Market differential evaluations of strategic alliances in the pharmaceutical/biotech industry

This study empirically examines various market differential reactions to alliance announcements made by pharmaceutical and biotech firms. Results reveal that the market reaction to an alliance is a function of (i) the type of the alliance (i.e., R&D, marketing, and manufacturing); (ii) the announcer's size (i.e., large and small) and its R&D commercial maturity (i.e., low, medium, and high ability to generate revenues from R&D activities); and (iii) the industry evolutionary cycle (i.e., raise, downturn, and rebound). This study answers the call for separate examinations of different types of alliance [Neill, J. D., Pfeiffer, G. M., & Young-Ybarra, C. E. (2001). Technology R&D alliances and firm value. Journal of High Technology Management Research 12, 227–237]. It also finds evidence on the “size effect” in alliance gains in the pharmaceutical/biotech industry, which may provide an explanation for prior empirical cross-industry studies' failure to find such effect. When addressing the differential gain issue, this study uses life-cycle theory and industry evolution theory to gain insight into the market differential evaluations of different types of alliance engaged by firms at different R&D commercial maturity levels and surviving in different industry evolutionary periods. Among other types, R&D alliance exhibits the greatest degree in most differentiations examined in this study.