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Mergers and acquisitions in the pharmaceutical and biotech industries

  • Patricia M. Danzon

    (University of Pennsylvania, USA)

  • Andrew Epstein

    (Yale University, USA)

  • Sean Nicholson

    (Cornell University, USA)

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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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
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