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 / Winter 2012 / Issue 69(originally published by Booz & Company)


A Strategist’s Guide to Personalized Medicine

All this innovation still represents what might be called version 1.0 of personalized medicine: diagnostic tests applied only after a drug’s development to salvage or increase its value. Industry leaders now are moving toward another form of PMx innovation — call it version 2.0 — in which new drugs are developed concurrently with companion diagnostics. Under this R&D model, researchers identify target patient subgroups in advance and design drugs for these specific populations.

PMx 2.0 has been held back, somewhat, by cost. The first human genome sequence cost $3 billion and took many years to completely map. But now the costs are shrinking, and the effectiveness is growing at an exponential pace. Several companies offer personal genome sequencing for a few thousand dollars or less; within 10 years, it is reasonable to expect that sequencing a personal genome will take an hour and cost perhaps $300, or less than an MRI. It is not too much of a reach to foresee cell phone–sized devices that can analyze a single drop of blood for 500 biomarkers.

As it becomes more prevalent, the pairing of diagnosis and therapy will yield big gains in R&D productivity. The patient subgroups that stand to benefit from a drug will be identified in advance of clinical trials. This could lead to a meaningful improvement in the average response rate for drugs, which is currently 50 percent across all categories and just 22 percent in oncology. That improvement, in cancer alone, would more than compensate for the cost of diagnostic technology.

A New Business Model

The rise of personalized medicine provides pharma companies and healthcare providers with a value proposition different from the one they’re accustomed to. The standard pharmaceutical mass-marketing approaches, with global distribution and advertising, are too expensive and cumbersome for personalized therapies. Moreover, decisions about the use of personalized prescription drugs are made by a relatively small number of sophisticated payors — hospitals, major providers, or large payors — and not by general practitioners, who are disinclined to prescribe drugs that will not be reimbursed by Medicare or private insurance.

As PMx 2.0 unfolds, popular demand will drive its growth. Because it takes into account each patient’s unique pathophysiology; the biochemistry of the tumor, bacteria, or virus; and the individual’s ability to properly react to and metabolize different drugs, it will represent a step change in medical confidence and in protection against side effects.

Already, the appeal of personalized medicine is changing the way people spend their own money on healthcare. In 1996, for example, when Myriad Genetics Inc. launched BRACAnalysis, a predictive test for hereditary breast and ovarian cancer, Medicare and private health insurance did not reimburse for its cost. Nonetheless, many patients paid the $3,000 expense out of pocket. So many of them forwarded the receipts to their insurers and argued on behalf of the test that BRACAnalysis is now commonly reimbursed.

People have shown a willingness to pay for many other personalized forms of healthcare as well. Hundreds of thousands of people have opted for a system known as “concierge medicine.” They pay $59 a month, or more, for 24/7 access to a physician’s advice and counsel, without other types of insurance included. Thousands more flock to alternative medicine, despite the lack of clinical evidence. At least in part, patients are attracted by the perception that alternative medicines are tailored to individual attributes. (For example, some popular medical self-care books propose different regimes of food and herbal remedies based on blood type.)

Personalized medicine will change the way individuals learn about their health. It will lead to more involvement of patients in managing their therapy, and better tracking of patient activity during and after treatment. Today, any newly diagnosed cancer or autoimmune disease patient can consult countless online forums devoted to his or her disease. The information there runs the gamut from accurate and helpful to well-meaning but inadequate to utterly fallacious. Genentech discovered early on with Herceptin that innovative, proactive educational materials are essential to successful PMx. Similarly, Gilead, the world leader in HIV/AIDS drugs, has a long tradition of working with AIDS activists — including some who massed angrily in front of its headquarters in the 1990s — to enlist them in spreading information about the drugs and the varying effects of each drug on different individuals.

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  1. Marcus Ehrhardt, Robert Hutchens, and Susan Higgins, “Five Steps toward a Revitalized Pharmaceutical Supply Chain,” s+b, Spring 2012: Companies embracing personalized medicine will need to build these operational capabilities.
  2. Gil Irwin, Art Kleiner, and Joyjit Saha Choudhury, “When Disruptive Integration Comes to Health Care,” s+b, Mar. 3, 2010: The Innovator’s Prescription coauthor Jason Hwang talks about the next wave of healthcare business models.
  3. Alex Kandybin and Vessela Genova, “Big Pharma’s Uncertain Future,” s+b, Spring 2012: As the era of the blockbuster drug comes to an end, the industry must cope with new unknowns.
  4. For more thought leadership on this topic, see the s+b website at:
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