If you're not familiar with the Aduhelm debacle - here's a quick rundown: Aduhelm (aducanumab), developed by Biogen and Eisai, is indicated for the treatment of Alzheimer's disease (AD) in patients with mild cognitive impairment or mild dementia. It targets beta amyloid, one of the several mechanisms that have been widely studied for AD. There remains, at present, no cure for AD. The contentions:

1.     Evidence of efficacy or effect: Biogen halted trials for Aduhelm in 2019, then restarted one in which patients received a high dose of the drug. Little evidence (but > none) has been presented that Aduhelm's action translates into meaningful benefits for patients with Aduhelm.

2.     The FDA relationship with industry and accelerated approval: After a lot of review and a doubtful FDA advisory panel, the FDA approved the drug under its accelerated approval pathway that allows for surrogate endpoints. Here, Aduhelm was approved based on evidence that it reduces amyloid plaques in the brain, though to be "the underlying disease process of Alzheimer's." (Patrizia Cavazzoni). After approval, three members of the advisory panel resigned in protest

3.     Medicare coverage: CMS said it would only cover mAbs that target amyloid plaques for patients enrolled in “qualifying” clinical trials, which would need to meet specific criteria set by CMS.

4.     Pricing: Aduhelm was originally priced at $56,000 per year in the US, but the price was reduced in December 2021 to about $28,200 (pretty close to a cost-effective price published in March 2022).

5.     Alternatives: AD still has no cure, but recently Biogen and Eisai's experimental drug, lecanemab, showed a 27% reduction in cognitive decline based on a widely used metric called the Clinical Dementia Rating in a randomized controlled trial.

Biogen caught a lot of slack for pricing Aduhelm at $56,000 per year. Previous drugs have been price much lower; although . For example, Rivastigmine, a cholinesterase inhibitor that’s used to treat dementia or cognitive decline, costed about $80 for a 30-day supply, and Aricept, a similar drug, only cost $3.10 for the same amount.

But a lot goes into the price of a therapy, including - but not limited to - R&D (not just for that drug, but for a portfolio of assets), ongoing manufacturing, marketing, market access, legal liabilities, and margins for middlemen. A critical aspect of pricing, though, is value. Branded pharmaceutical manufacturers are not operating in a competitive marketplace, so they can price above marginal cost. Arguably, they must price for value and future development.

Let us make a single case for Aduhelm's pricing - a case that is in isolation of many other cases that could be made for and against the pricing; that is, ceteris paribus. Value-based pricing is a strategy that involves identifying and quantifying the utility of a product or service. It can be loosely compared to pricing based on willingness to pay, but in biotech it’s more about identifying attributes of a therapy, procedure, diagnostic, or device that either add or take away from existing treatment or diagnostic options. A common approach is to build a waterfall of value attributes relative to a standard of care (see Figure 1). The first pillar is the ‘index price’ of the standard of care, which could be an index of options or a single therapy, for example. If a therapy is more effective, the price would go up from the index. If the therapy is less safe, some amount would be deducted from the index price.

Figure 1. Conceptual Model of a Value-Based Price Model Outcome

VBA Waterfall Conceptual Model

The index therapy price – the price from which subsequent therapies can go up or down – is a major driver under this framework. Using this approach to pricing, the index therapy can be current therapies in the disease area, similar types of therapies (think cell therapies), or a single direct comparator. If Aduhelm priced below the current limited therapies for AD, future therapies would have to reference Aduhelm as the index price, or at least include it in the index basket of therapies. In contrast, it was priced quite high. Yes, this move provided fuel for the fire against pharmaceutical pricing, but it did encourage other companies to continue to invest in the space.

If the company set the bar very low, it is possible that other companies would become disheartened with the likelihood of being able to recoup costs for clinical trials, market access, patient support . . . the list goes on and on. The punchline is: pioneer drugs set standards, and the public and policymakers have be judicious with how pricing is judged; downstream consequences cannot be ignored.