Searching for Innovations ? The Technological Determinants of Acquisitions in the Pharmaceutical Industry

Gautier Duflos and Etienne Pfister ()
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Etienne Pfister: BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique

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Abstract: This article analyzes the individual determinants of acquisition activity and target choices in the pharmaceutical industry over the period 1978-2002. The "innovation gap" hypothesis states that acquiring firms lack promising drug compounds and acquire firms with more promising drug prospects. A duration model implemented over a panel of more than 400 firms relates the probabilities of being an purchaser or a target to financial, R&D ant patent data to investigate this explanation more deeply. Results show that purchasers are firms with a lower Tobin's Q and decreasing sales, which could indicate that acquisitions are used to compensate for low internal growth prospects. Firms with a higher proportion of radical patents in their portfolio, especially in pharmaceutical and biothechnological patent classes, face a higher probability of being targeted, indicating that acquiring firms are indeed searching for innovative competencies. However, acquiring firms also present a significant absorptive capacity : their R&D investment increases in the year preceding the operation and their patent stock is larger and more diversified than for non-acquiring firms. Finally, we observe that over the last ten years of the sample period, firms have paid a greater attention to the size of the target's portfolio.

Keywords: M&A; Innovations; Pharmaceutical; Patent citations; Industrie pharmaceutique; Innovation; Citations de brevets (search for similar items in EconPapers)
Date: 2008-10-15
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00331211v1
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Published in 2008, 50 p

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Working Paper: Searching for innovations? the technological determinants of acquisitions in the pharmaceutical industry (2008)
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