The distinct business specialties that we know collectively as the pharmaceutical industry — large pharmaceutical manufacturers
("big pharma"), biotechnology companies, specialty pharmaceutical manufacturers, generic manufacturers, contract research
organizations (CROs), and distributors — are slowly converging. There has been a growing convergence of goals and activities
between these sectors as firms refine their strategic focus to emphasize proprietary drugs and delivery systems.
Big Pharma. The big pharmaceutical manufacturers are becoming more focused on pure, research-based pharmaceutical and combination products
with potential for significant sales and therapeutic impact. In order to focus on proprietary products, products that do not
fit well with a pharmaceutical company's portfolio or have an overall sales potential below corporate targets will often be
divested to specialty pharma companies or even to a competitor who sees a better fit with existing or emerging offerings.
Pharmaceutical companies also have sold business lines to companies that have traditionally been service providers, in some
cases to satisfy regulatory requirements of merger transactions.
Specialty Pharma. Historically, specialty pharmaceutical manufacturers identified opportunities to develop niche products and used those endeavors
to grow and mature. Now these companies are seeking to increase their investment in other competencies that have been the
exclusive domain of big pharma. The future will see more specialty pharmaceutical firms involved in manufacturing, sales,
and marketing activities.
Collaborative efforts will emerge among specialty pharmaceutical firms to leverage technical capabilities upstream and downstream.
The specialty sector will compete directly with the big pharma and biotech sectors for future product opportunities. As big
pharma experiences future product shortages in the primary care market, direct competition between both specialty pharma and
big pharma for the same biotech applications could emerge as a result of the search for the next blockbuster drug.
Biotech. Biotech companies, once cash-hungry R&D entities, have grown into significant research-based pharmaceutical discoverers,
manufacturers, and marketers. As a result, their strategic needs are now quite similar to the rest of industry. This development
has fueled overall industry growth, as over half of big pharma's current sales stems from relationships and alliances with
biotech and specialty pharmaceutical companies.
Big pharma has an acute need to strengthen its fading proprietary product revenue streams. As significant patents expire over
the next five years, the potential for alliances and convergence between biotech and other pharmaceutical players will increase.
Biotechnology companies hold a strong position in terms of intellectual property, but their access to funding has been limited.
Pharmaceutical companies have been reluctant to invest without proven results, and they have been negotiating for greater
percentages of future royalties. This dynamic will likely rebalance as approval risks decrease in later development stages
and prospective rewards grow.
Generics. Generics manufacturers have benefited from a growing volume of overall prescriptions and the popularity of cheaper generics
when patents expire. Strong growth and consolidation have resulted in large, well-financed organizations. Like their big pharma
counterparts, these companies have invested in drug discovery, development, and alliances. They have explored developing proprietary
drugs that complement their strong generic positions. While these companies are not abandoning their generic roots, they are
adding new capabilities, establishing sales forces, and hiring contract sales organizations. They will increasingly go head-to-head
with branded pharmaceutical and biotech firms, particularly if generic biologics become reality.
Service Providers. Traditionally viewed as service providers, CROs and distributors have also joined the race to collect revenues from proprietary
drugs and drug delivery systems. Often, these enterprises pursue opportunities in high-margin branded products using a risk-sharing
Success is breeding competition. Strategically, CROs have the R&D competencies to become viable players. By leveraging those
strengths in collaboration with biotechs, CROs can gain access to intellectual capital and biotechs can obtain an additional
source of funding in a tight investment cycle. As CROs will be challenged to grow at a rate similar to that of the 1990s,
leveraging their strong clinical base and expanding into high-margin activities will be key to future success.
Similarly, distributors have become fully integrated healthcare companies, expanding into pharmaceutical packaging, services,
and drug delivery niches. Additional high-margin strategic plays are likely as opportunities to broaden service offerings
Convergence. As the various sectors increasingly overlap, the industry will change shape. Certainly, greater participation in various
areas will increase competition between players; there will be more bidding and higher prices for deals ranging from licensing
a drug to purchasing a subsidiary. However, there will also be tremendous opportunity for new forms of collaboration between
the converging companies, a truly exciting prospect that will bring additional product offerings to the global health care