Patient X was rushed to the hospital for emergency surgery. As she entered the hospital she said to the anesthesiologist, "You may not want to use suxamethonium on me."  

"Have you had a previous reaction?" inquired the anesthesiologist.

"No."

"Ah, a family member must have had a reaction."

"No."

"Why then are you concerned about this drug?"

"I've had a good portion of my genome sequenced," the patient replied, "and I found that I have a genetic variation in the enzyme that breaks down suxamethonium and am part of the 5% of patients who respond unusually to this drug. I thought you should be aware of this information."

The flabbergasted anesthesiologist wondered how long it would be before more of her patients came prepared with their own genetic code.

I made up the details of the conversation above, but otherwise the story is true. The patient was a customer of 23andme, a service that for around $200 will give you information on about half a million sites on your genome, how you differ from other people at those sites, and which of your variations are associated with various diseases, behaviors and capabilities.

The costs of sequencing are falling so rapidly it will soon make sense for everyone to carry their entire genetic code with them on a USB drive (23andme only identifies part of the code). In 2001 it cost Craig Venter $100,000,000 to sequence the first human genome (his own.) Today, it costs just $16,000; in a few years, it will cost less than $1,000--a 100,000-factor decrease in costs in less than two decades!

The rapid fall in the cost of genome sequencing will open up many medical opportunities but will also pose a challenge to the standard operating procedure of pharmaceutical firms and the FDA.

It costs approximately $1 billion to produce the average new drug. The high costs of drug development mean that pharmaceutical firms focus on discovering blockbusters, drugs that treat very large patient populations. Blockbusters, however, are becoming increasingly hard to find.

Initially, it was hoped that understanding the genetic code would lead to a slew of blockbusters as we found genes that we could simply switch on or off. Instead of finding master switches, however, genome-wide association studies have tended to find lots of small contributors to disease, with different people having different contributors. As more people are sequenced, it is likely that we will discover even greater heterogeneity of both diseases and persons.

The future, therefore, is not about blockbusters but about personalized medicine-tailoring treatments to individuals based on their specific genetic structure. The costs of FDA trials, however, mean that it's uneconomic to produce drugs for small patient populations. The Orphan Drug Act attempted to deal with this problem by extending monopoly pricing and increasing tax write-offs for drugs intended to treat small patient populations. But the more information we have, the smaller the relevant patient populations are becoming. Ultimately, we are each a population of one. Extending monopoly pricing even farther won't increase research and development incentives enough to support personalized medicine.

Instead, we must move the FDA away from pre-market gatekeeping and towards post-market surveillance and information provision. By lowering the costs of FDA approval we can increase the profitability of researching and developing drugs for small patient populations. Less pre-market gatekeeping should be combined with universal electronic medical records and extensive post-market surveillance. In an optimal system that trades off risk and benefits, and the better post-market surveillance becomes, the more we should reduce pre-market gatekeeping.

Post-market surveillance should not be used primarily to remove drugs from the market but to provide information about how drugs can best be tailored to patients. Indeed, post-market surveillance combined with genome databases will itself become a powerful technique for drug discovery and personalized drug treatment.

More generally, instead of a paternalist model the FDA should operate under what I have called a Consumer Reports model. Consumer Reports doesn't try to replace consumer choice. Instead, by carefully evaluating and testing new products and providing this information to readers, Consumer Reports helps consumers to make better choices. Similarly, a 21st century FDA should not only work to lower the costs of researching and developing new drugs and provide more information to patients and doctors based on extensive post-market surveillance, but also put more choices in the hands of patients. Only patients and their doctors know the particular circumstances of time and place and person that allow each patient to be treated as an individual.

Alex Tabarrok is Bartley J. Madden Chair in Economics at the Mercatus Center at George Mason University and director of research for The Independent Institute. He writes regularly at the blog, MarginalRevolution.