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Portfolio Model Proposed for Funding Alzheimer’s Research

Illustration of brain (NIDA)

(National Institute of Drug Abuse)

18 June 2014. Financial and biomedical researchers at Massachusetts Institute of Technology, University of California in Santa Barbara, and the biotechnology company Genentech outlined a different approach to funding research on Alzheimer’s disease that supports multiple simultaneous studies addressing various drug targets. The team led by MIT finance professor Andrew Lo published its findings today in the journal Science Translational Medicine (paid subscription required).

While more than 5 million Americans suffer from Alzheimer’s disease and the number is expected to at least double by 2050, the record of developing therapies for the condition is spotty at best. The authors note that between 1998 and 2011, only 3 new drugs were approved by FDA — none since 2003 — and 101 drug development projects failed to yield a successful product.The 5 drugs approved so far by FDA for Alzheimer’s treat symptoms of the disease, not the underlying disorder.

Research to discover drugs for Alzheimer’s usually focuses on a specific molecular target or pathway, with funding sought to pay for the work and support a research team. Lo and colleagues propose a different approach to organizing and financing this effort. The authors recommend supporting multiple studies conducted simultaneously, each addressing a different target and supported from a common pool of funds.

This portfolio approach, say the authors, will be challenging for both scientists and financiers. In the paper they identify 64 potential research projects addressing different targets along 12 pathways, with multiple studies assigned to hypotheses considered more well-developed or likely to succeed. The authors concede the number of studies is arbitrary and could go higher, up to 100 or more.

For financing, the researchers propose a bond fund that would securiturize the portfolio’s assets and distribute risk among the bond holders. The portfolio’s assets, intellectual property generated by the research, would draw on the cash flow from royalties generated by successful drugs to pay principal and interest.

The authors estimate the fund would need to raise $38.4 billion, calculated by $600 million needed on average to support each of the 64 studies. In a simulation of the funding model, the team projected a 13 year development period for each drug, with a total of 150 clinical trials during that period. With that number of trials, the team calculates the odds of at least two successful trials is 99.6 percent.

On the other hand, drug development remains a highly risky business. While new drugs would have 20 years of patent exclusivity, much of that time would be taken up in the development process, and thus the fund would still present a good deal of cash-flow risk for bond holders.

The researchers recommend that government as well as private investors take part in the bond fund, since the taxpayers would also reap benefits from its work. Government is generally more risk tolerant and takes a longer view of returns on these kinds of investments. In addition, according to the Alzheimer’s Association, Medicare and Medicaid together are expected to pay $150 billion in 2014 alone on Alzheimer’s-related expenses, thus government has a direct stake in finding treatments that work.

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