Are Pharmaceutical Company Mergers Rational?

Brad FitzpatrickAfter decades of relative stability, pharmaceutical industry mergers burgeoned about 15 years ago in three distinct waves. The first occurred in the late 1980s/early 1990s, the second happened a few years later, and the third at the beginning of this century. The first wave involved Bristol-Myers Squibb and Smith-Kline Beecham. The second saw: in 1994, American Home Products join with Ayerst and Wyeth, two subsidiaries that had been run independently; in 1995, Glaxo Wellcome, Pha

Michael Koenig
Apr 25, 2004
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Brad Fitzpatrick

After decades of relative stability, pharmaceutical industry mergers burgeoned about 15 years ago in three distinct waves. The first occurred in the late 1980s/early 1990s, the second happened a few years later, and the third at the beginning of this century. The first wave involved Bristol-Myers Squibb and Smith-Kline Beecham. The second saw: in 1994, American Home Products join with Ayerst and Wyeth, two subsidiaries that had been run independently; in 1995, Glaxo Wellcome, Pharmacia and Upjohn, and Hoechst; and in 1996, Novartis, previously Ciba-Geigy and Sandoz. In 2000, Pfizer merged with Warner Lambert. Recently, Pharmacia was added to the Pfizer family.

Several major econometric studies have looked at mergers and acquisitions across various industries and concluded that, in general, such activity does not create or release synergy.12 However, a different picture emerges when using patents and New Drug Application (NDA) approvals, awarded by the Food and...