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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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VI. M&A versus In-licensing


The pharmaceutical industry is within a paradigm shift facing critical challenges such as the outlined innovation crisis, the patent cliff and numerous governmental austerity measures. The structural response to these dynamic forces has included both large horizontal mergers as well as a growing number of in-licensings. But which external strategic path is the right one, the right therapy, for an ailing pharmaceutical industry? To merge or to ally, that is here the question (see also Dyer et al., 2004). And the answer is: it depends! Subject to the key motivation, even both therapies can be just right.

M&A and alliances are strategic alternatives (Williamson, 1991; Hennart and Reddy, 1997 and 2000). Acquisitions represent greater integration efforts, whilst alliances and joint ventures represent less and the latter can be a forerunner for subsequent M&A (Kogut, 1991; Folta and Miller, 2002; Grabowski, 2007): In our total sample of 229 M&A transactions, we found in every fifth case pre-M&A alliances – either R&D and / or marketing related.

For Pharma M&A, we distinguished between four basic strategic M&A rationales, such as scale and synergy, innovation, access to Pharmerging markets and diversification. Deal motivations are per se not mutually exclusive but the dominance of one or the other is outstanding and the major deal rationales should unambiguously address one or more of the industries key challenges that directly relate to value creation (Kronimus et al...

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