During the opening scene of the 2007 movie Away From Her, Fiona (played by Julie Christie) and her husband Grant (Gordon Pinsent) are cleaning up after dinner. Having dried a frying pan, Fiona walks to the refrigerator, puts the pan in the freezer, and leaves the kitchen. Other examples of unusual behavior follow: During a walk in the woods Fiona caresses a yellow flower and remarks “For some reason I forget what yellow means;” Upon returning from a drive Fiona remembers “visiting this resort a year or two ago,” to which Grant replies that it has been their home for 20 years; When Fiona fails to return from skiing, Grant finds her on a nearby bridge, confused and clueless about where she is and how she got there.
Welcome to the grim but increasingly familiar face of dementia, specifically Alzheimer’s, which the Alzheimer’s Association has called “the defining disease of the baby boomers.” Because dementia is a large and growing health problem, BTR has consistently been considering its investment implications.
Dementia – What It Is and What It Isn’t
Dementia is not a specific disease, but an overall term describing a wide range of symptoms associated with a decline in memory or other thinking skills severe enough to reduce a person’s ability to perform everyday activities. Dementia is caused by damage to nerve cells in the brain, called neurons. As a result of the damage, neurons can no longer function normally and eventually may die. This, in turn, can lead to slow but progressive changes in memory, behavior, and the ability to think clearly. Dementia is often not diagnosed until months or years after onset. While symptoms can vary greatly, at least two of the following core mental functions must be impaired for a patient to be diagnosed with dementia: memory; communication and language; ability to focus and pay attention; reasoning and judgment; visual perception.
The brain contains roughly 100 million neurons, and while few neurons actually die over a person’s life, under normal conditions they do shrink, which may help explain why mental functioning tends to slow in middle and older age. Also, starting in middle age the brain begins producing smaller quantities of many neurotransmitters, the chemical messengers that relay information between neurons. Additionally, blood flow to the brain typically declines 15 to 20% between the ages of 30 and 70. So a certain amount of forgetfulness is normal as one grows older and is not necessarily a symptom of dementia. The key difference between dementia and what is called “age-associated memory impairment” is that the former eventually becomes disabling while the latter does not.
Types and Common Characteristics of Dementia
There are many types of dementia, each characterized by different structural changes in the brain, clinical symptoms, and rates of progression. Alzheimer’s and vascular dementia are the two most common types (70-90% of all diagnosed cases), so we will focus on these.
Alzheimer’s, named after a German physician who identified the illness in 1906, is the most common form of dementia (50-80% of all cases). Alzheimer’s is not a normal part of aging, but a progressive disorder of the brain characterized by a gradual deterioration in mental faculties resulting from the loss of neurons and the connections between them.
Vascular dementia is the second most common form (10-30% of all cases). As the name implies, it is caused over time by a series of very small or micro strokes known as infarcts. Impaired judgment or the inability to make decisions, plan, or organize are more often initial symptoms of vascular dementia, as opposed to the memory loss often associated with Alzheimer’s. Vascular brain changes often coexist with changes linked to other types of dementia, in which case the individual is said to have “mixed dementia.” Autopsies of Alzheimer’s victims have revealed that more than half had a coexisting pathology, most commonly previously undetected blood clots or other evidence of vascular disease.
Stages of Alzheimer’s
Although the exact symptoms and progression of dementia will vary based on a number of different factors, what follows is a general description of how abilities change during the course of Alzheimer’s. The earliest stage, which might be called pre-Alzheimer’s, is known as “mild cognitive impairment” (MCI). This condition falls between age-associated memory impairment and early Alzheimer’s. People with MCI are more forgetful than normal for their age, but they don’t experience other cognitive problems associated with Alzheimer’s and the problems are not yet severe enough to affect their daily functioning. One in five older adults has some type of MCI and 70% of those diagnosed with MCI will progress to Alzheimer’s at some point.
In the next stages, the person will begin to show symptoms that are noticeable to others and that will begin to interfere with daily activities. Typical symptoms include short-term memory lapses, problems coming up with right word, difficulty with planning and organizing, and misplacing things. As the disease progresses, the symptoms worsen. New information often will be lost very quickly. One will see signs of impaired communication, disorientation, confusion, poor judgment, and behavioral changes. A person at this stage will begin to require assistance with personal care and general hygiene.
In the late stages of Alzheimer’s, symptoms will worsen even further and personality changes may take place. Sufferers will increasingly need 24-hour supervision, may wander, have hallucinations, fall easily, become incontinent, and eventually lose the ability to eat, swallow, or even speak. They also may no longer recognize familiar people, become agitated, and experience changes in sleep habits.
Risk Factors for Alzheimer’s
Scientists have identified various factors that increase the risk of Alzheimer’s. While some of these factors can’t be altered, others can, and such changes can sometimes postpone the onset of Alzheimer’s and/or slow the progression of the disease.
The greatest known risk factor for Alzheimer’s is age. Most individuals with Alzheimer’s are age 65 or older and the likelihood of developing Alzheimer’s doubles about every five years after age 65. Having a family member with Alzheimer’s increases the risk of developing the disease. Women are at higher risk than men for developing Alzheimer’s, even after adjusting for age and longevity differences. Genetics also plays a role, with some genes increasing the possibility of developing Alzheimer’s and others guaranteeing it.
There being a close connection between the functioning of the heart and the brain, risks to the heart are also risks to the brain, including smoking, high cholesterol, consuming too much unhealthy fat, hypertension, excess body weight, lack of exercise, and atherosclerosis. Other possible risks include excessive alcohol consumption, high stress, diabetes, depression, immune system malfunctions, hormonal disorders, chronic inflammation, and trauma to the head.
Although no medication has thus far been shown to prevent or even halt Alzheimer’s, several now in use focus on prolonging cognitive function and managing disease symptoms. FDA-approved drugs for treating various Alzheimer’s symptoms include Donepezil (trade name Aricept), Rivastigmine (Exelon), Galantamine (Razadyne), and Memantine (Namenda). None has proved able to slow disease progression more than temporarily. Doctors also sometimes prescribe the antioxidant Vitamin E to treat cognitive Alzheimer’s, antipsychotic drugs to treat hallucinations, delusions, aggression, and agitation, and antidepressant drugs to treat depression and irritability. Experimental drugs under study include statins, NSAIDS, and various monoclonal antibodies.
The vast baby-boom generation is approaching old age and there is near certainty that the number of Americans surviving into their 80s, 90s, and beyond will grow dramatically in coming years. Combine these facts with age being the highest risk factor associated with Alzheimer’s, and all point to a sharp rise in the number of Alzheimer’s sufferers. The estimated number of new cases of Alzheimer’s was 454,000 in 2010 and is projected to exceed 615,000 by 2025 and approach 1 million by 2050. Whereas the number of Americans age 65 and older with Alzheimer’s today is approximately 5 million, that number is projected to be 7.1 million by 2025, and almost 14 million by 2050. Worldwide figures are even higher.
Such a large and rapidly growing population of disease victims suggests that Alzheimer’s will become an ever greater public health problem and that the cost of health care, long-term care, and hospice care for individuals with Alzheimer’s will increase quickly – from an estimated $214 billion in America alone this year to as much as $1.2 trillion in 2050 (in 2014 dollars). Expenditures this large point to an abundance of investment opportunities.
First, there are the many pharmaceutical and biotechnology companies working on hundreds of treatments for Alzheimer’s. If any of these companies were to develop an effective treatment, it would obviously make for an outstanding investment.
Second, with the inevitable progression of Alzheimer’s, patients will require more hospital stays, skilled nursing facility stays, and home health care visits than other older people. Furthermore, those with Alzheimer’s have higher average per-person payments for most health care services, and those with cognitive impairment use almost twice as many hours of care monthly. These statistics suggest ever-growing demand for the services provided by hospital chains, nursing homes, and extended care facilities. Also benefiting will be health care Real Estate Investment Trusts (REITs) that own the underlying health-care properties and facilities.
Due to the nature of Alzheimer’s and the increased reliance on others for help in performing daily tasks as the disease progresses, the role of caregivers is crucial. And while much care giving is provided by family and friends, much will have to come from paid caregivers. Hence there is certain to be a role to play for staffing companies where demand will only grow.
Other investment opportunities include insurance companies that write long-term-care policies and various health-care benefit providers. Because Alzheimer’s treatment costs so much and Medicare does not now cover long-term care, we expect individuals will increasingly look to these types of companies for financial assistance. BTR plans to be active in our search for appropriate dementia-related investments.
Thus far, this year, the investment arena is playing out about as we had expected. While economic and geopolitical uncertainties abound, the stock market has continued to march higher. The economy and corporate earnings are growing, albeit slowly, and investors have few attractive alternatives.
To us, the question of whether to put new money to work here is one of investment time horizon. Dividend yields are reasonable, particularly when compared to cash and fixed income returns. And while stock market valuations are a bit high, they are not so high as to create a serious concern. Is a stock market correction in our future? Sure, as corrections are a normal periodic occurrence, but there is nothing in our crystal ball to indicate any serious downside risk. The bottom line is that we remain constructive, expecting volatile but reasonable returns over the coming two to three years.