019. Image source: Shutterstock/Gorodenkoff.

Discussion Questions:

1. Why is the field of antibiotic research unprofitable?

Guidance: There are several reasons why this type of research is unprofitable. R&D costs for new generations of antibiotics are very high, but the time to get a new antibiotic approved is long and sales are poor. Antibiotics are taken for a short period of time, limiting sales volume. In their attempts to control costs, hospitals have been reluctant to spend money on new antibiotics. Warned of the effects of abusing antibiotics, doctors hesitate to prescribe them. Venture capitalists shy away from ventures with weak prospects. Because of public contempt for pharmaceutical companies, Congress has not addressed the problem, and few companies can afford to fight a public health crisis without financial support.

2. What actions can be undertaken to alleviate the problems faced by companies developing new antibiotics?

Guidance: In the absence of private sources of funding, it seems that governmental intervention might be the only recourse.  Proposed interventions include increased Medicare reimbursements for new antibiotics, federal funding to buy large inventories of drugs targeting resistant bacteria, subsidies for companies willing to develop these important drugs, and extended patent protection periods.

3. How does one balance the need for expensive drugs and the urgency to control costs in health care?

Guidance: Discuss how traditional business and operations concepts may not apply to health care. The article hints at increasing inventories through subsidies to absorb R&D costs, but linking drug pricing to criticality and lack of substitutes may be an option as well. Perhaps, governmental interventions in controlling the costs of other drugs (e.g. Medicare negotiating prices with pharmaceutical companies; controlled purchases of drugs overseas; lower patent protection periods for high-demand drugs, etc.) might increase the public’s acceptance of federal subsidies for critical, new drugs. Grants to universities doing research in new antibiotics are promising avenues to control costs. The creation of pools of developers with shared resources might help achieve economies of scope.


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