Mergers and Innovation: Evidence from the Pharmaceutical Industry

Sarah Schultz, PhD Candidate, The Wharton School

Abstract: In studies surrounding pharmaceutical companies, there are conflicting studies regarding the impact of mergers and acquisitions on innovation. On the one hand, companies argue mergers allow for increases in both financial and knowledge capital to support innovative remedies from smaller firms coming down the drug pipeline. On the other hand, M&A by larger companies has been shown to lead to innovation by smaller firms to be stifled and never reach FDA approval. For this project, I will look at how innovation, measured by phase 3 failures during the FDA approval process, motivates drug companies to acquire competitors and, in doing so, how this subsequent M&A activity affects future successes in the pharmaceutical pipeline.