The brave new world of personalised medicine

Welcome to the brave new world of personalised medicine. Potential for huge advances in healthcare could not only disrupt the whole industry. This has wide-ranging investment implications, but it could also bring greater complexity in financial planning as life spans increase and, with them, the need for good professional advice.

As life expectancies increase, significant growth is expected in the healthcare industry as well as in insurance and other financial products designed to meet the needs of an ageing population. The very definition of retirement may need to change, and with it government and private-sector pension schemes.

Personalised medicine is coming soon to a clinic, or high street, near you

Disruptive technologies can bring rapid change. The use of 3D printing is already common in the production of prosthetics and customised hearing aids. But prescriptions? The idea of a 3D pill-printing pharmacy is not so farfetched as you might think, if genetic sequencing – the cost of which has fallen dramatically – becomes commonplace.

It’s getting personal

The EU describes personalised medicine (also known as precision medicine) as “providing the right treatment to the right patient, at the right dose at the right time”. Taking into account genetic factors, doctors will be able to recognise at diagnosis which patients are more likely to benefit from a particular treatment. The outcome is wide-ranging — increased wellbeing, fewer side effects and lower costs. The current model is based on trial and error.

The annual NHS drugs budget is £12 billion: if just 25% is wasted on ineffective drugs, these cost savings alone make personalised medicine an attractive prospect. It seems a no-brainer – but it does come at a cost.

Who will bear the cost?

Only one in five approved drugs recoups its development costs (many aren’t approved, resulting in lost R&D expenditure). So many pharmaceutical companies depend on making outsized profits from ‘blockbuster’ drugs, which are becoming more elusive.

Genetic sequencing could well compromise future blockbuster drugs, as new precision medicines drive higher efficacy rates for smaller groups of patients. If unit sales fall materially, drug companies might increase their prices, offsetting the cost savings of personalised medicine for healthcare providers. To avoid this, they must be incentivised to invest in R&D without increasing their prices. New cloud computing technologies could help with this.

Regulate to cultivate: the role of the regulator

One other possible solution would be for regulators to reduce the cost of developing drugs. For example, regulators currently require large populations to be tested in expensive clinical trials to ensure that any safety issues show up in the data. But trialling drugs only on those that have specific genetic or other attributes could reduce the cost and efficiency of clinical trials.

To insure is to cure

Change in the insurance industry could also be a catalyst for realising the benefits of personalised medicine. But under this new regime of personalised medicine, will the concept of ‘shared risk’ – the traditional foundation of insurance – become irrelevant? If affordable tests give more accurate predictions on the likelihood of contracting life-threatening conditions, this could affect insurance premiums. Those with ‘healthy’ genes could pay less — the opposite would also apply.

For example, the US insurance sector could drive change, given it would be a beneficiary of greater efficacy at a lower cost. Within reason, it is also incentivised to benefit from expenditure today to achieve future cost savings.

The cost benefits from better treatment outcomes – lower spending on ineffective drugs and a reduction in adverse drug reactions – should make personalised medicine a ‘no brainer’, but centralised healthcare systems, like the NHS, are cumbersome and slow to adapt.

The data challenges

Other than the economics, the biggest challenge for healthcare systems is data. The capacity of organisations like the NHS to handle huge quantities of data is a concern. A file containing genetic data for one person is almost a terabyte. Cloud computing will take a key role in genetic sequencing, but the computing power required to process this data will be huge.

There are also questions about data usage and protection. The US Genetic Information Non-discrimination Act stops genetic information from being sold on. The data might be encrypted and protected using blockchain technology. Nevertheless, will patients have the right not to disclose particular personal health information to insurance companies?

Governments and insurance companies need to consider solutions – personalised medicine is not far away. In 2012, the UK were the first to sequence 100,000 complete genomes and start to link it to long-term health and hospital data. Can this high-profile research project become part of everyday medicine and healthcare management?

Conclusion: striking the genetic jackpot

How these drugs are used, who will bear the cost of developing them and how they are regulated must be resolved for them to become mainstream. It may be US insurance companies and national healthcare systems in Europe that play the pivotal role in making bespoke medicine ordinary.

Pharmaceutical companies with strong pipelines in immunotherapy or other areas of personalised medicine look well placed. Those with weaker pipelines and large sales forces may struggle in the short term as they restructure.

The biggest winners from personalised medicine may be the healthcare insurance companies. However, they will need to transform their business away from the concept of ‘shared risk’.

Although there are many obstacles to its adoption, we believe that scientific breakthroughs and exponentially increasing computing power could soon bring personalised medicine into the mainstream.  It is early days for this to be an investment theme, but financial advisers can embrace the changes and opportunities it will bring. 

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