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Lord O'Neill calls for antibiotics levy

The looming antibiotics crisis could lead to big financial incentives
May 26, 2016

It might sound like the title of Marvel's latest hit film, but 'superbugs' is actually the word used to describe deadly strains of bacteria that have developed a resistance to antibiotics. These superbugs were the focus of some harrowing headlines last week after a report on antibiotic resistance, led by UK Treasury minister and former Goldman Sachs economist Lord Jim O'Neill, was published.

Antibiotics have been helping humans fight infection since 1928, when Alexander Fleming accidentally discovered penicillin, but the evolution of bacteria into bugs not affected by any antibiotic is once again threatening human health. Lord O'Neill's report, entitled the Antimicrobial Resistance Review, was commissioned by the UK government in 2014 to assess the extent of the potential antibiotic resistance crisis.

Bacteria - like all living things - are made to evolve into 'better' versions, so the fact that bugs are changing is no surprise to healthcare experts. The problem is that humans have given bacteria many more chances to improve themselves due to the overuse of antibiotics in both people and animals farmed for meat.

On top of this, the pharmaceutical industry has not been prolific enough in producing new antibiotics to fight the improved strains of bacteria - in fact, no new class of the medicine has been discovered since the 1980s. Large pharma companies have avoided antibiotics research as there are far more lucrative areas of medicine. This combination of undersupply and overuse has led to a situation the O'Neill report thinks could kill 10m people a year by 2050 - equivalent to one person every three seconds.

The report also outlines potential strategies to help curb the looming crisis, one of which has really got the industry talking - a levy on pharmaceutical companies to pay for investment into new antibiotics. It has been suggested that this 'pay or play' scheme will inflate taxes on any large pharma company not directly involved in creating new antibiotics.

Mr O'Neill suggests that to incentivise companies to embark on the "costly and complex" development of new antibiotics, they should be offered a "market entry award" of around $1.3bn for the discovery of a new antibiotic - and this would be paid for using the proceeds of the levy on those without antibiotics programmes and from global government funding.

This suggestion was met with glee by investors in small-cap antibiotics company Motif Bio (MTFB) - a recent IC buy tip - which has a novel antibiotic in the late stage of clinical trials. The group's share price rocketed 10 per cent last Thursday - the day the report was published - amid speculation that Motif could be a target for extra funding should the report's calls be enforced.

Dr Neil Murray, chief executive of RedX Pharma (REDX), another Aim-traded company developing a new class of antibiotic, has also pledged his support for the suggestions. He stressed a drastic need for more antibiotics or "we're all going to die of a nasty infection". RedX's share price has also been on the rise this week following the publication of the report, a reassuring set of results and good regulatory news for one of its oncology drugs.

By contrast, the share price of the UK's two pharma behemoths, GlaxoSmithKline (GSK) and AstraZeneca (AZN), took a dive last week - neither company has an antibiotics programme. But Sir Andrew Witty, outgoing chief executive of GSK, welcomed the report, saying "governments, industry and other relevant groups must now work together to develop effective new antibiotics for future generations".

Mr O'Neill will be hoping for similar support from global governments when he presents his report at the G20 summit in September. Until then, pharmaceutical companies must decide whether they will join the antimicrobial resistance battle, or speculate that they might have to pay for it regardless of their direct involvement.