These are uneasy times for pharmaceutical companies. Many of the industry’s traditional ways of making money are gone. Generic drugs are gaining increasing acceptance, contract sales are undermining the role of direct selling, and companies can no longer introduce a me-too drug and expect a "fair share" of the market.

But there is one certainty amidst the turmoil—the industry’s consolidation is far from complete. The reason is excess capacity. We estimate that in the US alone overcapacity totals between $12.1 billion and $17.5 billion of annual spending, or about 26 to 37 percent of the industry’s total cost base. That is the equivalent of between $60 billion and $90 billion worth of net present value (NPV).

To put that number in perspective, the total value of fulfilling all unmet, disease-based medical needs in the US through drug use is about $120 billion NPV. It means that the potential savings from capacity rationalization account for up to 43 percent of the total value the industry can create.

For companies that can capture cost synergies through acquisitions there are considerable opportunities to create value. For some, in fact, horizontal integration may be their best value-creation opportunity in the near term. In...