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Buy Back or Pay Forward?

LONDON – When British Prime Minister David Cameron asked me to lead a review into the problem of antimicrobial resistance, the last thing I expected was that accepting the position would lead me to question one of the most popular tools for corporate financial management: share buybacks.

The problem of antimicrobial resistance is a serious one. Left unaddressed, it could be responsible by 2050 for the deaths of some ten million people a year, more than currently die of cancer, along with an astonishing $100 trillion in economic damage. Fortunately, however, there is much we can do to mitigate the threat – provided that adequate resources are made available.

One important avenue to pursue is the development of new drugs. In a forthcoming paper, the Review on Antimicrobial Resistance estimates that bringing new antimicrobials to market and improving their administration will cost about $25 billion – a significant sum, but one that pales in comparison to the costs to society if the problem is not checked. It is also roughly what two of the world’s largest pharmaceutical companies will spend this year buying back their own shares.

While the review has yet to come up with recommendations for financing the development of new drugs, it seems clear to me that it is well within the capacity of the pharmaceutical industry to contribute. A common argument made by drug companies is that they need to be guaranteed a reward if they are to invest in developing medicines that are unlikely to deliver the kind of returns that other investments may provide. The only sure way to guarantee drug development, the argument goes, is to allow prices to rise until demand matches supply.