Abstract
Pharmaceutical firms spend billions of dollars to develop the next breakthrough drug and to maintain their market shares. We investigate how pharmaceutical firms use mergers and acquisitions to boost their innovation performance which has been found to result in better performance outcomes. Adding to the recent research on mergers and acquisitions, we found that firms that are explicit with their R&D goal orientation from the beginning of the acquisition journey are more successful in their innovation endeavours than firms with other goal orientation. Further, the firms’ prior acquisition experience appears to aid their innovation performance. However, we found that target size can affect the post-acquisition innovation performance but has diminishing returns as target size increases. Ultimately, our findings suggest that having an explicit R&D goal orientation is really important for a healthy innovation pipeline for pharmaceutical firms.
Highlights
Mergers and acquisitions has been regarded as an important strategy for firms that want to enhance their innovation and obtain sustainable competitive advantage (Ahuja & Katila, 2001; Cloodt et al, 2006; Hamel, 2000; Han et al, 2018)
Having prior M&A experience equips the firms with better acquisition integration routines to improve their innovation performance, but we argue that such experience improves the innovation performance of the firms with an explicit research and development (R&D) goal orientation
In this hyper competitive world, pharmaceutical firms are faced with challenges of developing and acquiring new blockbuster drugs, renewing expiring patents of the current ones, and managing the ballooning costs of these innovation activities which often run in billions of dollars (Khanna, 2012; Malik, 2009)
Summary
Mergers and acquisitions ( referred to as M&As) has been regarded as an important strategy for firms that want to enhance their innovation and obtain sustainable competitive advantage (Ahuja & Katila, 2001; Cloodt et al, 2006; Hamel, 2000; Han et al, 2018). Prior research suggests that through M&As, firms can acquire valuable resources such as important technologies or know-how from their partners to enhance their research and development (R&D) and innovation performance (Ahuja & Katila, 2001; Chaudhuri & Tabrizi, 1999). Despite this expectation, findings from empirical research on the relationship between M&As and innovation performance are inconclusive. If an acquirer can find a target that offers resources with sufficient similarities and complementarities, their post M&A innovation performance is more likely to improve
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