FINNOV

Abstract: This paper discusses the structural changes occurring in the Pharmaceutical and Biotechnology industries the basis for a case study to explore the existence of a relationship between financialisation and innovation. The paper specifically examines the extent to which structural change can be identified as an outcome of ‘financialisation’, and/or a test of the effectiveness of financialisation, especially in the UK and US. It focuses on the problem of financial resources transfer within the new industry structure, from large developers and marketers of drugs to small independent innovators. The industry’s structural change permits a exploration of two related hypotheses. First, that the old vertically integrated structure was due (at least in part) to financial market imperfections, which made it more efficient to transfer financial resources within one company structure than between companies via financial transactions. Second, that the industry’s vertical disintegration results (at least in part) from improvements in the efficiency of financial mediation, making market-based financial transfer more efficient than intra-firm transfer. However, in contrast to the theoretical expectations we find our case study of the biopharmaceutical industry highlights that the impact of financialisation has been to focus the transfer of financial resources towards opportunities with short-term near market opportunities, instead of focusing on long-term innovation projects.

Keywords: Financialisation, biotechnology, cost of capital, private equity, innovation