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Determinants and consequences of M&A activity in the pharmaceutical – biotechnological industry
Alisher Saydalikhodjayev
March 30, 2008
Industrial Organization
Professor J. Likens
ABSTRACT
Traditionally, pharmaceutical firms with large R&D platforms dominated the space of drug innovation; however, the last 30 years produced a large number of smaller research-oriented biotech firms. Advances in the human genome project opened doors to the field of drug innovation to many new players. This event caused a change in the structure of the pharmaceutical-biotech industry, primarily through a hike in M&A activity during the 80’s and the 90’s. The examined study found that large pharmaceutical firms that had gaps in their drug development pipeline tended to engage in acquisitions, while small biotech firms that experienced financial trouble tended to participate in M&A as targets. At the same time, small biotech firms that had promising drug development pipelines and healthy financials chose to grow organically. No significant positive effects of the event of the merger on operations were found after controlling for company’s merger propensity score.
INTRODUCTION
“Formerly, when religion was strong and science weak, men mistook magic for medicine; now, when science is strong and religion weak, men mistake medicine for magic”
- Thomas Szasz
In the capitalist societies of the western world people have become increasingly aware of the importance of healthy life. Anecdotal evidence says that Americans spend most of their medical insurance funds during the last three months of their life. Thus, it’s easy to see why pharmaceutical and healthcare-related business would s ...