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Mergers and acquisitions in the pharmaceutical and biotech industries

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  • Patricia M. Danzon

    (University of Pennsylvania, USA)

  • Andrew Epstein

    (Yale University, USA)

  • Sean Nicholson

    (Cornell University, USA)

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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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 28 (2007)
Issue (Month): 4-5 ()
Pages: 307-328
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:wly:mgtdec:v:28:y:2007:i:4-5:p:307-328

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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Citations

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Cited by:
  1. Isabel Álvarez & Raquel Marín, 2008. "FDI and world heterogeneities: The role of absorptive capacities," Working Papers del Instituto Complutense de Estudios Internacionales 06-08, Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales.
  2. Lars Calmfors & Giancarlo Corsetti & Seppo Honkapohja & Gilles Saint-Paul & Hans-Werner Sinn & John Kay & Jan-Egbert Sturm & Xavier Vives, 2006. "Chapter 5: Mergers and Competition Policy in Europe," EEAG Report on the European Economy, CESifo Group Munich, vol. 0, pages 101-116, 03.
  3. Panayotis Dessyllas & Alan Hughes, 2005. "The revealed preferences of high technology acquirers: an analysis of the characteristics of their targets," ESRC Centre for Business Research - Working Papers wp306, ESRC Centre for Business Research.
  4. Sorisio, Enrico & Strøm, Steinar, 2006. "Innovation and market dynamics in the EPO market," Memorandum 12/2006, Oslo University, Department of Economics.
  5. Panos Desyllas, 2009. "Improving performance through vertical disintegration: evidence from UK manufacturing firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(5), pages 307-324.
  6. Panayotis Dessyllas & Alan Hughes, 2005. "The Revealed Preferences of High Technology Acquirers: An Analysis of the Characteristics of their Targets," Industrial Organization 0507009, EconWPA.
  7. Ornaghi, Carmine, 2006. "Mergers and innovation: the case of the pharmaceutical industry," Discussion Paper Series In Economics And Econometrics 0605, Economics Division, School of Social Sciences, University of Southampton.
  8. Christopher Paul Adams & Van Vu Brantner, 2010. "Spending on new drug development," Health Economics, John Wiley & Sons, Ltd., vol. 19(2), pages 130-141.

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