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Pharma company mergers are reducing the number of new medicines coming to market.

That's the finding of a new working paper from Yale and London Business School researchers, who determined that 5% more drugs would become available each year if not for what they refer to as "killer acquisitions."

  • The researchers, Yale School of Management's Song Ma and Florian Ederer and LBS's Colleen Cunningham, looked at more than 60,000 drug development projects originated by over 8,000 companies over the past 25 years.
  • Companies are shown to be less likely to continue development of acquired drugs than of in-house projects. Particularly when the acquired product could compete with an in-house effort.
  • "Killer acquisitions" account for 7% of pharma M&A.
  • Such deals are defined as those "intended to kill potentially promising, yet likely competing, innovation."
  • One notable example was the Questcor/Mallinckrodt purchase of U.S. development rights to Synacthen, which ultimately resulted in a $100 million FTC fine.

The troubling bottom line:

"Our findings suggest that the Schumpeterian creative destruction process—whereby startups inventions can topple entrenched and less innovative incumbents—may be smaller than previously documented. That is, we see lower rates of innovation not only because incumbents hesitate to innovate, but also because incumbent firms with market power acquire innovators to terminate competition and as a consequence inhibit technological progress."

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