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Incentives for new antibiotics: the Options Market for Antibiotics (OMA) model.

Brogan DM, Mossialos E - Global Health (2013)

Bottom Line: Antimicrobial resistance is a growing threat resulting from the convergence of biological, economic and political pressures.The goal of this new model is to provide an effective mechanism for early investment and risk sharing while maintaining a credible purchase commitment and incentives for companies to ultimately bring new antibiotics to market.Additional work must be done to develop a more robust mathematical model to pave the way for practical implementation.

View Article: PubMed Central - HTML - PubMed

Affiliation: Department of Social Policy, London School of Economics and Political Science, London WC2A 2AE, United Kingdom. E.A.Mossialos@lse.ac.uk.

ABSTRACT

Background: Antimicrobial resistance is a growing threat resulting from the convergence of biological, economic and political pressures. Investment in research and development of new antimicrobials has suffered secondary to these pressures, leading to an emerging crisis in antibiotic resistance.

Methods: Current policies to stimulate antibiotic development have proven inadequate to overcome market failures. Therefore innovative ideas utilizing market forces are necessary to stimulate new investment efforts. Employing the benefits of both the previously described Advanced Market Commitment and a refined Call Options for Vaccines model, we describe herein a novel incentive mechanism, the Options Market for Antibiotics.

Results: This model applies the benefits of a financial call option to the investment in and purchase of new antibiotics. The goal of this new model is to provide an effective mechanism for early investment and risk sharing while maintaining a credible purchase commitment and incentives for companies to ultimately bring new antibiotics to market.

Conclusions: We believe that the Options Market for Antibiotics (OMA) may help to overcome some of the traditional market failures associated with the development of new antibiotics. Additional work must be done to develop a more robust mathematical model to pave the way for practical implementation.

Show MeSH
Timeline of drug approval with corresponding examples of call options pricing. A: Investment in early stage of development, the cost of the call option is low, but the risk is high. B: Investment in late stage of development, the cost of the call option is high, but the risk is low.
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Figure 3: Timeline of drug approval with corresponding examples of call options pricing. A: Investment in early stage of development, the cost of the call option is low, but the risk is high. B: Investment in late stage of development, the cost of the call option is high, but the risk is low.

Mentions: One of the benefits of the OMA model is that it allows potential investors to adjust their exposure to risk based on the phase of development in which they choose to invest. Greater savings may be had by investing early, but this will accompanied by substantial risk (Figure 3A). However, the low cost may allow a purchaser to effectively seed a number of projects for a relatively small amount of money, thereby mitigating some of the risks. Later phase investments will be relatively safer as the antibiotic nears completion of all regulatory hurdles, but the savings will be subsequently minimal In fact, if the call option is fairly priced, as it enters the final phase of testing it will reflect nearly the market cost of the soon to be approved drug (Figure 3B). This highlights the versatility of this model to a wide array of potential purchasers with different interests. Realistically, most parties will invest in a stage somewhere between the two highlighted above.


Incentives for new antibiotics: the Options Market for Antibiotics (OMA) model.

Brogan DM, Mossialos E - Global Health (2013)

Timeline of drug approval with corresponding examples of call options pricing. A: Investment in early stage of development, the cost of the call option is low, but the risk is high. B: Investment in late stage of development, the cost of the call option is high, but the risk is low.
© Copyright Policy - open-access
Related In: Results  -  Collection

License
Show All Figures
getmorefigures.php?uid=PMC4226193&req=5

Figure 3: Timeline of drug approval with corresponding examples of call options pricing. A: Investment in early stage of development, the cost of the call option is low, but the risk is high. B: Investment in late stage of development, the cost of the call option is high, but the risk is low.
Mentions: One of the benefits of the OMA model is that it allows potential investors to adjust their exposure to risk based on the phase of development in which they choose to invest. Greater savings may be had by investing early, but this will accompanied by substantial risk (Figure 3A). However, the low cost may allow a purchaser to effectively seed a number of projects for a relatively small amount of money, thereby mitigating some of the risks. Later phase investments will be relatively safer as the antibiotic nears completion of all regulatory hurdles, but the savings will be subsequently minimal In fact, if the call option is fairly priced, as it enters the final phase of testing it will reflect nearly the market cost of the soon to be approved drug (Figure 3B). This highlights the versatility of this model to a wide array of potential purchasers with different interests. Realistically, most parties will invest in a stage somewhere between the two highlighted above.

Bottom Line: Antimicrobial resistance is a growing threat resulting from the convergence of biological, economic and political pressures.The goal of this new model is to provide an effective mechanism for early investment and risk sharing while maintaining a credible purchase commitment and incentives for companies to ultimately bring new antibiotics to market.Additional work must be done to develop a more robust mathematical model to pave the way for practical implementation.

View Article: PubMed Central - HTML - PubMed

Affiliation: Department of Social Policy, London School of Economics and Political Science, London WC2A 2AE, United Kingdom. E.A.Mossialos@lse.ac.uk.

ABSTRACT

Background: Antimicrobial resistance is a growing threat resulting from the convergence of biological, economic and political pressures. Investment in research and development of new antimicrobials has suffered secondary to these pressures, leading to an emerging crisis in antibiotic resistance.

Methods: Current policies to stimulate antibiotic development have proven inadequate to overcome market failures. Therefore innovative ideas utilizing market forces are necessary to stimulate new investment efforts. Employing the benefits of both the previously described Advanced Market Commitment and a refined Call Options for Vaccines model, we describe herein a novel incentive mechanism, the Options Market for Antibiotics.

Results: This model applies the benefits of a financial call option to the investment in and purchase of new antibiotics. The goal of this new model is to provide an effective mechanism for early investment and risk sharing while maintaining a credible purchase commitment and incentives for companies to ultimately bring new antibiotics to market.

Conclusions: We believe that the Options Market for Antibiotics (OMA) may help to overcome some of the traditional market failures associated with the development of new antibiotics. Additional work must be done to develop a more robust mathematical model to pave the way for practical implementation.

Show MeSH