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

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  • Gautier Duflos

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • 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)

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.

Suggested Citation

  • Gautier Duflos & Etienne Pfister, 2008. "Searching for Innovations ? The Technological Determinants of Acquisitions in the Pharmaceutical Industry," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00331211, HAL.
  • Handle: RePEc:hal:cesptp:halshs-00331211
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00331211
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    Cited by:

    1. Santosh K. Sahu & Nitika Agarwal, 2015. "Mergers and Acquisitions in the Indian Pharmaceutical Sector," Working Papers 2015-122, Madras School of Economics,Chennai,India.

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