Eu-HEA Seminar: Melissa Newham (ETH Zurich and KU Leuven)

Melissa Newhan

Abstract

This paper analyzes patterns in M&A in the pharmaceutical industry involving drugs under development. Drawing on a detailed dataset of all corporate R&D activities related to antidiabetics over the period 1997-2017, we study the identity of targets and acquirers (who), timing of acquisitions (when) and which type of R&D projects change hands in terms of their technological nature and novelty (what). Conversely to the recent narrative of M&A in pharmaceutical markets that portrays large incumbent firms as typical acquirers and small firms as targets, we find that the majority of M&A activity takes place between small and research-focused firms. Further, it is also small and research-focused firms that engage in transactions involving novel or “high risk/high gain” projects. These potentially disruptive,  but highly uncertain,  projects are most likely to be acquired soon after their initiation, pointing towards an important yet so far unexplored pattern in M&A activity. By contrast, the largest incumbents in antidiabetics are less active acquirers, opting instead to conduct R&D in-house. Our findings have implications for where the scope of antitrust inquiry should be broadened when assessing the effects of M&As on innovation and competition in the pharmaceutical industry - a topic which has recently caught the attention of policymakers and academics.

Discussant: Carmine Ornaghi, University of Southampton
Chair: Mujaheed Shaikh, Hertie School