Mergers that Matter: The Impact of M&A Activity in Prescription Drug Markets

Abstract

Which acquisitions lead to higher prescription drug prices? Using a novel dataset of acquisitions, prices, and coverage of branded drugs, we uncover two patterns. First, net-of-rebates prices of drugs with similar indications involved in deals undisclosed to regulators increase by over 88 percent, while their coverage declines. Acquisitions disclosed to regulators are followed by much smaller effects. Second, acquisitions that consolidate drugs with different indications leave markets unaffected on average, but are occasionally followed by prices increases when they significantly expand a company's portfolio. We provide suggestive evidence that these differences stem from specific features of the industry’s bargaining structure.

Keywords: Mergers and Acquisitions, Drug Pricing, Pharmaceutical Industry, Antitrust, Bargaining

JEL Classification: I11, K21, L13, L65