Global healthcare, one of the world's largest and most influential industries, has grown to more than a massive $3 trillion in 2003 annual sales. The vast sums of money that western society is willing to spend on health and longevity have transformed this industry into a powerful magnet for new technology. We foresee dramatic changes in the years ahead.

Among the most significant changes on the horizon is a future based on personalized medicine. With the development and convergence of several key enabling technologies over the coming years, healthcare will reorient itself from a paradigm focused on the "3 Ds" (doctors, drugs, and devices), to one focused increasingly on managing and exploiting the vast databases of medical knowledge that are rapidly accumulating around the world. Sequencing the human genome was just the beginning.

Here is a brief overview of the seven most important healthcare segments: insurance and HMOs, prescription pharmaceuticals, surgical and other devices, pharmaceutical retailing, distribution, over-the-counter and other medicines, and diagnostic devices.

Insurance and HMOs
Current health insurance revenues exceed $500 billion per year in the United States alone. Health Maintenance Organizations (HMOs) have similarly profited in the United States, bringing in more than $150 billion. However, as early detection and inexpensive, tailor-made drugs drastically reduce the need for expensive healthcare, many such companies will gradually see their revenue base erode, dramatically impacting their growth and profitability.

Prescription Pharmaceuticals
U.S. ethical pharmaceutical revenues are well in excess of $200 billion per year. The majority of revenues in this segment are generated through the sale of a relatively small number of blockbuster drugs. In fact, prospective drugs with smaller potential patient bases may never reach the marketplace. To a large extent, this "dormant drug" situation is caused by the massive expenditures needed--in terms of R&D budgets and time for clinical trials--to earn FDA approval for new drugs. As pharma's focus shifts towards personalized medications, however, not only will the FDA's central role in the industry be diminished, but the leadership positions of many pharmaceutical companies, whose strategies are entrenched in the current healthcare paradigm, will also be threatened.

Surgical and Other Devices
Annual U.S. revenues from medical device sales are well over $60 billion, approximately 80 percent of which are accounted for by sales of non-diagnostic devices. Noteworthy here are devices used in minimally invasive surgery, which not only comprise the second largest segment after diagnostics, but are also growing at an annual rate of about nine percent, compared with medical devices' overall growth of less than seven percent.

Pharmaceutical Retailing
Pharmaceutical retailing in the United States is approaching $200 billion in annual revenues. Roughly 40 percent of the revenues in this segment are claimed by drug chains, with another 20 percent claimed by independent stores. Overall, this lucrative segment has been growing at an annual rate of more than 16 percent, while key new sub-segments, such as mail order drug retailers and food store pharmacies, have been growing at roughly 25 percent per year.

Distribution
Pharmaceutical distribution revenues in the United States now exceed $140 billion annually, having enjoyed solid double-digit growth for more than a decade. This growth is witness to the success of the wholesale distribution system for pharmaceuticals, offering efficient distribution of a wide range of pharmaceutical products to a large number of retailers, thus freeing drug makers to focus on new drug development.

Over-the-Counter and Other Medicines
U.S. over-the-counter (OTC) medicines currently exceed annual sales of $16 billion. In recent years, growth in this segment, which amounts to only about 10 percent of total pharmaceutical sales, has been less then half of the growth enjoyed by prescription pharmaceuticals. However, with an expected trend towards "smarter" medications on the horizon, this situation is likely to reverse.

Diagnostic Devices
Diagnostic device revenues now exceed $13 billion per year in the United States. Of this amount, roughly one third is from the sale of diagnostic imaging products, while the remainder is predominately from the sale of in-vitro diagnostics. Although lagging in growth in recent years compared to many other medical devices, growth in this area is expected to pick up significantly, with the predicted shift in future healthcare emphasis towards individually tailored bioservices.

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