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This study challenges existing literature which maintains that technology latecomers usually depend on imported technologies to develop emerging high‐tech sectors. This paper argues that the domestic institutional environment in facilitating networking might be more important for developing academia‐industry (A‐I) networks. The co‐evolution of institutions and the knowledge transfer process in the Taiwanese Biopharmaceutical Innovation System (TBPIS) is a case in point. Far from relying purely on foreign technologies, several important institutional and policy changes, which transform the institutional environment from prohibiting A‐I intertwining into encouraging A‐I collaborations, have enabled domestic research institutes to influence the acquisition, creation, and diffusion of knowledge in the innovation network. Nonetheless, the country continues to struggle in commercializing domestic scientific research to step into a knowledge‐based economy. Therefore, this paper suggests that more productive strategies would be helpful to advance domestic academic research, sustain A‐I networks, and strengthen the innovation system.