Whitfill, Travis;
(2025)
The Effect of Financialization on Innovation in Biopharma:
Evolution Over Time and an Empirical Analysis of the Industry.
Doctoral thesis (Ph.D), UCL (University College London).
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Abstract
The biopharmaceutical industry is inherently capital intensive due to the complexity of drug development. The sector has also increasingly experienced shareholder-driven corporate governance, or financialization. However, to date, the term “financialization” in biopharma has been poorly defined and generally restricted to describing share buybacks and dividends. Few studies have empirically examined the relationship between financialization and innovation in biopharma. Through a neo-Schumpeterian framework, I first offer a definition of financialization in biopharma, which I interpret as the strategy of prioritizing financial accumulation over technical innovation, mediated by the influence of finance and shareholder-driven corporate governance, to benefit shareholders. I give operational definitions of financialization across institutional control, stock engineering practices, and corporate governance. I hypothesize that the industry is heavily financialized, more so over time, and that financialization leads to lower innovation. I then investigate the degree of financialization in biopharma from 2011 to 2021, showing that the industry has become significantly more financialized. Finally, I look at the empirical relationship between financialization and innovation in the top 50 biopharma companies. I use several metrics to define innovation, including new drug approvals, the medical benefit of drugs, and patent citations. Structural equation modeling reveals a significant inverse relationship between financialization and R&D spend, and a significant inverse association between M&A and internal R&D spend. Higher M&A spend is not associated with higher innovation. Taken together, these findings show that higher financialization is associated with a decrease in internal R&D and an increase in M&A, which then is associated with a decrease in innovation. Profits from acquired companies flow back to investors, who perpetuate the cycle of increasing private valuations and earlier IPOs, leading to riskier investments. Despite the industry’s belief that M&A is critical to innovation, my analyses do not support this claim. Instead, biopharma should focus on internal R&D for innovation.
| Type: | Thesis (Doctoral) |
|---|---|
| Qualification: | Ph.D |
| Title: | The Effect of Financialization on Innovation in Biopharma: Evolution Over Time and an Empirical Analysis of the Industry |
| Open access status: | An open access version is available from UCL Discovery |
| Language: | English |
| Additional information: | Copyright © The Author 2025. Original content in this thesis is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International (CC BY-NC 4.0) Licence (https://creativecommons.org/licenses/by-nc/4.0/). Any third-party copyright material present remains the property of its respective owner(s) and is licensed under its existing terms. Access may initially be restricted at the author’s request. |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment > Inst for Innovation and Public Purpose |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10213357 |
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