Frost & Sullivan’s Study on Pharma-Biotech Alliance Management—Factors Driving Alliances

Published: 30 Nov 2006

By Mahesh Sawant, Program Manager, Healthcare Practice
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Introduction

Alliances have been an important part of the strategies that have gone into growth of some of the big Pharmaceutical and Biotechnology players across the world. The primary reason for this being the larger pharma companies need to increase research productivity. Biotechnology represents one of the major sources of cutting edge research. It is this symbiotic relationship that fuels an increasing number of alliances. 2005 has been significant for the Pharmaceutical and Biotechnology industry when it comes to alliances and acquisition. 500 deals in a single calendar year, of which nearly 200 were acquisitions make this growth strategy the most talked about and also the most tested last year.

Some key issues that are driving alliances in the pharmaceutical industry are the high cost of drug development, threats to intellectual property, pricing pressure, product liability issues and the potential of personalized medicine.

Strategic Drivers for Alliance Formation

The wide spread research breakthroughs in biotechnology make it tough even today for the largest pharmaceutical giants to assemble all the necessary capabilities. Also the technology-intensive nature of the human therapeutics mega-industry means that complex organizational issues will dominate alliance formation. Vertical integration, in particular, faces severe limitations, so that "networks of collaborative ventures" are likely to become the dominant institutional arrangement of the industry. Such arrangements allow companies with widely differing competencies and resources to rely on each other’s strengths and thus build a new business model of virtual integration. As the company enriches its experience and as collaborative practices become institutionalized, returns on investment in alliances are expected to increase.

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