Personalized medicine has emerged as a significant breakthrough in medical research, offering tailored treatments based on an individual’s genetic information. This approach has gained immense importance for patients, doctors, and pharmaceutical firms alike. However, a recent study by Professor Saurabh Mishra from George Mason University School of Business raises concerns about the potential diminishing returns for companies heavily invested in personalized medicine.

Analyzing data from 149 firms between 2007 and 2017, Mishra’s research found that the optimal representation of personalized medicine within a pharmaceutical company’s portfolio was around 30%. Companies with a significantly higher or lower proportion faced penalties in the financial markets, experiencing lower returns and higher risks on their investments.

Mishra highlights the risks associated with personalized medicine, stating that the developmental and operational costs are higher compared to traditional medicine. The lack of economies of scale poses challenges as personalized treatments are customized to the genetic makeup of individual patients. These risks can negatively impact the stock values of pharmaceutical firms, as investors may be cautious about investing in these new and risky assets.

However, despite the risks, Mishra predicts that pharmaceutical firms will continue to pursue a larger portfolio of personalized medicine, emphasizing its importance and the advancements in the field. To navigate this transition without hurting their bottom line, Mishra suggests that companies focus on managing the challenges associated with personalized medicine.

Mishra believes that firms with high marketing capabilities can achieve higher returns on larger investments in personalized medicine. By understanding patient needs, identifying target markets, and optimizing their messages, companies can minimize some of the commercialization costs. Marketing plays a crucial role in long-term market performance, particularly for firms with a lower percentage (below 15%) of personalized medicine in their portfolio.

On the other hand, Mishra’s research indicates that highly leveraged firms experienced even lower returns when their personalized medicine portfolio went beyond the 15-45% range. This suggests that excessive debt magnifies the inherent risks of a niche-focused strategy. Mishra advises companies to strike a balance between marketing capability and financial debt to manage the risks associated with personalized medicine effectively.

As the personalized medicine sector continues to develop, the market is expected to become less risk-averse. Investing in marketing and research can create a more profitable future for personalized medicine. Mishra highlights that while blockbuster drugs will still have their place, the growing knowledge about human genes and diseases will drive the demand for personalized treatments.

In summary, pharmaceutical firms must carefully manage the transition towards personalized medicine by finding the right balance between risks and returns. By leveraging marketing capabilities, understanding patient needs, and avoiding excessive debt, companies can position themselves for success in the evolving landscape of personalized medicine.

By Impact Lab