Innovative Funding Models for Alzheimer's Disease and Dementia

Articles and Reports

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Choi DW, Armitage R, Brady LS. Medicines for the mind: policy-based "pull" incentives for creating breakthrough CNS drugs. Neuron. 2014;84(3):554-63.

Eichler Hans-Georg, Baird Lynn G, Barker Richard, et al. From adaptive licensing to adaptive pathways: delivering a flexible life-span approach to bring new drugs to patients. Clin Pharmacol Ther. 2014.

Féger J, Hirsch EC. In search of innovative therapeutics for neuropsychiatric disorders: the case of neurodegenerative diseases. Ann Pharm Fr. 2015;73(1):3-12.

Grant Thornton LLP. 1 year later: The JOBS Act and its impact on hedge funds and private equity funds. Asset Management Adviser. 2013.

Hathaway C. Manthei J, Scherer C. Exclusivity strategies in the United States and European Union. FDLI Update. 2009.

Kaplan RS, Grossman AS. The emerging capital market for nonprofits. Harvard Bus Rev. 2010.

Laske C, Sohrabi HR, Frost SM. Innovative diagnostic tools for early detection of Alzheimer's disease. Alzheimers Dement. 2014. [Epub ahead of print]

Lo AW, Ho C, Cummings J, Kosik KS. Parallel discovery of Alzheimer's therapeutics. Sci Transl Med. 2014;6(241):241cm5.

Milken Institute, Faster Cures. Fixes in financing: financial innovations for translational research. 2012.

Pankevich DE, Altevogt BM, Dunlop J, et al. Improving and accelerating drug development for nervous system disorders. Neuron. 2014;84(3):546-53.

Rubinstein E, Duggan C, Van Landingham B, et al. Report on the World Innovation Summit for Health Dementia Forum 2015. A call to action: the global response to dementia through policy innovation. 2015.

Schaller S, Mauskopf J, Kriza C, et al. The main cost drivers in dementia: a systematic review. Int J Geriatr Psychiatry. 2014. [Epub ahead of print]

Tjan AK. Can the VC model help cure Alzheimer's? Harvard Bus Rev. 2009.

Tjan AK. Medical entrepreneurship: a new movement to accelerate cures. Harvard Bus Rev. 2010.

Websites

Accelerate Brain Cancer Cure: ABC2

Alzheimers.net. 2014 Alzheimer's Statistics.

Alzheimer's Disease International

Brain Trust Accelerator Fund LP

Cure Alzheimer's Fund

Centers for Disease Control and Prevention. Mental Health. Dementia / Alzheimer's Disease. Updated 2013.

Dementia Friends UK

European Medicines Agency. Human Regulatory. Presubmission Guidance: Questions and Answers.

European Medicines Agency. Human Regulatory. Adaptive Pathways.

Give to Cure

Global Impact Investing Network

Institute of Medicine of the National Academies. Forum on Neuroscience and Nervous System Disorders.

National Institutes of Health. Research Portfolio Online Reporting Tools (RePORT). Funding. Estimates of Funding for Various Research, Condition, and Disease Categories (RCDC). 2014.

Regulatory Affairs Professionals Society. Regulatory Explainer: The 21st Century Cures Act.

U.S. Congress. MODDERN Cures Act of 2013.

U.S. Department of Health and Human Services. Fiscal Year 2015 Budget in Brief.

U.S. Department of Health and Human Services. Office of the Assistant Secretary for Planning and Evaluation. National Alzheimer's Project Act.

U.S. Department of Health and Human Services. Office of the Assistant Secretary for Planning and Evaluation. National Plan to Address Alzheimer's Disease: 2014 Update.

U.S. Food and Drug Administration. Drugs. Accelerated Approval Program. Updated 2013.

U.S. House of Representatives. Energy and Commerce Committee. 21st Century Cures. Updated February 2015.

U.S. Food and Drug Administration. For Industry. Developing Products for Rare Diseases & Conditions. Updated 2014.

U.S. Securities and Exchange Commission. Jumpstart Our Business Startups (JOBS) Act. Updated 2014.

World Dementia Council

World Economic Forum. Global Agenda Council on Brain Research 2014–2016.

World Health Organization. 10 Facts on Dementia. 2012.

Sponsors

Presented by

The Alzheimer's Disease and Dementia Initiative is supported by

The U.S. National Alzheimer's Plan set a goal, now embraced globally, to develop a disease-modifying drug for Alzheimer's disease (AD) by 2025. In November 2013 the Academy's Alzheimer's Disease and Dementia Initiative (ADDI), the Global CEO Initiative on Alzheimer's Disease (CEOi), and the National Institute on Aging/National Institutes of Health convened the Alzheimer's Disease Summit: The Path to 2025 to develop an action plan. Researchers called for a global clinical trial network, new non-public financing, and investment in big data to improve patient care and research, among other initiatives. The G8 Dementia Summit held in London in December 2013 brought attention to the need for governments to act. The G8 Declaration and Communique outlined its findings and goals, and the UK hosted the first G7 (now called) Global Dementia Legacy Event on the topic of AD finance in June 2014.

Despite the projected economic toll of AD, public funding for research is sparse: the National Institutes of Health (NIH) spent $562 million on AD in 2014, compared to $5.4 billion on cancer. A series of meetings convened by the Academy and CEOi have explored new public and private funding for AD, aiming to advance specific ideas and models. At this workshop, speakers presented ideas including crowd equity, social impact investing, hybrid philanthropy/venture capital models, accelerators, and megafunds, with the goal of supporting the "arc of disease management," from basic research to care.

Top: Estimates from Alzheimer's Disease International showing the high global burden of AD and dementia. (Image presented by Maike Stenull)
Bottom: NIH funding for AD compared to cancer, HIV/AIDS, and heart disease. (Image courtesy of Adam D. Grossman)

George Vradenburg of CEOi introduced the high-risk nature of AD research and difficulty attracting non-public financing. In 2012 two drugs in phase III clinical trials, bapineuzumab and solanezumab, failed to show significant benefit, provoking fears that pharmaceutical research would decline. But companies continue to pursue AD targets, and if several promising agents come to market, investment is expected to grow.

AD has drawn funding from companies eager to combine social responsibility with return on investment (ROI). Nonprofit organizations are also investing in pharmaceutical research—a new, somewhat controversial strategy that recently made headlines when the Cystic Fibrosis Foundation received a large payout after selling its stake in a successful drug venture. AD research funding can benefit from a large pool of potential funders with different reasons to contribute and different expectations of reward. But a framework is needed to ensure funds target "a broader portfolio of attacks on the disease," including clinical trial platform infrastructure, biomarkers, and mechanisms to de-risk late-stage trials.

A keynote lecture by Dennis Gillings, World Dementia Envoy, summarized the global dementia challenge and the G7 initiative to tackle it. The opening session highlighted political, scientific, and financial efforts to respond to AD. Next, speakers looked at fund vehicles and opportunities for new investment. Many identified translational research, which readies academic discoveries for pharmaceutical development, as an underfunded stage that could benefit from hybrid investment models, which offset risk with a mix of invested and philanthropic funds. These later studies also offer the best chance of meeting the 2025 goal, because basic research findings can take 12 years or longer to reach the market. However, it is clear that early-stage research and patient care will each continue to need hefty government funding, and speakers considered how best to structure these funds.

A framework for how different funding mechanisms could fit together to support the "arc of disease management."

Highlights

Dementia is among the most feared diseases and is projected to become untenably expensive as the population ages—providing strong motivation for action.

Barriers to pharmaceutical research should be removed and governments must increase funding for basic research.

The WDC hopes to spur progress in dementia management by prioritizing integrated drug development; finance; open science and big data; prevention and risk reduction; and care and technology.

Cost, care, and cure

The 2013 G8 Dementia Summit put Alzheimer's disease and dementia firmly on the world agenda. In March 2014, with the endorsement of all G8 nations, the UK government created the World Dementia Council (WDC), appointing Dennis Gillings World Dementia Envoy. The council has a one-year mandate to spur action on the Group's priorities. It is government-independent and does not have legislative authority, but its members provide leadership to focus global efforts.

In his keynote address, Gillings discussed the societal challenges dementia presents. Socioeconomic costs, projected to increase as the population ages, lend political motivation to calls for action from a public fearful of dementia. He cited estimates that the U.S. will spend $20 trillion on dementia care in the next 40 years. The cost of care worldwide is already high, reported in 2010 at $604 billion, or 1% of global GDP.

Gillings estimates research and development funding for dementia is $8–$10 billion annually, with pharmaceutical companies providing half these funds and governments, philanthropy, and private investment providing the rest. Funding would need to double or triple, he argued, "to make any major inroads in disease modification." He predicted that increased pharmaceutical funding would catalyze progress. But companies need to see the high risk and slow ROI of dementia research improve, along with payment guarantees for new drugs and faster regulatory approval. Government should double its allocation to basic research.

The world can mobilize quickly against diseases when prompted by a crisis, Gillings asserted, as demonstrated by the rapid progress toward a vaccine against Ebola virus infection. Dementia research could see breakthroughs from incremental advances in basic science, as did cancer research, and from advocacy, as did HIV/AIDS research in the 1980s. In 2013, 44.4 million people were living with dementia, and this number is expected to double every 20 years. Middle- and low-income countries, often thought to be less affected by dementia, will bear two-thirds of the burden of disease by 2050, underscoring the need for affordable treatments.

"Dementia ... is not a part of normal aging," Gillings noted, and is thus a target for drug discovery. "Healthy aging is not as prolific as we would like," he said, "and so we are losing gains we have made in the 20th century to the ravages of dementia in the 21st."

Priorities of the World Dementia Council

Communication and flexibility within the drug development and regulatory pipeline, termed integrated development by WDC, is needed to fast-track research and drug approval. The council assembles regulators from different countries so that new drugs have the best chance of widespread approval. The European Medicines Agency (EMA) adaptive pathways approach (formerly adaptive licensing)—allowing drugs for a select population to come to market early when the need is high and patients might accept higher risks—could offer an avenue for fast approval in Europe, but there is no dementia drug on this track. The U.S. Food and Drug Administration also has fast-track options for much-needed drugs.

Gillings mentioned the need for validated biomarkers that are standardized across trials, the lack of which is a major gap in our ability to assess drug-candidate effectiveness. WDC is looking for clues from other disease areas, such as rheumatology, where composite endpoints have been developed, and from rare diseases and rare forms of dementia. Functional and cognitive endpoints to monitor progression are also difficult to define, particularly because self- and caregiver-reported data are not used in these measures. He argued that the devastating effects of dementia for individuals and societies should be considered when assessing allowable risk in clinical trial protocols.

To make AD pharmaceutical research more attractive and lower its risks, WDC is partnering with JP Morgan to set up a preclinical fund that would help identify promising drug targets. The mechanism of financing has yet to be agreed upon. Among the difficulties are EU competition and state-aid rules, which govern how EU governments can invest in private companies. Nonetheless, many countries have committed funds to research, including Australia, the U.S., and the UK.

An integrated, global approach requires large data sets to track and coordinate clinical trials. WDC is pushing for these data to be provided open-access, envisioning a single web-based portal. The Organisation for Economic Co-operation and Development is creating a framework for international data sharing—a difficult task. Gillings called for "more work to strengthen cooperation ... [and] more available access to data on both sides of the Atlantic."

Research into how to prevent or reduce the risk of dementia is ongoing. Studies point to risks including untreated midlife hypertension, diabetes, midlife obesity, depression, lack of educational attainment, and smoking. There has been a small reduction in dementia incidence as risk factors are targeted, but these improvements have not much offset rising numbers of cases as the population ages. To identify a medicinal intervention, prevention trials such as DIAN, A4, API, and TOMMORROW are in progress.

"I truly believe we may get some sort of pill in the next 10 years, but it's not a sure thing. If we don't push prevention and risk reduction then there's really nothing other than care itself," Gillings said. "The problem with just relying on care is the burden on society will continue to increase." The demand for care is projected to increase by 4% to 5% every year for the next 20 years; Gillings estimates countries can cope with 2% annualized compounded increases in costs. He hopes the gap will be bridgeable through assistive technology until other efforts yield results.

Highlights

Nervous system disorders are particularly difficult to investigate, and drugs are difficult to evaluate, leading to expensive and long drug development timelines.

Policy and regulatory incentives can make neuroscience research more attractive but should prioritize patient needs and societal benefit.

The NYS Alzheimer's Research Bond Act would create a $1 billion bond fund to finance Alzheimer's disease research and establish New York State as a leading supporter of the field.

On a path to change

Maike Stenull of Johnson & Johnson began by noting the failure of AD drug development: a 3% success rate, over 100 unsuccessful trials, and only three approved non-disease-modifying drugs since 1998. Although this picture is bleak, she described recent political, financial, and research efforts as creating an "unprecedented dynamic" that provides reason for hope. Political focus on AD is set to continue this year as the World Innovation Summit for Health (WISH) convenes a forum on dementia at its Qatar conference and the World Health Organization (WHO) hosts its First Ministerial on Global Action Against Dementia. Awareness is also reaching the public through dementia-friendly community initiatives and public education on creating safe environments for patients.

"Regulatory changes are actually working; they have an impact," Stenull said. Orphan drug designation in the EU and U.S. promotes development of drugs treating rare diseases that are unlikely to generate high revenue and provides extended market exclusivity (preventing generic competition) and other benefits. AD research could benefit from similar mechanisms. The FDA has several programs to speed approval of drugs for serious conditions, including accelerated approval based on surrogate endpoints that suggest a likely clinical benefit, with approval maintained if a benefit is demonstrated later in phase III trials. Conditional approval in the EU works similarly. Newer initiatives include the EMA's adaptive pathways approach and the U.S. MODDERN Cures Act (Modernizing Our Drug & Diagnostics Evaluation and Regulatory Network), a bill that would further incentivize drug development for chronic diseases if approved. Most recent is the proposed 21st Century Cures Act, a bill released in January 2015.

Existing and proposed regulatory mechanisms to speed drug development. (Image courtesy of Maike Stenull)

"Clinical trials are very difficult: we need the right patients, we need the right sites ... and we need the right program," Stenull said. In February 2014 researchers met at the Academy to plan a Global Alzheimer's Platform that will coordinate clinical trials to speed drug development. Researchers will be able to join an adaptive trial community with patients, sites, and approved end points in place, and the platform will coordinate its efforts with the similar European Prevention of Alzheimer's Dementia Consortium (EPAD).

"It is not in isolation that we are looking at financial mechanisms. All of this is moving in parallel ahead on different fronts," she concluded. "I think the time is now. There hasn't been a better time to really fund Alzheimer's research."

Ideas from the Institute of Medicine

Because of the complexity of the brain, nervous system disorders are particularly difficult to investigate, and drugs are difficult to evaluate, leading to expensive and long drug development timelines. Clare Stroud reported the Institute of Medicine's work to offset these difficulties by providing a venue for government, private companies, patient groups, and academia to explore potential changes to science and medical policy. One area of focus for the IOM’s Forum on Neuroscience and Nervous System Disorders is to look at strategies to support the development of new therapies for unmet medical needs in nervous system disorders.

"It will be extremely important to reduce risk by finding more effective and efficient ways to develop new therapeutic agents," Stroud said. In the meantime, regulatory policy changes could make the field more attractive. Clinical development and regulatory approval currently happen after a patent is filed, which reduces the time a pharmaceutical company has to recover its costs and earn a profit when the drug is marketed.

Challenges and opportunities in central nervous system drugs. (Image presented by Clare Stroud courtesy of Pankevich, et al. Neuron. 2014.)

Push incentives "lower drug research costs and improve success probabilities," while pull incentives "increase the market benefits of success": both can drive research and investment. The latter include policy initiatives such as market protection (exclusivity and patents) as well as investment incentives. Of interest to the IOM's Neuroscience Forum are regulatory changes that would not require increased public funding. Ideas include speeding regulatory approval or extending market exclusivity. According to Stroud, some stakeholders believe that existing mechanisms do not go far enough.

To enact regulatory change that makes drug development more profitable, Stroud argued, it will be important to engage academia and patients. She contended that the benefits to society will need to match the benefits to industry, but stressed that regulators should consider how each policy will affect patients and how to structure incentives to promote social benefit.

A proposal for structuring incentives to prioritize development of breakthrough drugs with potential for large benefits. (Image presented by Clare Stroud courtesy of Choi, et al. Neuron. 2014.)

New York State Alzheimer's Research Bond Act

Assemblyman Charles D. Lavine provided an update on legislation before the New York State Assembly that would fund Alzheimer's research through a bond. New York is a hub for neuroscience, and legislators are eager to establish the state as its top supporter nationwide. Lavine explained that the fund would model New York's support of dementia research on Texas's support of cancer research and California's support of stem cell research.

The Alzheimer's Research Bond Act would establish $1 billion in funding with a $100 million per year payout over 10 years. The bill is advancing through the assembly, with support from the scientific community promoting the effort. Introduced in 2014, it would undergo a referendum in 2016 if approved for the statewide ballot. "Should this become law it will enable the State of New York to be at the lead of the fight against this dreaded disease," Lavine said.

One meeting participant suggested that rather than establish a payout system, the state could use the bond to guarantee private investment in the field, thus making it less risky to support early-stage research. The state would also retain the funds, perhaps enabling it to commit more money. Another suggested that the state partner with institutions to obtain matching funds.

Highlights

Loosened restrictions on investment through equity crowdfunding, enacted in the JOBS Act, could increase capital for research.

Business development companies can accelerate drug development by investing in small biotech companies, and tap into funds from small investors to do so.

Give to Cure aims to fund clinical trials through donation crowdfunding.

The Brain Trust Accelerator Fund is a hybrid venture model that combines investors' interest in funding brain research with ROI.

Accelerators can fund earlier-stage research than venture funds by spreading risk among many drug candidates, and hybrid models can make investments safer by combining them with grants.

Crowd equity neurodegeneration fund

The 2012 JOBS (Jumpstart Our Business Startups) Act included a provision allowing private companies to be partly financed through equity crowdfunding. Crowdfunding pools small donations from individuals and is popular for financing nonprofit and media projects. But implementation in a business setting is more complicated because funders are investors, not donors. Traditionally only high-net-worth individuals who are accredited investors can invest in private companies, with the restriction intended to protect the public from unaffordable losses.

Gregory C. Simon of Poliwogg Holdings reported that of the 9 million accredited investors in the U.S. only 3% have invested in a private company. In 2012 drug development received $6 billion from venture capital (compared to $30 billion from NIH); for expensive tasks like drug development, that amount is not enough. Although small investors can buy mutual funds in large, publicly traded pharmaceutical companies, they cannot invest in small biotech companies where much innovation happens. Simon hopes crowd equity will help raise capital. The JOBS Act loosens but does not eliminate restrictions on investment based on income for equity crowdfunding, which government will regulate to mitigate risk. Simon reported that progress toward implementation has been slow and argued for fewer restrictions on investment.

Business development companies (BDCs), public companies that are allowed to invest in private and small public companies, offer an alternative way to harness crowd equity for biotech development. "The theory is this: a BDC is a publicly traded venture fund," Simon explained. BDCs are classed as mutual funds and must invest in different projects, with a small percentage of funds going to each. Because each BDC is public, small investors can buy shares.

Poliwogg is setting up BDCs in disease-specific areas. "The investor gets all of the attributes of a diversified investment in a space they care about," Simon noted, and can cash-in at any time. This funding mechanism can also diversify research targets: "We just have to fund enough failures to find out the ones that are going to work," he said. With a fund backing 50 projects, each with 1/50 odds, only two need result in a product to make a large profit. If the BDC makes money from a few high-yield investments, while funding tens of AD ideas that fail, "the fund is still a success."

Simon also touched on the need for insurance companies to absorb high costs when drugs come to market. Although new drugs may lower costs in the long run by reducing the burden of care, the initial costs are likely to be prohibitive—and much higher than those of care alone. One possibility is to hedge these costs by buying index funds and using market gains produced by new drugs to lower the costs of buying those drugs. Venture funds can employ a technique called shorting the index to hedge costs, but there is not yet an index set up in health care.

Crowdfunding for Alzheimer's clinical trials

Give to Cure (GTC) is a nonprofit organization that aims to fund biomedical research through public donations. As cofounder Adam D. Grossman explained, its inspiration is March of Dimes, through which FDR "was able to motivate ordinary people to cure [polio]" and fund work on a vaccine. Give to Cure focuses on funding clinical trials run by academics and biotech companies through small-donation crowdfunding and philanthropy. A scientific advisory committee selects drugs to support.

The GTC Global Challenge to Cure Alzheimer's is a competition to identify candidate drugs for funding. The organization aims to give $5–$15 million each to five FDA-approved clinical trials with investigational new drug clearance in phases I to IIa. Grossman pointed to this as an underfunded stage in drug development between government- and academic-funded preclinical research and late-stage, lower-risk but very expensive industry research.

The rationale for Give to Cure's approach is that funding more clinical trials will increase the likelihood of finding a therapeutic. If successful, Give to Cure will receive a royalty to help cover its operating costs and fund work in other disease areas, but there is no ROI for donors.

Hybrid venture model for early-stage investment

John M. Reher of the Brain Trust Accelerator Fund also highlighted the need to finance translational research by advancing promising therapies, diagnostics, and devices into early clinical trials. Before founding the fund in 2006, he was executive director of Accelerate Brain Cancer Cure, ABC², a nonprofit designed to speed therapeutic development for brain cancer by funding academic research and facilitating industry partnerships. Translational research in this area had been avoided by traditional investors because of its risks, despite the high societal need. Reher, the fund’s founder and general partner, along with a group of limited partners, launched the fund to identify early opportunities with substantial societal and financial potential based on rigorous science. "There were critical gaps after the philanthropic award," Reher noted, which the Accelerator Fund aims to bridge by providing "financial as well as human capital."

The Accelerator Fund is a hybrid venture model that combines investors' interest in funding brain research with potential ROI. It brings together finance professionals, individual and institutional investors, and nonprofits, which receive a small percentage of the fund's profits and provide guidance. The fund is diversified by area of investigation, backing therapies, diagnostics, and devices for various indications in brain diseases to increase its chances of success. About 40% of the proposals it receives are AD-related, and it supports five companies, all with products that may have applications in AD.

Reher's advice for similar funds is to look for impact investors with a "double bottom line interest" in social and financial results, who are prepared to wait up to 5 to 10+ years for the full return of the investment. He pointed to the need to fund promising trials and to develop both surrogate endpoints and biomarkers to more quickly assess success.

Accelerators

Baiju R. Shah of BioMotiv presented the work of the Lead Optimization Accelerator working group, which is investigating what it would take to entice corporate venture capital funds into translational research. He pointed to a lack of management and infrastructure to produce clinical trial–ready compounds, a process that requires such steps as finding a pharmaceutically acceptable lead, optimizing that lead, and obtaining investigational new drug designation by the FDA. Neither academics nor nonprofit groups have the expertise to direct these stages of research.

An accelerator model includes a management team that takes on a portfolio of promising compounds and "looks to fail fast and partner early" in promoting the best candidates to clinical development. Shah stressed the need for pharmaceutical partners to guide drug acquisition, to provide direction for development, and to take on successful candidates, thus reducing the risk of the venture. The idea is to make enough money to fund development of more compounds and keep the model going.

Accelerators can fund earlier-stage research than venture funds by spreading risk among many drug candidates from different research teams. Shah said projects should be chosen from different geographic locations to further diversify. As in other funding models, investors make long-term commitments; ROI is driven by revenue from pharmaceutical acquisitions and later royalties from marketed drugs.

The working group estimates there is not enough incentive in AD research to fund an accelerator model targeting translational stages through for-profit investment alone; a hybrid structure is needed that pairs grants from traditional sources (such as NIH and foundations) with investment funds. In such a model, philanthropy could take a first-loss or capped return position in the fund, with grants funding work to identify a pharmaceutical lead so that later stages funded through investment would carry lower risks. There are various ideas for structuring investment-funded stages, with incentives such as royalties and right of first return granted to organizations making no or delayed returns, allowing investors to make quicker ROI.

The working group is looking for partners for an AD accelerator fund and planning for implementation.

Highlights

Risk and uncertainty explain why AD research lags so far behind research in cancer and other diseases.

With enough trials and diversified targets, debt could be raised to fund AD research.

Government may be the best candidate to issue debt (bonds) for an AD megafund, because it has the longest horizon of any investor and stands to gain most from cost savings achieved through disease modification.

Why is AD drug development failing? An economic analysis

Andrew W. Lo, a professor of finance at MIT, asked why research in Alzheimer's disease lags so far behind research in cancer—diseases comparably devastating to individuals and society. "Is there a breakdown? A market failure? Lack of incentives? What's going on?" he wondered.

He considered whether AD is rare, or imposes a lower burden than cancer, or has fewer physicians—and rejected these possible explanations for the discrepancy. Perhaps cancer biology is easier, he posited. As a participant pointed out, tumors can be biopsied while the AD brain cannot. "It's harder and more expensive," Lo conceded. "But if the need is more urgent, shouldn't we be able to deal with that?"

In a simplified example of an investment opportunity that reflects the current oncology drug development process, Lo showed that a $200 million investment over 10 years would be valued in today's dollars at about $12.3 billion if successful; assuming a 5% probability of success, this result indicates an expected return of 12%. However, a 5% chance of success also implies a return standard deviation (SD) of 424%, which will scare away any rational investor. The risk and uncertainty that come with investing in biomedical R&D help explain why money is leaving the space.

The risk and uncertainty that come with investing in one project at a time help explain why funding is inadequate in biomedical R&D. (Image courtesy of Andrew W. Lo)

To remedy this problem, Lo and his colleagues propose a "megafund" model in which multiple R&D projects are funded simultaneously. With such a structure, a portfolio of assets—in this case drug targets and other therapeutics—is purchased with the proceeds from debt and equity securities sold to investors. The ability to issue debt is critical because there is a much larger pool of capital to be tapped in debt markets than in venture capital, private equity, or public equity. Greater access to capital would allow a megafund to invest in more assets, reducing the risk of the portfolio so that bond investors (who are less risk-tolerant) would be willing to purchase the megafund’s bonds.

In the context of cancer, the group find that a $30 billion megafund with a portfolio of 150 uncorrelated projects can generate attractive returns for equity and bond holders. In the context of AD, however, basic research is not advanced enough for such a private sector megafund to work.

Alzheimer's megafund

Unlike in oncology, there are not 150 independent AD projects; existing trials are chasing similar targets and mechanisms, with most focusing on β-amyloid or tau, proteins that form aggregates in the AD brain. Lo showed that with an 80% pairwise correlation of success or failure among these trials—approximately representative of the current AD landscape—the probability of at least two successes is only 30%, well below the rate needed to issue debt or attract new investors. In addition, AD research is likely to require more than $30 billion in funding because development of an AD drug takes longer (12+ years), requires $500–$600 million in out-of-pocket costs, and has a lower probability of success. "Frankly," Lo said, "no one knows what the probability of success is because we haven't had a success in over a decade."

In Lo's simulation of an AD megafund, his colleagues identified 64 potential projects that could be pursued, requiring a $38 billion megafund. Given crude estimates of correlations among these projects, the hypothetical ROI from a simulated AD megafund would be −14% with a 33% SD. "These results showed me why we have not seen a new Alzheimer's drug in the last 10 years," Lo said. "It's because it just doesn't pay."

Investment returns and risks for Medicare and Medicaid cost savings from the AD megafund over a 13-year investment period for various combinations of probabilities of success (p), pairwise correlations (ρ), and probabilities of at least one hit (p1) under the Alzheimer's Association model for the economic impact of new AD therapies that either delay the onset of AD (T2) or slow its progression (T3). The row labeled "KSK-CH" employs pairwise correlations and success probabilities calibrated qualitatively by Dr. Kenneth S. Kosik and Dr. Carole Ho for each of the 64 hypothetical projects. (Image courtesy of Andrew W. Lo)

Therefore, Lo argued, the government should issue bonds to fund an AD megafund that would be attractive to long-term investors such as sovereign wealth funds, foundations, endowments, and other institutional investors. By incorporating anticipated cost savings to Medicare and Medicaid (which spent an estimated $150 billion on AD in 2014) from a disease-modifying drug that delays onset, he showed that the potential taxpayer ROI from a government investment in drug development would be 10% over 20 years and 16% over 30 years.

A megafund would not deal with the dearth of basic research in neuroscience, which no investor will ever fund. Up-front government grants are needed; indeed, such funding for the National Cancer Institute, beginning in 1971 when President Nixon declared a "war on cancer," underpins much of the current success in cancer research. There is no substitute for more drug targets. With the National Alzheimer's Project Act of 2011 and the BRAIN Initiative, both of which Lo described as underfunded, the "war on Alzheimer's" has only begun, he concluded.

Closing remarks

George Vradenburg closed the meeting by pointing to preclinical, translational, and early-stage clinical research as important targets for investment, requiring specialized models such as accelerators and hybrid philanthropy funds. Pharmaceutical lead optimization to increase the number of potential therapeutics is also key to efforts to advance drug development. Basic research and late-stage clinical research, funded by government and pharmaceutical companies respectively, are less suitable for investment financing and will continue to rely on existing funders. Nonetheless, funding for these stages must increase, with governments providing more grants and industry finding more reasons to invest as new targets are identified and as regulatory mechanisms and clinical trials are streamlined. There are not yet any AD-specific hybrid funds or megafunds, and Vradenburg called on participants to create these fund vehicles to catalyze advancement in the field.

Should existing funds be strategically applied in a different way?

Are current estimates of the cost of developing a disease-modifying drug accurate?

Could a fund of funds targeting many projects support underfunded research stages and help social impact investors direct financing for maximal benefit?

Is there an opportunity to create side funds to large, established venture funds that would be targeted to AD research?

Is government the best candidate to finance AD clinical research by issuing bonds? What steps would be required for this to happen?

Can social impact bonds (with ROI generated through government savings) be set up to target standard-of-living interventions and care delivery?

Can crowdfunding generate enough capital to fund clinical trials?

Could a targeted fund for biomarkers attract pharmaceutical partners? Would such companies' investment ameliorate concern about concentration of risk for a fund targeting one disease?

Will large genomic data sets yield more uncorrelated drug targets for AD?

Are there redundancies in funding the same AD targets? Can AD targets be sufficiently diversified to mitigate investment risk?

Would it be helpful to direct research and investment to common mechanisms in neurodegenerative disease such as protein misfolding?

If philanthropic donors and disease-specific groups are interested in particular diseases, can they be convinced to fund research with a broader scope if it would move neurodegenerative disease research as a whole forward?

Alternatively, will research on orphan diseases or drug approval for a small group of patients (in disorders such as autosomal dominant early-onset AD or traumatic brain injury) be beneficial for other diseases?