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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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VII. Conclusions and Future Research


The overarching strategic question mark we pointed out for our study is whether M&A or alliances could be the right external path, the right therapy for an ailing pharmaceutical industry?

We focus on the market segment of prescription drugs which represents approximately 90% of the total pharmaceutical market and which is approaching the one trillion USD sales mark until 2016. Initially, we set the base for a thorough understanding of the respective market, its unique value chain and its crisis. Our study reveals a paradigm shift in the pharmaceutical industry which is predominantly driven by three challenges.

The pharmaceutical industry is facing an innovation crisis: Top pharmaceutical companies invested in the year 2011 approximately 40b USD in R&D compared to 12b USD in 1995 meaning that the innovation efforts have more than tripled since then (PhRMA, 2012). The average cost of developing a new medicament, including the cost of failure, has been growing to 1.2b USD compared to 320m in the mid-1980s (DiMasi et al., 2003; Dickson and Gagnon, 2004; DiMasi and Grabowski, 2007; PhRMA, 2012). Albeit, the total number of new drugs approved, e.g. by the FDA, have not been keeping pace with the higher investment levels: 35 in 2011 compared to 30 in 1995. Applying average likelihoods of approval to the Top 10 companies’ R&D pipelines, we find that the pipeline scoring deteriorated by −5.2% between 2007 and 2012 which gives another proof of the pharmaceutical...

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