Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Friday, February 8, 2013

Mergers and Innovation in the Pharmaceutical Industry

Posted by D. Daniel Sokol

William S. Comanor, University of California, Los Angeles and Frederic M. Scherer, Harvard University - Harvard Kennedy School (HKS) explore Mergers and Innovation in the Pharmaceutical Industry.

ABSTRACT: Conflicting trends confound the pharmaceutical industry. The productivity of pharmaceutical innovation has declined in recent years. At the same time, the cohort of large companies who are the leading engines of pharmaceutical R&D has become increasingly concentrated. The concurrent presence of these trends is not sufficient to determine causation. In response to lagging innovation prospects, some companies have sought refuge in mergers and acquisitions to disguise their dwindling prospects or gain R&D synergies. On the other hand, the increased concentration brought on by recent mergers may have contributed to the declining rate of innovation. In this paper, we consider the second of these causal relationships: the likely impact of the recent merger wave among the largest pharmaceutical companies on the rate of innovation. In other words, have recent mergers, which may have been taken in response to lagging innovation, represented a selfdefeating strategy that only made industry outcomes worse?

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