News — A new study from the University of Iowa finds that many drug prices actually drop after pharmaceutical company mergers, challenging the belief that mergers are the primary cause of rising drug prices in the United States.
The study finds the price drops are due to cost savings achieved by merging firms that have overlapping products that treat the same medical condition.
The study did find that industry-leading firms like Eli Lilly and Pfizer that focus on novel, first-in-class drugs raised the price of overlapping drugs by 6.3% after mergers. However, mergers involving firms that mostly produce generic and copycat drugs, such as Teva Pharmaceuticals or Activis Generics, lowered the price of overlapping drugs by 5.8% on average.
“Companies that make generic drugs merge for efficiency and to make themselves leaner. Doing so enables them to lower prices and make their drugs competitive,” said Amrita Nain, study co-author and professor of finance at the Tippie College of Business who is an expert in mergers and acquisitions. “Price reductions are made possible by reducing overhead, such as staffing, marketing costs, research and development, and distribution networks.”
Nain said that while generics account for only about 20 percent of all drug sale revenues, they account for about 80 percent of all prescriptions written in the United States. That means when generic drug prices drop, it affects more people than when the price of brand-name drugs go up.
She said physicians can help protect their patients from price increases caused by mergers of innovative firms by prescribing a generic version, if one is available.
Nain and her coauthor looked at the price change of 125 drugs produced by 168 public and privately held pharmaceutical firms between 2007 and 2020 that were involved in mergers with firms that produced competing drugs.
While policy makers have called for greater antitrust enforcement of pharmaceutical mergers, Nain said their findings caution against potentially overzealous antitrust investigations. She said the FTC and other regulators should not take a blanket hostile approach when considering proposed pharmaceutical mergers because some mergers enable firms to extract cost efficiencies and price their generic products more competitively.
However, she said mergers do run the risk of reducing innovation in the pharmaceutical industry as a whole. The study finds that merged companies that lowered prices saved money by reducing research and development expenses and cutting back on the creation of new and innovative therapies.
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