To realize the business potential in personalized medicine, pharma companies will need to emphasize diagnostics — which, historically, has been a very different business from pharmaceuticals, with far lower profit margins, making it unattractive to drug companies in the past. Most pharma companies do not have the requisite Dx identification, development, or commercialization capabilities to play effectively in this space, and will have to build, buy, or borrow them.
Fortunately for the companies, version 1.0 of personalized medicine has already raised the value of diagnostic tests. In the past, they typically sold for $300 or less. Today, some tests, such as Oncotype DX, produced by Genomic Health, are priced at about $4,000. This test is expensive because it is based on years of proprietary genetic research and multiple large-scale clinical trials to confirm its predictive capability. Even so, it is seen as affordable; without it, chemotherapy is far more expensive and toxic.
Several leading pharma companies are beginning to build or buy the capabilities required to fulfill the goals of the patient-centric model. For example, Novartis acquired Genoptix for $470 million in 2011 — a deal that demonstrated, to many in the industry, that the largest companies were interested in PMx. In August 2012, GlaxoSmithKline paid $3.6 billion to acquire Human Genome Sciences, one of the earliest companies to mine the genome in search of innovative drugs.
As the bidding for diagnostics assets accelerates, some target companies are likely to be overvalued, and some acquirer companies may overpay. But sitting on the sidelines is not a viable option. Payors and physicians are increasingly unwilling to support drugs with only a fractional response rate. Moreover, the PMx promise to raise R&D productivity while improving patient outcomes is simply too compelling to ignore.
The Capabilities System of Personalized Medicine
One way to think of PMx capabilities is as a set of new instruments that will provide new insights into disease and treatment. But just as ultrasounds and CT scans have not displaced stethoscopes and thermometers in the physician’s bag, the tools of PMx do not supplant traditional competencies such as those of medicinal chemistry, molecular biology, and high-throughput screening; they augment them.
The capabilities that distinguish a company in personalized medicine are not just tools, of course; they represent combinations of processes, technologies, knowledge, skills, and organization that have been developed over time. Nor can they be thought of in isolation. Distinctive capabilities are always cross-functional. For example, a pharmaceutical company may decide to develop its prowess in a particular type of medical practice, such as oncology, immune system disorders, or mental illness. This will necessarily bring together professionals in genetic research (for biomarker discovery and development), patient outreach, finance (for development of pricing and economic models for stratified patient populations), and sales and marketing (for working with clinics). These are not separate processes and systems; personalized medicine requires synchronized adjustments in every part of the value chain from discovery to development to commercialization to life-cycle management.
After 20-odd years of business process reengineering, most pharma company managers understand how to make structural changes, though they are often blasé or cynical about the ultimate benefits. Personalized medicine could also require changing hearts and minds because it affects the character of an enterprise. Although individual companies will develop new capabilities in their own way, all successful PMx initiatives will need to include these imperatives:
• Encourage a mind-set in which personalization is not an option but a necessity — even in the face of the inevitable failures that occur with new drug candidates. Assume that all molecules in the pipeline will be tailored to specific patient populations; non-tailoring will become the exception.