IKD Seminar Series - Value, Stakeholders And Financialisation: The Case Of Big Pharma Revisited

MS Teams

This paper examines the financialisation of Big Pharma by applying a value-based framework and a sources and uses of funds analysis. Consequently, it argues that the financialisation of the non-financial corporation can be understood from the perspective of the reorganization of the claims on value created by productive activity.  

We present a value-based analysis that introduces the balance between value- creation and value-extraction that is part of the innovation process. Combining the value-based analysis with financial variables obtained from the Refinitiv database, annual and corporate reports, we conduct a sources and uses of funds analysis. The sample consists of 25 Big Pharma companies observed from 2000 to 2022. We show that financial uses of funds (dividends, stock buybacks, debt repayments and interest payments) have grown and internal innovation (R&D and capital expenditures) and tax payments have declined as a proportion of total uses of funds. Our analysis also reveals that companies' debt issuance has also increased substantially as a source of funds over the same period. To associate the sources and uses of funds, we also apply an in-depth study of corporate debt and share issuance using annual reports and prospectuses. We find the major part of corporate borrowings related to acquisitions and debt repayments. Share issuance is a minimal source and it is mainly driven by proceeds of share issuance for stock-based remuneration.  We claim that, at the level of Big Pharma for those following a shareholder value maximizing strategy, due to their massive financial payouts including those made for acquisitions and debt repayments, their sustainability depends on continued increasing spending by the government on R&D as well as healthcare funding. Overall, we argue that the issue of value serves as a key critique of pharma given that despite the lack of real breakthroughs, the sector has been able to continue increasing its prices and expanding financial payments to the detriment of productive uses. Our methodology could help other researchers in grounding these criticisms in empirical analysis, albeit we recognise the limitations in our approach. 

Register here - Innovation, Knowledge, Development (IKD) seminar series Tickets, Wed 20 Nov 2024 at 12:30 | Eventbrite

Speakers

Mustafa Erdem Sakinç is Assistant Professor of economics at Université Sorbonne Paris Nord (USPN), the head of the economic policy and research master program at USPN and a researcher at Analyse des Crises & Transitions (ACT) research unit of his university. He is also senior researcher of the Academic-Industry Research Network. He received his Ph.D. in economics from University of Bordeaux. His main research focus is the interactions between business strategies, corporate governance, corporate finance and industrial relations that specify contrasting and converging corporate practices in the US and Europe. He is specialized in aerospace, pharmaceutical and ICT industries. He worked as a researcher for several national and international research projects including those funded by Framework Programmes of the European Commission. He continues to contribute several other research projects headed by AIRnet. His recent research is focused on the underexplored areas of corporate financialization. It includes the analysis of the links between financialization and corporate strategies of external growth and resulting indebtedness, and the examination of the impact of employee participation in corporate decision making on financialization.

Pauline Gleadle is Professor in Economics at The Open University. Her research interests are highly interdisciplinary, reflecting a background in Economics, Psychology, Social Psychology and Critical Management Studies, as well as drawing on a professional accountancy qualification, as a Chartered Accountant (ICAEW). More specifically, Pauline's main research focus centres broadly around financialization, defined for these purposes as relating to the dynamic interaction between financial markets and the strategy and governance of non-financial corporations, primarily of the pharmaceutical and biotech industries. Appropriately enough, given the massively increased interest in financialization since the Global Financial Crisis, her first publication on this subject dates from 2008. Recently, she has turned her attention also to the financialization of the household and of individuals, both in the UK and more internationally including the Global South. In this connection, Pauline is the managing guest editor of a related special issue with Critical Perspectives on Accounting, a highly interdisciplinary and well-regarded journal.  Co-editors include, Dr Ariane Agunsoye, Goldsmiths, University of London and Dr Neeta Shah, University of Westminster. Finally, Pauline is also engaged in a project exploring the financialization, or otherwise, of English universities. Collaborators for this are Dr Stuart Parris, Economics, FASS, the Open University and Professor Emerita Gloria Agyemang, Royal Holloway University of London (RHUL).

Chair

Dinar Kale works in the area of entrepreneurship and innovation in healthcare technology industries with extensive research on industrial innovation, industrial-health policy linkages and health access in developing countries. Prof. Kale has researched and published extensively on issues that influence entrepreneurship, innovation and development of healthcare industries based in low-middle-income countries. One strand of his research has focused on exploring links between migration, entrepreneurship, and innovation through the prism of tacit knowledge. His recent research explores the role of trans-local migrant entrepreneurship in improving the economic competitiveness of local economies in the global south.  Over the years, Prof. Kale has published in leading journals in the area of Business Studies (BS), Development Studies (DS) and Innovation Studies (IS), such as the British Journal of Management, Research Policy, World Development, Industrial and Corporate Change, Technological Forecasting and Social Change, Innovation and Development and Technology Analysis and Strategic Management.