Impact of Mergers and Acquisitions on the Financial Performance of Pharmaceutical Companies: A Quantitative Study
Impact of Mergers and Acquisitions on the Financial Performance of Pharmaceutical Companies: A Quantitative Study
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Issue Date
2021-07-21
Authors
Marston, James
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Abstract
To compensate for the potential steep revenue loss due to expiring patents, mergers and acquisitions (M&As) have been identified as a possible business strategy to replenish the acquiror's product pipeline in the pharmaceutical industry (Marco & Rausser, 2008). However, evidence of the impact of M&As on pharmaceutical companies' financial outcomes has been inconsistent. The purpose of this quantitative study with one-group pretest-posttest design was to assess the financial outcomes (solvency, liquidity, profitability) of M&As by comparing each acquiring company's financial ratios (debt-to- equity ratio, quick ratio, operating margin) before and after an M&A. The secondary financial data of the study companies were obtained from the publicly available annual reports in the Securities and Exchange Commission public database of filings (SEC, 2020). A convenient sample of twelve highest-value pharmaceutical M&As that were pursued by United States (U.S.) acquirers between 2000 and 2017 was selected. The study analysis was conducted in two steps. First, a descriptive case-by-case analysis was conducted to compare the percentage change in each financial ratio before and after the M&As. Then the group average of each financial ratio for the 12 selected M&As was compared between the pre- and post-M&A group. The statistical differences between the pre- and post-M&A average ratios of the sample were tested using paired sample t-tests. The results showed that the debt-to-equity ratio increased and the quick ratio decreased after the M&As. But the changes were not statistically significant. The operating margin of the sample decreased significantly after the M&As. Most companies experienced a transition where the operating margin decreased immediately after the M&As due to the expanded operating costs, and rebounded in the second year following the M&As. However, companies such as Johnson and Johnson appeared to be able to contain the operating costs after the M&As; thus, increased the operating margin immediately after the M&As. The results of this study provided data-informed evidence for economists, marketing personnel, and other professionals who are interested in the pharmaceutical industry on the financial viability of pharmaceutical M&As as a potential remedy for expiring patents.
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Keywords
mergers , acquisitions , pharmaceutical companies , financial performance , patent cliff , quantitative
License
Attribution-NonCommercial-NoDerivs 3.0 United States , openAccess