Value, Stakeholders And Financialisation: The Case Of Big Pharma Revisited

Profs Erdem Sakinç and Pauline Gleadle present a value-based analysis framework to examine the financialisation of Big Pharma (ceutical) companies.

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.

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.

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).

For more information on the speakers, visit the IKD website: https://university.open.ac.uk/ikd/eve...