Innovations Through Mergers and Acquisitions in the Pharmaceutical Sector

Innovations Through Mergers and Acquisitions in the Pharmaceutical Sector

Abdul Wajid (Amity University, Uttar Pradesh, India), Kashif Hasan Khan (Ala-Too International University, Bishkek, Kyrgyzstan) and Harish Handa (Delhi University, India)
Copyright: © 2020 |Pages: 14
DOI: 10.4018/978-1-5225-9940-1.ch007

Abstract

Pharmaceutical firms have a noteworthy contribution in SDGs (Sustainable development goals). Their unceasing innovation of low-cost medicines and discovery of lifesaving drugs can assist in achieving the SDG 3 (good health and well-being). Having gone through the M&A scenario in the global pharmaceutical industry and the amount disbursed on R&D, the authors tried to find answers to a few important questions to understand whether these activities are in line to achieve global goals i.e. first, does Merger and Acquisition M&A in pharmaceutical sector increase innovations? Second, how can companies fully utilize M&A activities to increase innovation in the pharmaceutical sector? Third, is there any association between R&D expenditures and innovation outcome? We theoretically analyze and consolidate academic research on how M&A activities support innovation in the pharmaceutical industry. The present chapter also tried to unveil the association between R&D expenditures and the firm innovation as measured by the number of patent applications by selected Indian pharmaceutical firms.
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Introduction

The United Nations Conference happened in 2012 in Rio de Janeiro, paved the way for seventeen Sustainable Development Goals (SDGs) or global goals. The primary motivation behind setting these goals are the challenges faced by our world today be it political, environmental or related to economy. These goals have a very broad scope and that’s the reason they replaced Millennium Development Goals (MDGs). All the seventeen SDGs are interconnected. These goals were born not just to improve the lives of present population but also for the future generations by making our planet more sustainable, safer and prosperous1.Global goals prioritize good health and well-being as a main sustainable development goal (goal 3), thus the pharmaceuticals come into main stream and calls to end AIDs, malaria, hepatitis, tuberculosis, water borne diseases and other communicable and non-communicable diseases by 20302. Better medicines at low costs, lifesaving drugs and vaccines for all are the priorities under this goal. According to Richard Saynor, senior Vice President GSK, pharmaceutical firms have a responsibility to provide people high quality medicines and healthcare irrespective of their nations and income (Pharma BoardRoom, 2018)3. To provide medical assistance to more patients and to ensure sustainability in the future, we have to understand that reasonable pricing is necessary. Pharmaceutical firms have a main contribution in SDGs, by continuous innovation of low cost medicines and discovery of lifesaving drugs they can assist in achieving the SDG 3 target by 2030.

Innovation has been a matter of considerable significance in almost all organizations, its prominence can never be undermined in today’s aggressive competitive markets. As competition is at its utmost peak, innovation is obligatory not just for augmenting revenues but for survival, means sustainability of innovation is something the organizations are striving for (Tohidi & Jabbari, 2012). Surprisingly a little research has been reported until recently as to how merger and acquisition (M&A) undertakings by pharmaceutical firms impact their innovation trajectories, probably because R&D productivity & integration outcomes are not shared publicly and usually done privately (La Mattina, 2011). According to Yoon & Deeken, (2013) there are multiple indicators that explain a firms innovation outcome like new process, improved business models and new products. For present study we limit the definition of innovation to new drug development only as it is the easiest way to quantify innovation outcome in pharmaceutical firms (Reeb, 2017).

According to ‘the pharma letter’ report 2018, the number of global M&A deals in pharmaceuticals reached to 111 in numbers, which were 101 in 2017. It reported 26 deals that valued over $1 billion. It also estimated the value of M&A in pharmaceuticals which was about $124.7 billion4. Given such high number of deals and amount spent on pharmaceutical M&A, it’s imperative to know the outcome of these deals in regards to their contribution in achieving global goals. As per our knowledge and understanding there is hardly any previous study which underlined the pharmaceuticals M&A effect on achieving global goals. This prompted us to take this under-investigated topic, moreover, there are dualistic rational behind selecting pharmaceutical industry. First, this industry has been at the forefront in (M&A) activities around the world. Secondly, innovation is the central element of competition among pharmaceutical firms. Discovery and development of drugs pose unique challenges and social & ethical responsibilities. Before discussing innovation in the pharmaceutical sector, it is imperative to know that innovation to some extent is dependent on R&D activities (Achilladelis & Antonakis, 2001).

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