The Market Sentiment of New Molecular Entity Patent Portfolios For Biopharmaceutical M&A

Abstract

The aims of this paper are to study the effects of new molecular entity (NME) patent portfolios on the market reactions of biopharmaceutical mergers and acquisitions (M&A). The paper tests two hypotheses. The first hypothesis questions whether NME patents motivate biopharmaceutical M&A and improve drug development efficiency. The second hypothesis tests whether synergistic or non-synergistic patent portfolios generate the largest market reaction upon M&A announcement. The analysis is conducted using data from four separate sources – CDER New Molecular Entity (NME) and New Biologic Approvals, Thomson/Refinitiv SDC Mergers and Acquisitions Database, CRSP Daily Stock Database, and U.S. Pharmacopeia Drug Classification System – and manually compiled into a novel dataset from the period of 1990-2018. This dataset contains information on quantitative and qualitative merger characteristics as well as information company-specific drug patent portfolios. The empirical results imply that patent-obtainment targets generate positive market reactions and drive biopharmaceutical M&A. Results for the second hypothesis came to be inclusive as both synergistic patent portfolios and non-synergistic patent portfolios produced negative market reactions.