Wall Street has been in a positive trading mood these past few days, driven by a number of short-term indicators.  One of these motivators has been a resurgence of merger & acquisition efforts among drug and pharmaceutical companies.  It seems that rising worldwide concerns regarding the threat of influenza pandemic has caused certain drug companies who manufacture and distribute vaccines to become very attractive targets. 

Today’s Wall Street Journal features an article, U.S. Drug Companies Chase Vaccines (subscription may be required). The article notes that these specific target companies are attractive because vaccine sales are growing faster than that of other prescription medicines, and are essentially immune to generic competition. Governmental agencies are reliable buyers, and the willingness to pay is rather high, given the threat to large populations. Order volumes are rather large because of the need to stockpile doses for the target population. Deals such as Johnson and Johnson buying an 18% stake in Dutch company Crucell NV, Abbott Laboratories acquiring Belgium’s Solvay SA, and Pfizer Inc.’s efforts to acquire Wyeth have been noted as examples of this trend.

In reading about the usual financial engineering that tends to motivate these deals, I wondered how much consideration has been made to the supply chain competencies and implications involved in these deals.  Think about it, on-time delivery is one of the most critical needs surrounding vaccine production. Late delivery could risk the lives and well being of many people. Risks Are high, and bad or poor quality vaccine can severely damage a company’s creditability or reputation in the market.

Vaccine manufacturing and distribution represents a rather complex set of supply chain challenges.  The new product planning process must be swift, since new strains of disease appear every year, and vaccines need to be constantly modified. Demand is very high volume, and seasonal in nature.  Production planning has many variables, including the overall quality or characteristics of compounds, the consistency of yields in the production process, and the need for potential prioritization of shipments to countries of greatest need. Quality specifications are obviously very high, conforming to all forms of regulated manufacturing, documentation, and tracking needs.

More importantly, pharmaceutical and drug producers for the most part, do not tend to view supply chain as a key competency in their business models of investment.  Clinical trials, research and development tend to garner the lion’s share of investment dollars in business process or information technology needs.

Opinions from Wall Street financial analysts tend to surround all of the commentary related to these deals, and I, for one, would like to add a missing voice.  Let’s discuss the need for identifying the synergies concerning the required supply chain competencies within these combined companies. 

Will combining supply chain operations make business sense, or will the acquired organization offer more in supply chain process and skills? 

Is the goal added profitability through volume, or added profitability through a more responsive and agile supply chain?

Will the need to combine operations of these various companies over the coming months distract from the need to have perfect order fulfillment?

I would especially like to challenge supply chain professionals within drug and pharmaceutical industry sectors to add their commentary to this dialogue.

 Bob Ferrari