Common Ownership in the U.S. Pharmaceutical Industry: A Network Analysis

AuthorMelissa Newham,Jo Seldeslachts,Albert Banal-Estañol
Published date01 March 2021
Date01 March 2021
Subject MatterArticles
Common Ownership in the
U.S. Pharmaceutical Industry:
A Network Analysis
Albert Banal-Esta ˜
**, Melissa Newham***
and Jo Seldeslachts***
We investigate patterns in common ownership networks between firms that are active in the U.S.
pharmaceutical industry for the period 2004–2014. Our main findings are that “brand firms”—that is,
firms that have research and development capabilities and launch new drugs—exhibit relatively dense
common ownership networks with each other that further increase significantly in density over time,
whereas the network of “generic firms”—that is, firms that primarily specialize in developing and
launching generic drugs—is much sparser and stays that way over the span of our sample. Finally, when
considering the common ownership links between brands firms, on the one hand, and generic firms, on
the other, we find that brand firms have become more connected to generic firms over time. We
discuss the potential antitrust implications of these findings.
common ownership networks, pharmaceutical companies, competition, innovation
Investors’ holdings in multiple firms give rise to what is known as “common ownership.” Common
ownership is widespread in the U.S. pharmaceutical industry. In 2014, for instance, the largest investor
in the three largest pharmaceutical companies (Johnson & Johnson, Merck & Co, and Pfizer) was the
same (BlackRock). This is the rule, not the exception. These three pharmaceutical companies share
other large institutional investors and are thus connected to each other, as well as to numerous other
pharmaceutical companies, through the so-called common ownership links.
* Universitat Pompeu Fabra, Barcelona, Spain
** City University London, England
*** KU Leuven, Belgium
**** DIW Berlin, Germany
Corresponding Author:
Jo Seldeslachts, KU Leuven, Oude Markt 13, Leuven 3000, Belgium.
1. Institutional investors manage other people’s money by buying equity in companies (such a pension funds, sovereign wealth
funds, insurance companies, and investment funds). They ty pically seek to build diversified portfolios by investing in
multiple companies, often within the same industry.
The Antitrust Bulletin
2021, Vol. 66(1) 68–99
ªThe Author(s) 2021
Article reuse guidelines:
DOI: 10.1177/0003603X20985796
Common ownership links between pharmaceutical companies might have important implications
for competition and innovation in thi s crucial industry. By bringing inn ovative treatments to the
market, or by making treatments more widely accessible, the pharmaceutical industry makes an
important contribution to global health and economic development. At the same time, the industry
often generates controversies related to pricing and product development. A well-functioning phar-
maceutical industry in general and the consequences of common ownership in particular are thus key
concerns for policymaking and antitrust.
In this article, we study the common ownership links between firms that are active in U.S. phar-
maceutical markets in the period 2004–2014 and discuss the implications of our findings for innova-
tion incentives, entry, pricing, and collusion. There is both anecdotal and empirical evidence, reported
further below, showing that large institutional investors weigh in on pharmaceutical companies’
strategic decision-making. Given that these investors are both influential and, as we will show, have
ownership stakes in multiple firms within the same market, the common ownership links between
pharmaceutical companies could have important implications for competition and innovation.
We make use of network analysis to describe the structure and characteristics of common owner-
ship networks and calculate how central, or influential, actors are in the network.
We make a
distinction between “brand firms,” that have research and development (R&D) capabilities and launch
new drugs on to the market, and “generic firms,” that produce bioequivalent replications of brand-
name drugs once these drugs come off patent. We study the evolution of common ownership networks
between brand firms and generic firms separately, as well as the (bipartite) network of brand firms on
the one hand and generic firms on the other. We make use of two common ownership measures, which
determine links on the basis of individual or joint levels of ownership by common investors. An
individual common ownership link between two companies occurs when there is at least one investor
in both companies with an ownership stake of more than 5%. A joint common ownership link occurs
when investors common to both firms collectively are the majority owners.
We find that, although brand companies are already fairly well connected at the start of our sample,
they become almost fully connected through common ownership links at the end of the sample. This is
true for both measures of common ownership, although we observe a less dramatic change when using
the joint measure, in part because the network was already highly connected at the beginning of the
sample. If large institutional investors do exert influence, as the anecdotal evidence below indicates,
then this increasing connectivity may have a nonnegligible and increasing impact on innovation
incentives. If institutional investors effectively assert their power in pharmaceutical companies, this
increasingly dense network might further lead to a softening of competition between brand firms’
products. Furthermore, as the evolution of the network partly depends on the ownership measure used,
the effects of common ownership might depend on whether common investors exert individual or joint
Alongside higher levels of connectivity between brand firms, the average measure of centrality,
which indicates how influential individual firms are within the common ownership network, has risen.
Interestingly, at the beginning of the sample, the most central firms were not necessarily the largest
2. There are surpri singly few papers that make use of network analys is to study common ownership patterns. A notable
exception is Vitali, Glattfelder, and Battison, who use network analysis to study investor networks in a large sample of
transnational corporations. See Stefania Vitali et al., The Network of Global Corporate Control,10PLOSONE 6 (2011).
Network analysis has been applied to other settings in the academic literature, for example, networks in the venture capital
industry, see Yael V. Hochberg et al., Whom You Know Matters: Venture Capital Networks and Investment Performance,62
J. FIN. 251 (2007); interorganizational ties, see Mark S. Mizruchi & Joseph Galaskiewicz, Networks of Interorganizational
OC.METD.&RES. 46 (1993); and networks between U.S. firms that advocate for free trade, see Michael
Dreiling & Derek Darves, Corporate Unity in American Trade Policy: A Network Analysis of Corporate-dyad Political
Action, 116 AM.J.SOC. 1514 (2011).
Banal-Esta˜nol et al. 69
(e.g., Biogen and Allergan). On the contrary, the most central firms toward the end of the sample are
also the largest (e.g., Johnson & Johnson).
The network of brand companies remains, even at the end of the sample, relatively asymmetric.
Indeed, some of the largest pharmaceutical companies, such as Sanofi, Novartis, and Roche, remain
without any strong links in 2014. This is in part because of the presence of large noncommon investors
in these companies. Although several brand companies, such as Johnson & Johnson and Pfizer, have a
large and similar centrality value in 2014, several others have low values (or even zero). Thus, brand
firm centrality has not only increased over time, as the common ownership network has become more
connected, but it has also become more dispersed. The combination of a rise in centrality for the most
connected companies and, at the same time, higher dispersion overall might result in these central
players becoming even more powerful.
In comparison to the brand network, the generic firm network is much sparser and it becomes less
connected over time. Further, as compared to brand companies, the size of the shareholdings of the top
common investors in generic companies—although larger in 2004—is smaller in 2014. Consequently,
the average level of centrality for generic firms is much lower than the average for brand firms at the
end of the sample. While this is unlikely to have an impact on innovation—generic companies mainly
imitate brand products—it indicates that competition between generics is less affected by common
Finally, the number of common ownership links between brand companies, on the one hand, and
generic companies, on the other, has increased substantially over time. Most brand-generic pairs were
not connected at the beginning of the sample, and even some of the largest brands, such as Pfizer, had
zero connections with the generics. At the end of our sample, there are a number of strong connections
between brands and generics. Most of the large brands, such as Johnson & Johnson and Pfizer, have a
large number of links by 2014. Similarly, some of the generics, such as Impax and Perrigo, have a high
number of connections with brand firms, despite having limited links between each other, and with
other firms within the generic ownership network. The increased brand-generic connectivity seems to
have led to a decrease in generic entry, as common investors have both an incentive and the ability to
delay or block generics from entering the market of a brand.
This article is structured as follows: section 2 provides a background of the pharmaceutical industry
and provides anecdotal evidence of investors’ influence in the pharmaceutical industry. Section 3
presents our data and a descriptive analysis. Section 4 undertakes a network analysis of the common
ownership links in the pharmaceutical industry. Section 5 lays out the antitrust implications of com-
mon ownership in the pharmaceutical industry. Section 6 concludes.
Before analyzing common ownership patterns and their implications, this section provides a brief
overview of the typical pharmaceutical “life cycle,” which is important for understanding how the
industry, and thus how competition and innovation therein, works.
We then provide a definition of
common ownership and a few examples. Finally, we report anecdotal and empirical evidence illus-
trating that common investors weigh in on pharmaceutical companies’ strategic decisions.
3. The impact of brand-generic links through common ownership on generic entry is confirmed in Newham et al. See Melissa
Newham et al., Common Ownership and Market Entry: Evidence from Pharmaceutical Industry (DIW Berlin Discussion
Paper No. 1738, 2018),¼3194394.
4. For a more detailed overview, see Darius N. Lakdawalla, Economics of the Pharmaceutical Industry, 56 J. ECON.LIT. 397
70 The Antitrust Bulletin 66(1)

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