Iowa City, Iowa — When big pharmaceutical companies merge, the perception is that drug prices rise, but a University of Iowa study finds that’s not always the case. Study co-author Amrita Nain, a professor of finance at the UI’s Tippie College of Business, says in select situations, merging firms cut costs — and prices — as they may have overlapping products that treat the same medical conditions.
If a company has developed a new drug therapy and placed a patent on it, creating a multi-year monopoly on that drug, prices tend to go up if there’s a merger, but Nain says that’s not always true for others that focus on generics.
Nain says prices may fall after a merger that brings reduced overhead in areas like staffing, marketing, research and development, and distribution networks. Still, it depends on the type of company and the type of drug being made.
Nain says the UI study has important implications for policy, especially for anti-trust authorities like the Federal Trade Commission.
One downside to mergers, Amrita says, is that there’s a risk of reducing innovation in the pharmaceutical industry. The study finds merged companies that lowered prices saved money by cutting research and development, while also trimming back on the creation of new therapies.
