Not surprising, but it’s high. Chandra, Cole and Momatte (2023) Write:
Average Cost of AD [Alzheimer’s Disease] Drug development is estimated (based on a range of assumptions) at $5.6 billion, primarily due to high costs of preclinical and Phase 3 trials (Cummings, Raiber and Kumar 2018). This figure significantly exceeds the R&D cost of other drugs, which has a median estimate of $2.5 billion (DiMasi, Grabowski, and Hansen 2016). One of the reasons for the high cost is the long trial time required to see the results, the average time for AD drug development is 13 years.
this JEL Paper There are many other interesting perspectives surrounding the economics of AD. For example, why is Alzheimer’s disease particularly relevant to economists? The article states:
- People with cognitive impairment may not be able to make the best decisions about health or finances,
- AD may also alter a person’s preference structure in unforeseen ways
- Because the etiology of AD is poorly understood and drug development timelines are exceptionally long, private pharmaceutical companies’ incentives to innovate may be particularly at odds with social incentives
The article also points to some AD market failures.
- Basic science funding can help resolve ongoing ambiguity about AD and validate surrogate endpoints, as this knowledge is a public good that private companies can use to develop specific products.While private companies can participate in this research, they will inevitably be in short supply as they cannot capture all the societal value from such knowledge creation
- Patents often address secondary market failures where R&D costs are high and drug manufacturing costs are low.Patients provide the ‘pull’ incentives needed to justify long-term R&D investments
- Another problem is that the U.S. market plays an disproportionate role in incentivizing AD drug development. The authors write: “…the pharmaceutical markets of other countries are dwarfed by those of the United States; the Australian market accounts for 3% of the US market, Canada 5% and Germany about U.S. incentives all play a key role in guiding innovation.”
The article also cites a well-known problem that commercial payers may not be able to internalize the benefits of any AD treatment.
…Private insurers may not want to cover costly but effective early AD interventions (eg, diagnostic tests or preventive drugs) because later savings would go to Medicare or Medicaid.
Another problem is that nursing homes and home health care are expensive:
In 2019, nursing home care averaged $90,000 to $100,000 per year, and formal home care cost about $23 per hour, or about $53,000 per year for a 44-hour week
Caregiver costs in informal home care settings are also high, but these are borne by the caregivers themselves, not government or commercial payers, and so are often overlooked. a study (Hurd et al. 2013) found that the burden on informal caregivers was $148 billion per year, similar to the cost of formal caregiving.
There are more details in the paper, including market failures in private long-term care insurance, the impact of AD on financial decision-making, and topics for future research in AD economics.you can read the whole article here.
