Antibacterial resistance and the cost of affecting demand: The case of UK antibiotics

Consumption of general purpose broad-spectrum antibiotics is associated with rising levels of antimicrobial resistance. Additionally, industry reports suggest that lack of profitability associated with narrowly targeted pathogens is a potential reason why firms are not undertaking new antibiotic related R&D. In this paper we use aggregate sales data on antibiotics from the UK to estimate a structural demand model and evaluate market performance of firms by spectral activity. We find that broad-spectrum antibiotics are more profitable than narrow-spectrum drugs, though the profitability has increased over time for both types due to a decline in costs, the costs of narrow stay higher. We simulate counterfactual scenarios to evaluate the effectiveness of cost-side interventions to shift demand from broad- to narrow-spectrum drugs. Using the last full year of data, simulations show that if unit costs of broad-spectrum were as high as those of narrow-spectrum antibiotics (say due to a unit tax), demand for broad-spectrum would fall by 28.1%, while that of narrow-spectrum would increase by 43.8%. The total cost of such an intervention would be $962 per thousand individuals or a total of $61.26 million, and is inclusive of change in consumer welfare and additional cost of testing for pathogens. Impact of other more selective taxes on subsets of broad-spectrum drugs is also analyzed.