The PASTEUR Act

The PASTEUR Act creates a new payment model for antimicrobial drugs, moving away from traditional volume-based sales to a subscription-style payment. This means the government will pay pharmaceutical companies a fixed annual fee for access to their novel antibiotics, regardless of the quantity used. This mechanism addresses the market failure in antibiotic development, where low usage (to prevent resistance) leads to poor return on investment for drug makers. The bill aims to incentivize the development of new antibiotics, which are desperately needed to combat rising antimicrobial resistance. The money trail for the PASTEUR Act involves direct government payments to pharmaceutical companies. The bill proposes an initial appropriation of $11 billion over 10 years to fund these subscription contracts. This funding will flow directly to companies that successfully develop and bring to market new antibiotics meeting specific criteria for novelty and public health need. The mechanism is a direct procurement model, ensuring a stable revenue stream for these companies, which is crucial for long-term R&D investment. Companies with existing R&D programs in antibiotics, or those capable of quickly pivoting to this area, are best positioned to capture these contracts. While there isn't a direct historical precedent for a subscription model for antibiotics in the U.S., similar initiatives have shown positive market reactions. For example, when the Biomedical Advanced Research and Development Authority (BARDA) increased funding for pandemic preparedness and vaccine development, companies like Moderna ($MRNA) and Pfizer ($PFE) saw significant stock appreciation as their R&D efforts were de-risked and government contracts became assured. The guaranteed revenue stream from the PASTEUR Act mirrors this de-risking effect, making antibiotic R&D more attractive. The closest historical parallel is the Orphan Drug Act of 1983, which provided incentives for developing drugs for rare diseases, leading to a surge in R&D and new drug approvals in that niche. Specific winners from the PASTEUR Act include major pharmaceutical companies with active antibiotic research programs or the capacity to initiate them. Merck ($MRK) has a strong infectious disease pipeline, including antibiotics like RECARBRIO and ZERBAXA, and stands to benefit from guaranteed revenue for future innovations. Pfizer ($PFE), with its established presence in infectious diseases, is also well-positioned. GlaxoSmithKline ($GSK) and AbbVie ($ABBV) also have significant R&D capabilities that could be directed towards novel antibiotics. Eli Lilly ($LLY) has historically been involved in antibiotic development and could re-engage with this new incentive structure. Losers are not directly apparent, as the bill aims to create a new market rather than disrupt an existing one, but companies that fail to innovate in this space will miss out on new revenue opportunities. The bill was read twice and referred to the Committee on Health, Education, Labor, and Pensions in September 2020. The next step involves committee hearings and potential markups. If it passes committee, it moves to a floor vote in the Senate. Given the bipartisan support for addressing antimicrobial resistance, the bill has a reasonable chance of progressing. The timeline for passage could extend into the next legislative session, but the market will begin to price in the potential for guaranteed revenue as the bill advances through Congress.