The effect(damage) of Dragon Breath is based on Current HP and Max SP.
No cards, items or reductions affect it. Only items and skills which boost HP or SP will affect it.
You cannot use cards that do % damage or other forms of damage enhancing to boost your Dragon Breath damage.
The most efficient weapon for Dragon Breath usage is a quad Hunter Fly (suffix: Malicious) dagger, as it gives you a % of your damage back as health.
Since it is based on Current HP and not Max HP it will help you get max damage.
Dragon Breath is currently an attack that is not reduced by any reduction gear, it is it's own class of what one can call "dragon-fire".
It is not stopped by ME.
It is not stopped by Pneuma.
It is not stopped by Safety Wall.
It is not reduced by any type of fire armor/reduction.
It is not reduced by any gear such as Asprika, Nidhoggurs Garment, etc.
It is not reduced from players in siege or PvP by Demi Human reductions.
The only thing that reduces Dragon Breath is Fire Armor, such as Lucius's Fierce Armor of Volcano.