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Pharma M&A versus alliances and its underlying value drivers

Are M&A or alliances the right therapy for an ailing pharmaceutical industry?- A capital market perspective


Heiko Schön

From a capital market perspective, the author analyzes Merger and Acquisitions transactions (M&A) and in-licensings in the pharmaceutical industry between 1998 and 2012. Utilizing the event study methodology, the volume shows that M&A experiences significant, negative cumulative average abnormal returns whereas in-licensings are able to create value. But what are the underlying value drivers which make a deal a success or a failure story? The author derives significant innovative determinants of success for both strategies.
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I. The Pharmaceutical Industry and Its Paradigm Shift


I.1 History

The pharmaceutical industry as we understand it nowadays has its origin in the 19th century. In 1803, the drug chemistry had its initial ignition with the first isolation of a pure active ingredient from any drug: morphine from opium as an analgesic agent (Fischer and Breitenbach, 2013). However, the synthesis of it succeeded 135 years after its isolation only. In the turn of the century, only few drugs had been able to be chemically synthesized: chloral hydrate as a hypnotic, chloroform as a narcotic and iodoform as an antiseptic. The production of higher quantities of active ingredients and drugs led to the separation of classical apothecaries and pharmaceutical factories: Merck KGaA in Germany is the oldest pharmaceutical and chemical company in the world with roots dating back to the year 1668 but it was in 1827 only that the Pharmacist Emanuel Merck (1794–1855) began the transition from a pharmacy trade to a research-based industrial company by manufacturing and selling alkaloids (respective corporate history homepages, 2012).1 Schering and SmithKline stemmed from classical apothecaries, too. Shaped by the steeply increased demand for painkillers and antiseptics during the American Civil War pharmacists like John Wyeth, William Warner or physicians such as Walter Abbott and William E. Upjohn or even at the frontline like cavalry commander Eli Lilly and naval doctor Edward R. Squibb incorporated companies for the manufacturing of drugs. All surnames stand for today’s Top US pharmaceutical companies. Another origin of the pharmaceutical industry...

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