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Mergers and acquisitions in the pharmaceutical and biotech industries

Author Info

Listed author(s):
  • 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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File URL: http://hdl.handle.net/10.1002/mde.1343
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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

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Handle: RePEc:wly:mgtdec:v:28:y:2007:i:4-5:p:307-328
DOI: 10.1002/mde.1343
Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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Find related papers by JEL classification:
  • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
  • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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  1. Mitchell, Mark L & Stafford, Erik, 2000. "Managerial Decisions and Long-Term Stock Price Performance," The Journal of Business, University of Chicago Press, vol. 73(3), pages 287-329, July.
  2. David J. Ravenscraft & William F. Long, 2000. "Paths to Creating Value in Pharmaceutical Mergers," NBER Chapters,in: Mergers and Productivity, pages 287-326 National Bureau of Economic Research, Inc.
  3. Sara B. Moeller & Frederik P. Schlingemann & Rene M. Stulz, 2003. "Do shareholders of acquiring firms gain from acquisitions?," NBER Working Papers 9523, National Bureau of Economic Research, Inc.
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  7. Keisuke Hirano & Guido W. Imbens & Geert Ridder, 2003. "Efficient Estimation of Average Treatment Effects Using the Estimated Propensity Score," Econometrica, Econometric Society, vol. 71(4), pages 1161-1189, 07.
  8. Rajeev H. Dehejia & Sadek Wahba, 2002. "Propensity Score-Matching Methods For Nonexperimental Causal Studies," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 151-161, February.
  9. Ming Dong & David Hirshleifer & Scott Richardson & Siew Hong Teoh, 2006. "Does Investor Misvaluation Drive the Takeover Market?," Journal of Finance, American Finance Association, vol. 61(2), pages 725-762, 04.
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  13. John A. Vernon, 2005. "Examining the link between price regulation and pharmaceutical R&D investment," Health Economics, John Wiley & Sons, Ltd., vol. 14(1), pages 1-16.
  14. Guido W. Imbens, 2004. "Nonparametric Estimation of Average Treatment Effects Under Exogeneity: A Review," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 4-29, February.
  15. Amy Finkelstein, 2003. "Health Policy and Technological Change: Evidence from the Vaccine Industry," NBER Working Papers 9460, National Bureau of Economic Research, Inc.
  16. Dranove, David & Lindrooth, Richard, 2003. "Hospital consolidation and costs: another look at the evidence," Journal of Health Economics, Elsevier, vol. 22(6), pages 983-997, November.
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