Misdiagnoses and wrong prescriptions : R&D divestitures in the pharmaceutical industry

• Main Author: Chauhan, Iqbal
• Other Authors: Janda, Richard (advisor)
• Format: Others
• Language: en
• Published: McGill University 2002
• Subjects: Pharmaceutical industry > United States; Pharmaceutical industry > Mergers; Antitrust law > United States; Consolidation and merger of corporations > United States
• Online Access: http://digitool.Library.McGill.CA:80/R/?func=dbin-jump-full&object_id=78208

The emergence of biotechnology necessitating change in traditional pharmacological research, cost cutting by hospitals and health insurers, and an increasing number of patent expirations have posed a considerable challenge to the pharmaceutical industry, which hitherto had been considered recession-proof. Responding to this challenge, the industry has undergone tremendous consolidation through mergers and acquisitions (M&As). These M&As have resulted in high concentration within the therapeutic classes of drugs, thereby raising anticompetitive concerns. === In order to allow the mergers to proceed, the Federal Trade Commission in the U.S. had required the merging entities to divest their R&D assets. The European Commission, on the contrary, had taken more permissive approach. === The thesis has argued that R&D divestitures in pharmaceutical cases have not been appropriate as anticompetitive concern arises owing to the acquisition of market power with drug purchasers, rather than the combination of R&D assets. The innovative nature of the industry, and the costs and risks involved in drug discovery make it hard to analyze the likely future state of the market. Ex-post analysis shows that divestiture in these cases proved counterproductive. === It is suggested that ex-post remedies like compulsory licensing and price regulation are preferable in pharmaceutical mergers, as they do not disrupt the companies' R&D structure. Moreover, these remedies could be applied once the anticompetitive concerns become apparent the merger is consummated, thereby allaying the uncertainty involved in the assessment of the future state of innovation markets.