Scientific Foundation, Patents, and New Product Introductions of Biotechnology and Pharmaceutical Firms

Absorptive capacity (ACAP) has long been used in the research of technology firms as an indication of knowledge acquisition. This paper links knowledge input using new product introductions (NPI), to commercial output, addressing one of the key criticisms of research and development expenditures as a measure of an organization's effort. We propose that firms with a strong basic science foundation such as biology and chemistry seek to advance their scientific knowledge in addition to developing and selling innovative products. In contrast, corporations with a more applied focus forego fundamental scientific advancement and concentrate their actions on the development of innovative products. Results from a sample of 487 firms over a 10‐year period indicated that firms with an applied science foundation had greater numbers of NPIs, both breakthrough and innovative, suggesting that a solutions‐based approach had greater value in terms of innovative output. The pursuit of science may build knowledge, but a clear link between increased ACAP and innovative output was not found. Our results also suggest that basic science firms have a positive relationship with both breakthrough and incremental NPIs using merger and acquisition activities. Applied science firms found university alliances useful in generating NPIs.