The Effects of Core Business Divestments on Innovations Within the Pharmaceutical Industry: A Public Policy Analysis

Abstract

A report by the Financial Times estimated that global divestments would increase by 90 percent and grow to become a 250 pound sterling industry ("The Cost of Pharma Divorce," 2012). Studying divestments in the pharmaceutical industry is critical because divestments can negatively impact innovations. Pharmaceuticals companies today are undertaking divestment of core as opposed to non-core business activities. Our research questions are: (i) what is the effect of core divestment on innovation and (ii) do knowledge brokering capabilities moderate this relationship? And what are the public policy implications? Thus, in this study, we theoretically introduce and empirically explore the construct `knowledge brokering' and examine its role in the relationship between divestment and innovation in the pharmaceuticals industry. Large pharmaceutical firms are strategically divesting to transform themselves from knowledge producers into "knowledge brokers" (Gassmann and Reepmeyer, 2005).