Talk Title — Mergers that Matter: The Impact of M&A Activity in Pharmaceutical Markets
We study how selection affects the analysis of consolidation through merger retrospectives. Using a novel dataset of pharmaceutical acquisitions from 2007–2019, we characterize M&A activity in the pharmaceutical market and examine its impact on prices and coverage of on-patent branded drugs. Approximately one-third of branded drugs are acquired by a different company during their patent terms. Most acquisitions involve drugs that are not direct competitors: only a minority of “overlap” acquisitions consolidate drug ownership in the same therapeutic area. Following an acquisition, acquired products experience an 8% price increase on average and are 1% more likely to be on a restricted formulary coverage tier. However, the effects are concentrated within two relatively small groups of deals less likely to raise regulatory scrutiny. The first group comprises within-market acquisitions whose value falls below the threshold for mandatory reporting. The second group comprises cross-market deals between small pharmaceutical companies, which are unlikely to be considered problematic even when disclosed. Following these acquisitions, prices increase by 60% on average, and drugs are 8% more likely to be on a restricted formulary coverage tier. Our results suggest that antitrust authorities are usually effective at preventing acquisitions that would hurt consumer welfare and that merger retrospectives that do not adequately account for regulatory oversight will underestimate the impact of M&A activity.