Contrary to what might be a popular belief, pharmaceutical corporations are not necessarily the primary source of innovative drugs. In fact, it is quite reasonable to expect large companies listed on the stock exchange to put a greater emphasis on profitable activities. This is especially true for the United States as it is not only the world’s largest pharmaceutical industry, but also the most profitable. Pharmaceutical corporations have quickly realized how expensive and risky internal drug development is, and turned their attention towards M&A transactions as a mean to compensate for R&D gaps. Since smaller organizations are characterized by lack of operational constraints typical for larger companies, they are a breeding ground for brainstorming and innovation and may very well act as a substitute for the early phases of the drug development process when acquired. While it appears that M&A transactions may be some sort of a tool increasing the overall efficiency of the pharmaceutical industry by allowing large corporations to focus on their core capabilities (such as drug commercialization), the business environment is significantly more complicated. It stems from the fact that pharmaceutical executives are not necessarily required to introduce new drugs to the market as their primary purpose is to protect and manage shareholders' interests in the company. The thesis aims to explore the rationale behind utilizing M&A as a substitute for R&D in the pharmaceutical industry. This thesis examines the following research questions: 1) Why do certain companies in the U.S. pharmaceutical industry find it more beneficial to base their strategies on increased M&A activity instead of more traditional in-house drug development? 2) Is the strategy sustainable enough that more companies can be expected to implement it as part of their long-term business model? The research questions are addressed by reviewing all of the relevant literature and conducting case studies of Pfizer and Bausch Health. This research has found that potential factors contributing to the decision to substitute M&A for R&D in the U.S. are 1) regulatory requirements relating to the drug approval process in the U.S. and relatively short exclusivity period, 2) shareholders pressures on management to prioritize financial performance and 3) purely financial motives such as protecting drug licenses and limiting potential competition. Furthermore, it appears that the structure of the pharmaceutical industry and the regulatory environment in the United States incentivize large corporations to engage in M&A as a mean to stabilize their revenues and mitigate risk across the drug development process.