From Financialisation to Innovation in UK Big Pharma

Abstract

The tension between innovation and financialisation is central to the business corporation. Innovation entails a 'retain-and-reinvest' allocation regime that can form a foundation for stable and equitable economic growth. Driven by shareholder-value ideology, financialisation entails a shift to 'downsize-and-distribute'. This Element investigates this tension in global pharmaceuticals, focusing on the two leading UK companies AstraZeneca and GlaxoSmithKline. In the 2000s both adopted US-style governance, including stock buybacks and stock-based executive pay. Over the past decade, however, first AstraZeneca and then GlaxoSmithKline transitioned to innovation. Critical was the cessation of buybacks to refocus capabilities on investing in an innovative drugs pipeline. Enabling this shift were UK corporate-governance institutions that mitigated US-style shareholder-value maximisation. Reinventing capitalism for the sake of stable and equitable economic growth means eliminating value destruction caused by financialisation and supporting value creation through collective and cumulative innovation. This title is also available as Open Access on Cambridge Core.

Sick with “shareholder value”: US pharma’s financialized business model during the pandemic

“…The case of Pfizer clearly illustrates that, even within a business corporation that has become one of the leading repurchasers of its own stock, there is an ongoing tension between innovation and financialization, with specific sets of circumstances determining the outcome (see Tulum et al, 2022). A highly financialized corporation from the late 1980s, Pfizer in early 2019 committed to doing $8.9 billion in buybacks, to be completed by August 1 of that year.…”

“…At the IPO in late 2018, Moderna had 21 drugs in development, with no expectation of a product launch for several years. Bancel was, however, a hyper-aggressive fundraiser, with Moderna securing $2 billion in private equity and another $600 million in the IPO (Tulum and Lazonick, 2023).…”

Setting the scene to study the interrelationships between corporate governance and ethics: an introduction to the Research Handbook

“…Clarke suggests that this inflation has been further intensified through the financialization of advanced economies. Financialization arose from the shareholder value doctrine and changes how resources are allocated within firms and economies (Tulum et al, 2022). As financialization has proceeded and non-financial corporations have increasingly been transformed into financial entities, the ownership of all financial assets has increasingly skewed toward the very rich.…”