This article uses insights from drug launches to investigate the association between M&As and innovation.
Despite the extensive theoretical literature on the impact of mergers and acquisitions (M&As) on pharmaceutical innovation, empirical research to measure such impact is limited and has largely focused on innovation outcomes that do not directly impact patients.
This article empirically investigates the association between M&As and two measures of innovation that directly impact patients: the likelihood of drug launch overall and the likelihood of novel drug launch. Using data on drug development events and M&As in the pharmaceutical industry, the authors first document a large, positive, and statistically significant association between M&As and their measures of innovation. To better understand these findings, the authors hypothesize one possible economic “mechanism” that may explain the observed relationship. That is, the authors hypothesize that acquisitions of small target firms by large acquiring firms provide the acquired small firms with resources (e.g., additional funding, prior experience, and expertise) to bring their drug projects to market, therefore increasing the likelihood of (novel) drug launches. The authors then examine whether the data contain empirical support for this hypothesized mechanism. The study compares the likelihood of launch of (novel) drug projects belonging to small firms when they are acquired by large firms versus when they are acquired by other small firms. The authors find a higher likelihood of (novel) drug launch in the former group relative to the latter, which provides support for the hypothesized mechanism.
This article was originally published in Concurrences Review in October 2025.
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