Introduction

The sections in this chapter deal with a common set of topics: horizontal consolidation, merger and acquisition (M&A), advantages of size, economies of scale and scope, diversification, and industry concentration. These topics all interrelate around the fundamental issue in industrial organization: how best to organize firms and markets in order to achieve optimal economic performance?

Consolidation has been rampant in most sectors of the healthcare industry since the 1980s and 1990s. Indeed, the industry was the second most active in terms of M&A activity (behind finance) between 2008 and 2009. In the pharmaceutical sector, the prior decades had been a time of growth and consolidation, as companies leveraged both size and scale in bringing drugs to market. The current landscape, however, is one of new challenges requiring new approaches to their solution. Companies are faced with internal pressures of declining pipeline productivity and compressed timelines, external pressures of patent expiry and pricing, and the uncertain implications of healthcare reform. Accompanying this evolution of challenges has been an evolution in the strategic approaches taken by pharmaceutical companies to best position themselves for success in the upcoming years.