Identification and Characterization of Post-Merger Pharmaceutical Innovation

Abstract

With increases in both pharmaceutical transactions and innovation metrics in the 21st century, as well as the emergence of headline therapies such as CRISPR and regenerative medicine, a question arises: are transactions catalyzing or hindering innovation? With a dataset of pharmaceutical mergers and acquisitions from Capital IQ, I dive into this question and assess the effects of these transactions on innovation. By implementing my own synthetic control package in Python and using data on approvals from the FDA, R&D expenditure from Capital IQ, and clinical trial data from the Clinical Drug Experience Knowledgebase (CDEK), I construct synthetic controls and conduct both difference-in-difference analyses and placebo tests. I find that transactions are associated with a 0.597 increase in FDA approvals (in excess of controls) and a 13.0% increase in R&D expenditures (in excess of controls) three years post-merger. By characterizing acquired companies by their science, I find that many successful transactions involved the acquisition of oncology companies. Further, a large proportion of transactions are characterized by scientific overlap between the acquired and acquiring firms and a desire to capture later stage innovation. Additionally, I find that 6 of 11 gene therapy products were developed by companies/labs that were acquired by or partnered with larger pharmaceutical companies before FDA approvals. My findings suggest that pharmaceutical transactions may have a positive effect on innovation and that acquiring firms are motivated to capture and complete already promising therapies in later stages of development.