International Acquisitions as an Alternative to Investment in Research and Development in Pharmaceutical Industry

In the face of long-standing trend of declining research and development (R&D) productivity in the drug industry, pharmaceutical corporations are seeking an alternative to investment in internal research and some opt for acquisitions of research-oriented firms. However, results of these deals are often controversial, and there is little agreement as to the impact of this type of mergers on the productivity of R&D of pharmaceutical companies in the post-merger period. In this study, we attempt to address this gap in order to come closer to understanding driving forces behind acquisitions in the drug industry, as well as establish under which circumstances acquisitions can successfully replace internal R&D. We will employ a case study method looking at two deals, Sanofi - Genzyme (2011) and Novartis - Alcon (2010), and estimate acquisition gains by comparing pre-acquisition R&D productivity with productivity after acquisition. Our findings will extend a line of research on the issue and shed some light upon the reason why some pharmaceutical acquisitions improve R&D productivity while others do not.