Investigating R&D Productivity in the Biotechnology and Pharmaceutical Sector and its Relationship with M&A Activity

Abstract

With declines in R&D productivity and the inability to innovate as efficiently as be- fore, biopharmaceutical firms have begun shifting away from internal R&D expansion to strategic alternatives such as M&A. Given the record breaking levels of M&A in the biopharma sector over the past decade, this study aims to investigate the relation- ship between a firm's NME approval defined and shareholder returns defined R&D productivity, and the number and volume of acquisitions the rm undertakes. Using several multi-factor models with 0-3 years of lag, this study corroborates anecdotal evidence and supports our hypothesis that lower levels of R&D productivity is signif- icantly associated with later levels of M&A activity, though M&A activity in general does not impact the R&D productivity of the acquirer. A further breakdown of ac- quirer size reveals that large cap firms experience decreases to R&D productivity pro forma compared to small caps which generally realize slight positive, yet insignificant increases to R&D productivity.