Competitive Advantage Case Study

A Successful Cross-border Partnership in Pharmaceutical Industry: The Case of Roche-Chugai in Japan

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Abstract:
After its early stage of development prior to the 1970s, the global pharmaceutical industry witnessed an accelerated growth due to huge investment in R&D, adoption of innovative technologies and the discovery of new drugs. Blockbuster drugs created multi-billion dollar companies called the Big Pharma that dominated the pharmaceutical industry, which was one of the most profitable industries in the world. However, at the turn of the 21st century, falling productivity of R&D investment and tough government regulations had resulted in scarcity of new drugs and spiraling new drug development costs. In addition, a slew of patent expiries, rising competition from generic drug manufacturers and declining consumer trust had created difficult business environment. These conditions precipitated a trend of strategic alliances amidst pharma companies to control costs and ensure market positions. In 2001, Switzerland-based Roche Group merged its Japanese operations with one of Japan's leading pharma companies, Chugai. Despite the low success rate of cross-border alliances, with a Swiss parent company and a Japanese management team, the Roche-Chugai partnership successfully achieved the estimated R&D, revenue and cost synergies. The outlook for the company's future was also very bright.

Pedagogical Objectives:

• To identify and discuss the strategic inflection points in the pharmaceutical industry
• To discuss the underlying reasons, which have spawned strategic alliances amongst competitors in the pharmaceutical industry
• To discuss the critical success factors in cross-border alliances
• To analyse the reasons for the success of the Roche-Chugai partnership in Japan and the factors that contribute to its sustainability

Keywords : Global pharmaceutical industry; Business environment; Generic drug manufacturers; Pfizer Merck GSK (GlaxoSmithKline); Patent protection patent expiry; Clinical trials; New drug development process; Industry Analysis Case Study; Research and development investment; research and development productivity; Blockbuster drugs; Consumer behaviour; Promotional advertising expenditure; New chemical entity (NCE); Food and Drug Administration (FDA); Cross-border alliances; Mergers and acquisitions