Have you ever met someone with Alzheimer’s disease?
Odds are you probably have. Odds are that question calls to mind the face of a beloved grandparent, neighbor, or family friend whom you’ve stopped by to visit, nervously clenching a bouquet of flowers. You greet them hopefully and wonder if they’ll remember you this time.
America’s population is aging. About 6.2 million Americans are living with Alzheimer’s disease. Over the next 30 years, that number is expected to more than double.
If you took a moment to speak with your neighbor’s caregiver on your way out the door, you also know that the devastating cost of this disease transcends the individual.
Caregivers — mostly untrained, mostly women — reduce their own social and economic activity to make time to tend to the ill, reporting up to 60 hours per week engaged in direct patient care.
Clinicians believe that “the main goal of treatment for AD is not necessarily to extend life but to improve function and maintain independence.”
So let’s think about it this way — if you were diagnosed with Alzheimer’s disease, what would it be worth to keep your mind?
What would it be worth to our society to keep 12 million more Americans functioning (and their caregivers free and productive) over the next three decades?
Turns out that last week, ICER decided on an upper bound.
“Using a similar modeling approach as our approach to modeling aducanumab, a treatment assumed to have no known harms that could maintain all patients in MCI [mild cognitive impairment] for the rest of their lives would result in threshold pricing of up to $50,000-$70,000 per year.”
Aducanumab, Biogen’s controversial monoclonal antibody that successfully clears beta-amyloid plaques from the brain, may or may not provide a clinically meaningful benefit to a subset of patients. That’s for the FDA to decide. Approvable or not, it’s certainly not the miracle drug ICER’s describing.
But the more interesting claim in this report is the organization’s insistence that $70,000/year represents the maximum value for a therapy that could successfully halt Alzheimer’s disease-related cognitive decline with zero side effects.
Don’t get us wrong — $70,000 per year would indeed yield a mind-meltingly high return (assuming successful treatment of 6 million Alzheimer’s patients, that’s $420 billion a year). That’s not only unfathomable but unrealistic — that’s almost twice what our country spends on all branded drugs in a year.
However, the idea that such a wonder drug is on the immediate horizon is as unrealistic as anticipating a $420 billion/year return on any single drug.
The development process in Alzheimer’s disease is more likely to be incremental — a 5% gain in function here stacked onto a 10% improvement there. And for drugs that get us to that goal incrementally — a few percent at a time — anchoring to the wrong number could result in the first few drugs being undervalued, reducing interest in continuing the effort to address this formidable disease.
Let’s suspend reality for a moment and imagine that the FDA approved a drug deemed clinically meaningful in a subset of patients but that still represented just one step towards the greater goal of halting all Alzheimer’s disease-related cognitive decline.
Imagine that ICER recommended a price similar to that proposed for aducanumab ($2,560/year). Now consider whether America’s insurance system would allow all eligible patients to use that drug.
Would it deter many by imposing high out-of-pocket costs or making patients buy it out of their deductibles? Would payers try to block companies from helping with patient assistance programs, imposing copay accumulators to ensure that patients felt the cost even after requiring prior authorization to ensure that the drug was appropriately prescribed?
The end result might be that such a drug is used by maybe half of all eligible patients, so in practice, the reward for its invention may end up totaling less than half of what ICER judged appropriate. And if, recognizing those barriers, a company tried to charge more upfront, ICER would be the first to protest.
Because ICER’s math doesn’t account for genericization, they’re technically arguing that it’s worth spending $420 billion a year on this wonder drug forever. Over a century, that’s $42 trillion (ignoring inflation for simplicity). Indeed, that’s in the ballpark but actually below the Alzheimer’s Association current estimate that by 2050, the US will be spending $1 trillion per year on Alzheimer’s care.
Luckily for all of us, even a $70,000 a year wonder drug would eventually go generic (or biosimilar).
So if it’s worth spending $42 trillion on this disease over a century per ICER, then it would be a great value for us to spend only $7 trillion.
To put it in context, $7T is so much money that we could reward each of 30 drugs for 15 years with as high a reward as adalimumab (Humira), the biggest drug in history (sales of $15 billion a year), after which each of those drugs would go generic.
Break it down a little further and $15 billion/year, if spread across all 6 million Alzheimer’s patients, comes out to $2,500/patient. It’s a price that might pass muster with ICER. But if it is used by 200,000 patients while branded (and then more when it’s generic, which often happens), then $15 billion a year suggests a price of $75,000 per patient.
So it would have been more relevant and worthwhile for ICER to have answered the question: What should be the upper limit on a genericizable drug that solves Alzheimer’s dementia? Given ICER’s math, the answer would be something closer to $400,000/year ($42 trillion over 15 years, divided by 6 million patients). And that’s before factoring in caregiver spillover, as Milliman recently did and economists at the National Bureau of Economic Research did, which would push that value even higher.
There are other variables ICER’s math ignores. Consider the value of the peace of mind that all of us would feel if we knew that we’d be spared some degree of dementia should we face an Alzheimer’s diagnosis. That’s arguably worth most of all — we won’t speculate on a value, but there are economists who do (they aren’t at ICER).
Even an incremental advance like aducanumab can benefit patients as it furthers our understanding of a disease — and can be a valuable piece of a future combination treatment or waystation to something more effective. ICER does not recognize that the drug will eventually face biosimilar competition that will drive down its price, making it much more cost-effective over the long run. ICER also fails to account for the value of delayed disease progression and the health, financial, and emotional benefits that accrue to patients and caregivers as a result of those delays.
Given these neglected variables, it’s critical that we not accept as gospel that solving Alzheimer’s dementia is only worth $70,000/year. If we do, we may never reach our goal, instead undervaluing and failing to reward the increments of progress that will allow us to get there.
Once we grasp the value of the Alzheimer’s moonshot, it becomes easier to appreciate that while the rewards of spurring that effort may seem large, they are worth it to society. This kind of math should guide our willingness to pay, but doesn’t mean that we’ll actually have to pay anything close to that. Companies face constraints on pricing, often from competition, that keep drug prices well below their societal value, as economists have demonstrated for the cholesterol-lowering drug atorvastatin (Lipitor).
The point is not to judge whether treating any one patient with any one drug is worth it, but to ask whether we’re making forward progress towards our larger goal of beating this disease.
If after 50 years of high rewards and aggressive research we find ourselves not much further along, we can revisit whether the threat and burden of Alzheimer’s is just something we have to accept in our lives. But we’re only just starting to crack the code of this disease.
For now, we believe that society has too much to gain to risk underpricing the hope of progress.
RA Capital is a registered investment adviser. This material is not intended, and should not be construed as, investment advice or recommendation to invest in any security. Likewise, this material is not intended as a solicitation to invest in any RA Capital product or service.