Pharma fusion? Don't buy your alliances partners if the goal is breakthrough innovation.

Abstract

This paper examines the innovation impact of acquiring alliance partners. We argue that although pre-acquisition alliances might aid post-acquisition integration efforts, by offering insights into targets' proprietary technologies, the familiarity that they foster will also significantly influence the firms post-acquisition innovation outcomes. We tested this using a dataset involving 252 firms, 2398 acquisitions, and 125,440 patents. We found that acquisitions involving former alliance partners increased innovation output. We also found that they fostered the development of more exploitative innovation. However, we found that these transitions inhibit the development of breakthrough innovation by limiting the firm's exposure to novel insights. We conclude, therefore, that alliance partner acquisitions are far from an innovation panacea for the pharm industry.