Personalized medicine uses genetic insights to personalize treatment decisions, diagnostics, and prevention strategies. It represents a shift from a "one-size-fits-all" approach to medicine to a more targeted approach based on a person's genetic profile. While still in early stages, personalized medicine has the potential to transform the healthcare industry by improving treatment outcomes, increasing the efficiency of drug development and approval processes, and reducing overall healthcare costs through more effective targeting of therapies.

1. Innovation Capabilities Report
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Personalized Medicine
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Adrian Carrión
Gena Fazzari
Chappella Mayweather

2. Today’s Agenda
Ø What is Personalized Medicine?
Ø Who is Medco?
Ø Sources of Innovation
Ø Types of Innovation
Ø Patterns of Innovation
Ø Industry Standards
Ø SWOT/ Five Forces
Ø Medco’s Strategy
Ø Video on the Medco/Mayo Clinic Warfarin Study (Youtube)
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© 2010 Medco Health Solutions, Inc. All rights reserved. C C

3. What is Personalized Medicine or
Pharmacogenomics?
Ryan Phelan, CEO DNA Direct
“Using genetic insights into treatment decisions, into early
prevention, and into early diagnostics.”
www.medco.com G C T G
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© 2010 Medco Health Solutions, Inc. All rights reserved. C C 3

4. Who is Medco (MHS)
Products & Services Health INS
Patient pays premiums
> Benefit design and management
> Pharmacy network management
> The Medco Pharmacy Rx INS
> Specialty pharmacy solutions
Patient pays premiums
> Diabetes management, home
healthcare products and Medicare
specialists
Mail-Order Rx
> Clinical management
Patient pays Co-Pays
> Precision Health SolutionsTM
Medco
– Genetic Testing
> Client services
> Retiree solutions
> RationalMed® Patient pays Co-Pays
> Optimal Health®
Retail-Rx
Pharmaceuticals
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© 2010 Medco Health Solutions, Inc. All rights reserved. C C

5. Sources of Innovation
n Sources of innovation
Firms
emerge from a complex
network of innovators
(similar to the figure on
the left) – And
Individuals
Universi+es
personalized medicine is
no different
n Personalized medicine is
a result of technology
spillover in that, it is an
off-shoot of
Private
Gov’t
pharmacogenomics
Non-­‐Profits
Funded
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© 2010 Medco Health Solutions, Inc. All rights reserved. C C 5

6. Sources of Innovation Continued
Research
Linkages
With
Linkage
With
• Private
firms
–
Customers
Non-­‐Profit
acquisi+on
of
DNA
• Customers
include
Organiza:ons
Direct
to
leverage
both
doctors
and
• Hospitals
and
R&D
pa+ents
academic
ins+tu+ons
• Applied
research
• Industry
evolving
par+cipate
in
clinical
• Demand-­‐pull
toward
customer-­‐ trials
approach
rela+onship
• Obtain
regulatory
management
versus
approval
from
FDA
scale
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© 2010 Medco Health Solutions, Inc. All rights reserved. C C 6

7. Types of Innovation
Product vs. Process
Product vs. Process Innovation
• It
is
improving
the
efficiency
and
effec+veness
• Pa+ents
will
no
longer
have
to
endure
trial
and
error
approaches
to
finding
the
best
treatment
• Pharmaceu+cal
firms
can
produce
even
beMer
treatments
–
increasing
the
number
of
marketable
compounds
• No
longer
“one-­‐size-­‐fits-­‐all
approach”
–
will
be
targeted
with
pre-­‐selected
focus
groups
versus
large
random
samples
• More
efficient
approval
process
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© 2010 Medco Health Solutions, Inc. All rights reserved. C C 7

8. Types of Innovation
Radical vs. Incremental
Radical
vs.
Incremental
Innova+on
• Personalized
medicine
encompasses
both
radical
and
incremental
innova+on
• The
product
innova+on
is
incremental
with
poten+al
for
radical
–
compounds
will
be
varia+ons
of
exis+ng
compounds
with
infinite
possibili+es
• The
process
innova+on
is
radical
–
large
degree
of
“newness”
and
“differentness”
–
unlike
prior
experiences
for
most
observers
–
how
many
people
in
the
room
have
experienced
personalized
medicine?
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© 2010 Medco Health Solutions, Inc. All rights reserved. C C 8

9. Types of Innovation
Competence-Enhancing vs. Competence-Destroying
Competence-­‐Enhancing
vs.
Competence
Destroying
Innova+on
• Building
on
exis+ng
knowledge
base
• Pharmaceu+cal
firms
can
produce
beMer
treatments
–
increasing
the
number
of
marketable
compounds
• Compounds
that
do
not
sa+sfy
a
large
popula+on
will
no
longer
have
to
be
shelved
–
rather
they
can
be
matched
to
gene+cally
compa+ble
pa+ents
G C T G
C A G A T
© 2010 Medco Health Solutions, Inc. All rights reserved. C C 9

10. Types of Innovation
Architectural vs. Component
Architectural
vs.
Component
Innova+on
• Personalized
medicine
changes
the
overall
design
of
how
treatment
is
determined
• The
impact
is
far-­‐reaching
–
it
will
become
more
about
customer-­‐rela+onship
management
instead
of
scale
–
the
days
of
dropping
off
samples
to
thousands
of
doctor’s
offices
are
gone
• It
is
believed
that
the
pharmaceu+cal
industry
will
evolve
into
a
niche
market
–
a
radical
change
from
the
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© 2010 Medco Health Solutions, Inc. All rights reserved. C C 10

11. Patterns of Innovation
Technology S-Curve
• Conventional methods of treatment are reaching a plateau
• Personalized medicine is:
§ a discontinuous technology
§ in early stages of discovery
§ poised to transform healthcare industry within decades
Limit of Technology
Conventional
Treatment
Performance
U.S. Personalized Medicine Market is Roughly
$232 billion!
Personalized
Medicine
Effort G C T G
© 2010 Medco Health Solutions, Inc. All rights reserved.
C A G A T 11
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12. Patterns of Innovation
Slow Technology Diffusion of Personalized Medicine
Physicians Pharmaceutical FDA/Government
• Limited knowledge of Companies
• Publicly supports
technology
• Priority is to market a technology
drug to as broad a
• Compensated for population as possible
procedures NOT • Slow to modify polices
treatment process to encourage use of
• Personalized medicine technology
undermines business
• Typically slow to
strategy
support new methods
of care
Key Stakeholders in Healthcare Industry are
Unfamiliar with Technology
G C T G
© 2010 Medco Health Solutions, Inc. All rights reserved.
C A G A T 12
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13. Industry Standards
Technology Cycle
Era of Ferment • Personalized medicine
in Era of Ferment
• Companies still
Technological “Dominant Design” experimenting with
Discontinuity Emerges technology
• Learning curve still
Incremental significant
Innovation
• Dominant Design has
not been identified
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© 2010 Medco Health Solutions, Inc. All rights reserved. C C

14. Industry Standards
Network Externalities Complementary Goods
“…this is when the value of a good “Additional goods or services that
to a user increases with the enable or enhance the value of
number of other users of the another good.”
same or similar good.”
• Positive consumption
Lab/Genetic
externalities will materialize Testing
once technology reaches a
critical mass “Complementary
Goods”
• Emergence of Dominant Design
will increase installed-base Personalized
Medicine
G C T G
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© 2010 Medco Health Solutions, Inc. All rights reserved. C C 14

15. Industry Standards
Government Regulation
Genomics and Personalized Medicine Act of 2006
“To improve access to and appropriate utilization of valid, reliable and
accurate molecular genetic tests by all populations thus helping to
secure the promise of personalized medicine for all Americans.”
Bill calls for:
• Genomics and Personalized Medicine Interagency Working Group
• Expansion and Acceleration of Genetic and Genomics Research
• Genetics Workforce and Training
Bill proposed to Congress; however, is not yet a law.
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© 2010 Medco Health Solutions, Inc. All rights reserved. C C 15

16. Industry Standards
Expected Dimensions of Value
More Powerful, Safer Drugs &
Vaccines
Improvement of Drug Discovery &
VALUE
Approval
Decrease in Overall Healthcare
Cost
G C T G
© 2010 Medco Health Solutions, Inc. All rights reserved.
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17. SWOT Analysis
• Leading
market
posi+on
boos+ng
brand
image
and
bargaining
power
• Strong
growth
in
revenue
and
profits
• Reliance
on
low-­‐profit
clients
could
building
investor
confidence
affect
company’s
profitability
• Mail
service
contract
increasing
the
customer
base
Strengths
Weaknesses
• Acquisi+on
of
DNA
Direct
and
online
OTC
and
healthcare
products
Opportuni+es
Threats
• Intense
compe++on
could
put
market
posi+on
under
duress
sites
to
augment
customer
base
• Changes
in
government
regula+ons
• Collabora+ve
agreements
would
could
lead
to
a
decrease
in
the
provide
revenue
growth
opportuni+es
demand
for
services
• Posi+ve
outlook
for
the
U.S.
Generics
• Changes
in
industry
pricing
market
benchmark
could
impact
the
• Aging
U.S.
popula+on
would
lead
to
an
financial
performance
increased
demand
for
health
care
services
Data Monitor G C T G
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© 2010 Medco Health Solutions, Inc. All rights reserved. C C 17

18. Porter’s Five Forces Model
Pharmacogenomics
Threat of New Entrants
Supplier Buyer
Power Power
Threat of Substitutes
G C T G
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© 2010 Medco Health Solutions, Inc. All rights reserved. C C 18

19. Strategy
It’s leveraging the power of advanced pharmacy to redefine the standards of
clinical excellence as we drive down overall healthcare costs
n Growth Strategies - Acquisitions
> Horizontal Integration
– Accredo’s Specialty Pharmacy
– BioSources’ Medical Equipment Testing
> Vertical Integration
– DNA Directs’ Genomic Test Analyses
n Information Technology Management Strategies
> Agile Infrastructure (modular) & Patent applications
n Collaboration Strategies
> Outsourcing
– Contract Manufacturing (IT)
> Equity Joint Venture
– Mayo Clinic and Medco Research Institute
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© 2010 Medco Health Solutions, Inc. All rights reserved. C C 19

20. Warfarin (anticoagulant drug) Study
Conducted by The Mayo Clinic & The Medco Research Institute
G C T G
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© 2010 Medco Health Solutions, Inc. All rights reserved. C C 20

21. What competitors are saying about
Personalized Medicine...
G C T G
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© 2010 Medco Health Solutions, Inc. All rights reserved. C C 21

22. Medco’s First Mover-Early Entrant Strategy
Decision Support Tools
Precision Health Solutions: ‘The Trusted Advisor’
n Web-based genetic testing n Coverage management to help
related information and them determine reimbursement
education modules for patients policies and appropriate
and providers. coverage criteria, while ensuring
that the tests are properly used.
n web-based tools that will
connect patients and physicians n Policy and benefit consultation
to live counselors who can to advise plans on how to best
provide “reliable information structure their genetic test
around these kinds of tests by benefit and help plans choose
walking them through available tests, including lab
indications of a test and helping work.
them to understand the results
http://www.aishealth.com/Bnow/hbd060710.html G C T G
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© 2010 Medco Health Solutions, Inc. All rights reserved. C C 22

23. Recommendations
n Take advantage of the opportunities as an early mover
n Be prepared to respond to changes in legislation
n Strike up more joint ventures or strategic alliances with lab
infrastructure (Qwest Diagnostics, LabCorp, etc)
n Look into other vertical/horizontal integration opportunities involved
with genetic testing
n Protect innovation through patents
n Get the word out about Medco’s role in positively affecting drug
therapy directly to the consumer
n Conduct more studies through the Medco Research Institute
(Warfarin)
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© 2010 Medco Health Solutions, Inc. All rights reserved. C C 23

24. Questions?
http://www.aishealth.com/Bnow/hbd060710.html G C T G
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© 2010 Medco Health Solutions, Inc. All rights reserved. C C 24