The future of M&A in the pharmaceutical industry: Promoting or stifling innovation?

Abstract

In the research-intensive pharmaceutical industry, two rationales for M&A prevail. First, deals may be intended to provide access to target companies’ markets or innovative treatments R&D programs and, second, economies of scale could boost cost-efficiency. Both rationales lead to increased valuation of the merged company. The $119 billion takeover approach by Pfizer, the largest drug maker in the world, was resisted by AstraZeneca, another pharmaceutical giant and crown jewel of the UK-based life sciences industry at an offer representing a 45% premium over its share price before Pfizer made its move public. What went wrong and do we see a fundamental trend towards more or maybe different M&A activity in the pharmaceutical industry?