Mergers and acquisitions in the pharmaceutical and biotech industries

Patricia M. Danzon, Andrew Epstein and Sean Nicholson
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Andrew Epstein: Yale University, USA, Postal: Yale University, USA

Health Economics, 2007, vol. 28, issue 4-5, pages 307-328

Abstract: 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. Copyright © 2007 John Wiley & Sons, Ltd.

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Related works:
Working Paper: Mergers and Acquisitions in the Pharmaceutical and Biotech Industries (2004)
Journal Article: Mergers and acquisitions in the pharmaceutical and biotech industries (2007)
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