Pharmaceutical companies’ stock reactions to m&a announcements and EMA regulatory decisionsa garch event study approach

  1. Loreta Diksaite
Supervised by:
  1. Ignacio Abásolo Alessón Director
  2. Carlos Gabriel Bethencourt Marrero Director
  3. Jorge Vicente Pérez Rodríguez Director

Defence university: Universidad de La Laguna

Year of defence: 2016

  1. Beatriz González López-Valcárcel Chair
  2. Francisco J. Ledesma Rodríguez Secretary
  3. Cristina Hernández Quevedo Committee member
  1. Economía Aplicada y Métodos Cuantitativos

Type: Thesis


Objectives: The main purpose of this thesis is twofold. Firstly, we evaluate the effects of mergers and acquisitions (M&A) announcement on stock prices of pharmaceutical companies involved. Secondly, we analyse the effects of announcements of those regulatory decisions concerning marketing approvals and withdrawals adopted by the European Medicines Agency (EMA). Methodology: An event study methodology was applied to analyse M&A announcements made during the period 1994-2010 and EMA regulatory decisions announced during the period 1995-2012. Three event windows (i.e., (-7,-3), (-2,2) and (3,7)) were defined in the analysis. Estimation was accomplished by means of a market model where GARCH-type models were used to control for conditional heteroskedasticity. Statistical significance of events was assessed through the parametric t-test proposed by Savickas (2003). Data on 10 mergers and 12 acquisitions worth more than $5 billion and which contributed to the formation of companies that have drugs approved by EMA were obtained from Ornaghi (2006) and Cepton Strategies (2013). Information on 216 and 36 European Commission (EC) final decisions on drugs approvals and withdrawals, respectively, as well as information on 190 positive opinions by the Committee for Medical Products and Human Use (CHMP), was gathered from the European Public Assessment Reports published by EMA. Additionally, data on 31 notifications of the Marketing Authorization Holder (MAH) on drugs withdrawals were gathered from the Public Statements on Withdrawal of the Marketing Authorisation provided by EMA. Data on stock prices and indices were obtained from Datastream and Yahoo Finance. Results: M&A caused negative effects for merging companies (CAAR(3;7) of -0.404%), whereas acquisitions had a positive combined impact on involved companies. In particular, acquirers were found to experience a positive – CAAR(-7;-3) of 0.195% – and then a negative – CAAR(-2;2) of -0.438% – impact. However, target companies were observed to have a positive effect – CAAR(-2;2) of 4%. Competitors, meanwhile, experienced a negative impact – CAAR(3;7) of -0.091%. An announcement of CHMP opinion had a positive effect (CAAR(-2;2) of 0.100%). Particularly, it had a significant impact on drugs that had been previously approved by FDA. Analysis by Anatomical Therapeutic Chemical groups revealed that investors may be more concerned about the authorization of cardiovascular system drugs, antiinfectives for systematic use, antineoplastic and immunomodulating agents as well as vaccines and diagnostic radiopharmaceuticals. Regarding company characteristics, big companies listed in European stock exchanges experienced a positive effect, whereas small companies had a negative impact. Results of EC decision regarding drug withdrawals showed a CAAR(-7;-3) of -0.189%. Conclusions: Findings encountered in this thesis are, in general, in line with previous literature. In addition, we provide evidence on the effects of M&A announcements on rivals in the pharmaceutical sector, as well as on EMA announcements of drugs withdrawals on shareholders’ welfare. Concerning M&A, deals analysed generated a positive impact on targets, whereas negative effects were found for acquirers, merging partners and competitors. Regarding EMA effects, announcements of the CHMP and EC decision on drugs’ withdrawal generated positive and negative effects, respectively. No shareholders’ welfare effects, neither for MAH notification nor EC decision on drugs’ approval, were found.