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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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IV. The Pharmaceutical Industry and Alliances


IV.1 Strategic Alliances

Alliances are “a way to combine capabilities of companies that gives added value, but in a way that is not transactional and also not fully merged” (Gomes-Casseres et al., 2003). Due to the intrinsic innovation-driven high risk and high return profile of the pharmaceutical industry, it is the one with the most strategic alliances (Bergeron and Chan, 2004). Since the rise of biotechnology, the number of strategic alliances which was circa 150 in 1988 rose to almost 400 p.a. in 1994 (PhRMA, 1996).

In context of the illustrated internal R&D and pipeline challenges, pharmaceutical companies strive for different extents of externalizing their R&D capacities (Greis et al., 1995). In the report which is characteristically titled “exit research and create value”, Morgan Stanley shows that the risk-adjusted economic value added is at least threefold higher under the externalization pathway than the internal one, thereby strongly supporting the concept of search and develop, i.e. S&D or the vertical disintegration of R&D (Baum et al., 2010). Next chapters will in-depth analyze the importance of R&D collaborations embraced by in-licensing agreements.

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