Mergers and Acquisitions in the Pharmaceutical and Biotech Industries
Pharmacoeconomics and Pharmaceutical Economics
We examine the determinants and eﬀects of M&A activity in the pharmaceutical/ biotechnology industry using SDC data on 383 ﬁrms from 1988 to 2001. For large ﬁrms, mergers are a response to expected excess capacity due to patent expirations and gaps in a ﬁrm’s product pipeline. For small ﬁrms, mergers are primarily an exit strategy in response to ﬁnancial trouble (low Tobin’s q; few marketed products, low cash–sales ratios). In estimating eﬀects of mergers, we use a propensity score to control for selection based on observed characteristics. Controlling for merger propensity, large ﬁrms that merged experienced a similar change in enterprise value, sales, employees, and R&D, and had slower growth in operating proﬁt, compared with similar ﬁrms that did not merge. Thus mergers may be a response to trouble, but they are not a solution.