Drug prices in the United States are astronomical and climbing. 

Many analysts blame mergers and acquisitions among pharmaceutical companies. But a new study from finance professor Amrita Nain challenges that theory, saying that some drug mergers actually help reduce drug costs.

The study found mergers involving firms that mostly produce generic and copycat drugs lowered the price of overlapping drugs by 5.8% on average.   

“Companies that make generics merge for efficiency and to make themselves leaner so they can reduce the costs of drugs,” said Nain. “By reducing overhead costs like payroll, marketing, research and development, and distribution, they can actually lower prices.”

Most of these pharmaceutical companies are not household names. While companies like Pfizer and Eli Lilly build their brands via TV commercials and sponsoring Olympic teams, smaller companies like Teva Pharmaceuticals and Actavis Generics just produce drugs. 

The study did find that mergers of “Big Pharma” firms that focus on novel, first-in-class drugs—the brand name drugs you’ve heard of—raised the price of overlapping drugs by 6.3% after a merger. 

The good news is that those companies account for only about 20 percent of prescriptions written annually in the United States, according to Nain, while generics account for about 80 percent. When generic drug prices drop, it affects more people than when the price of name brand drugs increase.

In her study, Nain looked at the price change of more than 50,000 drug products produced by 168 public and privately held pharmaceutical firms between 2007 and 2020 that were involved in mergers. 

She said the study did show a potential downside to even the generic mergers. They could lead to reduced innovation because merged companies often lower prices by reducing R&D expenses and shifting product development away from high-novelty drugs to cheaper, less-risky products. 

While policy makers have called for greater antitrust enforcement of pharmaceutical mergers, Nain said her findings caution against potentially overzealous antitrust investigations. She said the Federal Trade Commission and other regulators should not take a blanket, hostile approach when considering proposed pharmaceutical mergers because some enable companies to price their products more competitively. 

This article appeared as part of a package in the 2025 issue of Exchange magazine about "hot topics" from the worlds of healthcare, tech, higher ed, real estate, and college sports.

More of the Hot Topics series:
911... is your emergency profitable?
AI's insatiable appetite
An office tower-sized problem
The enrollment cliff
Pay for play