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.MET’D.&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