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Restructuring and innovation in pharmaceuticals and biotechs: the impact of financialisation

Gleadle, Pauline; Parris, Stuart; Simonetti, Roberto and Shipman, Alan (2014). Restructuring and innovation in pharmaceuticals and biotechs: the impact of financialisation. Critical Perspectives on Accounting, 25(1) pp. 67–77.

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In this paper we explore whether a financialisation perspective can provide a more empirically satisfying account of recent developments in the pharmaceutical industry than the more commonly used resource-based or transaction cost approaches. Specifically, we note the evolution of the pharmaceutical industry structure from giant vertically integrated firms, selling patent protected blockbuster products at premium prices, to greater vertical disintegration. Big Pharma now sources a significant volume of early stage R&D activity externally, through outright acquisitions or alliances, especially with biotechnology firms. Much of the reason for such vertical disintegration is to be found in the fundamental tension experienced between the high R&D spend necessitated by the cost of pharmaceutical innovation and declining returns on this expenditure in terms generating new product sales and FDA approval rates, which have remained broadly constant at an average of 20-35 approvals per year. The new R&D outsourcing strategy has not delivered an increase in marketable drug discoveries or new ‘blockbuster’ profits. Instead, shareholder returns have been maintained through Big Pharma’s decision to distribute cash back to shareholders via share buybacks and dividends (as advocated by Jensen). Thus we conclude that such developments within Big Pharma worldwide are best explained through the lens of a financialisation, as opposed to a resource-based or transaction cost framework.

Item Type: Journal Item
Copyright Holders: 2013 Elsevier Ltd
ISSN: 1045-2354
Extra Information: Special issue: Critical accounts and perspectives on financialization
Keywords: financialisation; Big Pharma; biotech firms; resource-based frameworks; transaction cost frameworks
Academic Unit/School: Faculty of Arts and Social Sciences (FASS) > Social Sciences and Global Studies > Economics
Faculty of Arts and Social Sciences (FASS) > Social Sciences and Global Studies
Faculty of Arts and Social Sciences (FASS)
Research Group: Innovation, Knowledge & Development research centre (IKD)
International Development & Inclusive Innovation
Institute for Innovation Generation in the Life Sciences (Innogen)
Item ID: 36043
Depositing User: Alan Shipman
Date Deposited: 09 Jan 2013 13:55
Last Modified: 08 Aug 2019 03:52
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