Biotechnology industry sees inventor departures triggered by acquisitions

In industries reliant on cutting-edge technology, the acquisition of intangible assets and employees’ know-how is a primary driver for mergers and acquisitions (M&As). The biotechnology sector saw a surge in acquisitions following the molecular biology revolution in the 1990s, emphasizing the importance of absorbing new knowledge through M&As. However, a crucial question arises after an acquisition: can key research and development (R&D) employees, particularly inventors holding valuable knowledge and future innovation potential, be retained?

An inventor upheaval post-acquisition can pose challenges, especially when acquiring an innovative startup. To shed light on this issue, this study delves into the likelihood of inventors departing from acquired biotechnology companies. Using a difference-in-differences approach with matching for both firms and inventors, the research reveals that inventors affected by acquisitions are 20% more likely to leave the company. These findings contribute significantly to the ongoing dialogue surrounding the acquisition and incorporation of high-tech startups, commonly known as acqui-hires.

In R&D-intensive sectors, such as biotechnology, successful acquisitions rely on the ability to harness and optimize the assets and capabilities of the acquired firm. An effective post-acquisition reorganization is crucial for leveraging both tangible and intangible assets acquired, with intellectual property and employees’ tacit knowledge playing pivotal roles. Research indicates that employee turnover remains a key factor in M&A failures, with significant implications for industries heavily reliant on innovation and knowledge, such as the life sciences sector.

The 1990s witnessed a flurry of M&A activities in the biopharmaceutical industry, with the aim of absorbing knowledge from nascent biotechnology firms challenging established pharmaceutical companies. At the time, acquisitions involving US companies surpassed the $500 billion mark, underscoring the economic magnitude of this strategic practice. The biopharmaceutical sector’s substantial R&D investment, accounting for up to 17% of revenue, highlights the importance of patents and intellectual property in driving drug innovation.

Inventors, the masterminds behind groundbreaking innovations, hold the key to knowledge production and technological advancements in the biopharmaceutical sector. Retention of inventors post-acquisition is crucial, given their possession of intricate and socially complex knowledge that underpins firm capabilities. The response of inventors to M&As significantly impacts post-merger productivity, emphasizing the importance of maintaining technological complementarities and innovation continuity.

Despite the existing literature focusing largely on turnover within management and general employee turnover post-acquisition, limited research specifically delves into the impact of M&As on R&D personnel. This study sheds light on the inventor’s response to acquisitions, exploring potential outcomes such as retention within the acquiring company, pursuing patent activities externally, or transitioning to roles disconnected from patent production. The dynamic interplay between inventors, innovation, and acquisitions underscores the intricacies of talent retention in knowledge-intensive industries.