Investing in antibiotics to alleviate future catastrophic outcomes: What is the value of having an effective antibiotic to mitigate pandemic influenza?

Over 95% of post‐mortem samples from the 1918 pandemic, which caused 50 to 100 million deaths, showed bacterial infection complications. The introduction of antibiotics in the 1940s has since reduced the risk of bacterial infections, but growing resistance to antibiotics could increase the toll from future influenza pandemics if secondary bacterial infections are as serious as in 1918, or even if they are less severe. We develop a valuation model of the option to withhold wide use of an antibiotic until significant outbreaks such as pandemic influenza or foodborne diseases are identified. Using real options theory, we derive conditions under which withholding wide use is beneficial, and calculate the option value for influenza pandemic scenarios that lead to secondary infections with a resistant Staphylococcus aureus strain. We find that the value of withholding an effective novel oral antibiotic can be positive and significant unless the pandemic is mild and causes few secondary infections with the resistant strain or if most patients can be treated intravenously. Although the option value is sensitive to parameter uncertainty, our results suggest that further analysis on a case‐by‐case basis could guide investment in novel agents as well as strategies on how to use them.