Drugmakers’ Spending on Stock, Dividends and Executive Pay Exceeds Research, Democrats Say

By Michael McAuliff.  Originally published at Kaiser Health News.

The largest drug companies are far more interested in enriching themselves and investors than in developing new drugs, according to a House committee report released Thursday that argues the industry can afford to charge Medicare less for prescriptions.

The report by the House Oversight and Reform Committee says that contrary to pharmaceutical industry arguments that large profits fund extensive research and innovation, the major drug companies plow more of their billions in earnings back into their own stocks, dividends and executive compensation.

And they can do it largely because Congress has imposed few restrictions on their pricing in the United States — including in the Medicare program, which is not permitted to negotiate drug prices, House Democrats say.

“What we have found is shocking,” said Oversight Committee Chair Carolyn Maloney (D-N.Y.). “Drug companies are actively and intentionally targeting the United States for price increases, often while cutting prices in the rest of the world.”

According to the data crunched by the committee, the 14 largest drug manufacturers paid themselves and investors $578 billion from 2016 to 2020 through dividends and stock buybacks, while investing $56 billion less — $522 billion — on research and development.

On top of that, the report says, some of that R&D money is spent researching ways to suppress competition, such as by filing hundreds of new, minor patents on older drugs that make it harder to produce generics.

“Despite Big Pharma’s lip service about innovation, many drug companies are not actually spending significant portions of their research-and-development budget to discover innovative new treatments,” Maloney told reporters in a conference call. “Instead, these companies are spending their research-and-development dollars on finding ways to game the system.”

“How can Pharma say with a straight face … that lower drug prices for Americans will have to come at the expense of research and development?” House Speaker Nancy Pelosi asked on the call.

The release of the report during a congressional recess seemed aimed at least partly at boosting support for the House Democrats’ Lower Drug Costs Now Act, which, among other things, would allow Medicare to negotiate drug prices, let Americans with private insurance pay those same rates and limit U.S. prices to an average price other countries pay.

Pelosi said she would like to see the measure, numbered H.R. 3, included in a massive bill that Democrats are preparing under what is known as the budget reconciliation process. That process allows taxing and spending bills to be packaged together and get though the Senate on a simple majority vote exempt from a filibuster. Democrats are expected to use the process for a number of key initiatives, including possible changes in Medicare eligibility and benefits, outlined by President Joe Biden and congressional leaders and panned by Republicans.

“With the savings on the lower drug prices, we can invest in transformational improvements in American health care,” Pelosi said. “We have an historic opportunity to do so as we craft the reconciliation bill. We’ll see how we proceed there.”

Some more moderate Democrats have raised concerns about H.R. 3, in part echoing industry assertions that curbing drugmakers’ revenues might cut their ability to innovate. Pelosi can afford to have only a handful of Democrats defect in the House, and all 50 Democrats in the Senate are needed to pass a reconciliation measure.

Among the starker examples the report highlights, the company Novo Nordisk spent twice as much on executive pay and buying back its own stock as on R&D over the five years.

The drugmaker Amgen especially cashed in on the 2017 tax cuts pushed through a Republican Congress, spending five times as much on buybacks as on research, the report says.

According to the report, if the 14 large companies maintain roughly their current practices, they will pay themselves and investors $1.15 trillion over the next decade, which the committee notes is double the estimated cost of H.R. 3.

The report also singles out internal documents from the pharmaceutical giant AbbVie as an illustration of “research and development” being aimed at suppressing cheaper competition, in this case by seeking new minor patent enhancements on the rheumatoid arthritis drug Humira, which costs $77,000 a year.

“An internal presentation emphasized that one objective of the ‘enhancement’ strategy was to ‘raise barriers to competitor ability to replicate,’” the report says, likely delaying lower-priced biosimilar drugs at least until 2023. It also notes that the company identified about $5.19 billion in R&D for Humira, about 7.4% of the drug’s net U.S. revenue.

In another case, the report highlights an internal presentation from Celgene, which makes the $16,744-a-month cancer drug Revlimid and has since been bought by Bristol Myers Squibb.

The report says Celgene targeted the United States for its profitable price hikes and admitted in a presentation that it was because of the country’s “highly favorable environment with free-market pricing.”

In some other cases, the combined $3.2 billion that the 14 companies’ top management earned over the five years was conditioned on U.S. price hikes.

A spokesperson for Novo Nordisk said its buybacks were entirely justified and included them in what he described as the company’s overall long-term investments.

“These investments have led to the discovery of innovative treatments that have made substantial impacts on peoples’ lives,” said Michael Bachner, director of communications for Novo Nordisk.

“Given the complex challenges in the health care system, we remain committed to developing solutions in cooperation with policymakers and other stakeholders,” he said. “We will continue to work towards maintaining a sustainable business that will foster innovation and provide patients with access to needed new therapies.”

Frank Benenati, a spokesperson for AbbVie, took issue with the report’s emphasis on Humira’s R&D costs. He said the report “is misleading in that it focuses on the R&D spend for one drug, not the total R&D spend, which was approximately $50 billion since 2013.”

Other companies did not immediately answer requests for comment, but a spokesperson for the industry’s lobbying arm, the Pharmaceutical Research and Manufacturers of America, said the release of the report was political and aimed at backing legislation that PhRMA said would harm Medicare.

“While we can’t speak to specific examples cited in the report, this partisan exercise is clearly designed to garner support for an extreme bill that will erode Medicare protections and access to treatments for seniors,” said PhRMA spokesperson Brian Newell. “Every year, biopharmaceutical research companies invest tens of billions of dollars in the research and development of new cures and treatments, as well as our significant investments in time and resources creating treatments and vaccines to combat the global pandemic.”

Despite the report, he said, net prices on drugs are coming down, when rebates to customers are included. He added that the greater problems are with high deductibles charged by insurers and with profits taken by middlemen such as pharmacy benefit managers.

“We are committed to working with policymakers on commonsense, bipartisan solutions that address the real challenges patients face,” Newell said. “Working together we can make sure medicines are affordable and accessible for everyone.”

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  1. timbers

    It’s good Nancy Pelosi said those really mean things about drug companies on the call and Democratic Congresswoman Carolyn Maloney told us she was shocked SHOCKED the committee found that gambling was going on in the casino and that Dems are pushing this NOW when they now know for sure they can’t pass it because President Machin will veto it.

    And kudos to article being fair and balanced by quoting the Pharmaceutical Research and Manufacturers of America without breaking out into hysterical laughter:

    “Despite the report, he said, net prices on drugs are coming down, when rebates to customers are included. He added that the greater problems are with high deductibles charged by insurers and with profits taken by middlemen such as pharmacy benefit managers.

    It’s all those millionaire pharmacy managers and assorted working class folk that is driving up the cost of drugs.

    1. Nikkikat

      I also chuckled at Maloney being SHOCKED, shocked I tell you!
      We all known we were fronting the money for R and D and paying the highest prices in the world. We also know that Pelosi and the rest are not going to do anything about it.

    1. Arizona Slim

      Dr. Salk was truly one-of-a-kind.

      When I was a younger Slim and in the employ of the University of Pittsburgh, I noticed the revered status of Salk Hall. It was considered to be a very special part of the Pitt campus.

      On another note, this part of the post really bopped me over the head:

      “[W]ould allow Medicare to negotiate drug prices.”

      Sounds good, but just how hard of a bargain is Medicare going to drive? IMHO, the harder the better, but won’t those Medicare negotiators eventually want to take jobs in the pharmaceutical industrial complex?

        1. Arizona Slim

          You’re welcome!

          On a somewhat related note, I also worked on the University of Arizona campus. While there, I knew the man who shot that famous photo of the little girl taking the oral vaccine with numerous adults looking on. Photographer was George Kew, and darn if I can find that photo online.

            1. Arizona Slim

              No. This was the oral vaccine that was developed by Dr. Sabin. ISTR George telling me that his photo was featured in Life magazine.

  2. Mikel

    “How can Pharma say with a straight face … that lower drug prices for Americans will have to come at the expense of research and development?” House Speaker Nancy Pelosi asked on the call.

    Because they will cut R&D further to maintain their big pay days and perceived status. Not too subtle. That is what they are saying.
    When people show you who they are, believe them.

  3. allan

    Throw in the billions that Big Pharma spends on marketing prescription drugs directly to consumers,
    legal only in the US and New Zealand (say it ain’t so, Jacinda)
    and which can lead to worse health outcomes, and you have a real problem:

    … For health care that is mediated by a clinician’s order or prescription,
    DTC [Direct To Consumer] advertising by manufacturers increases the need for clinicians
    to help patients understand product claims, medical need, cost, and nonmedical alternatives.

    Evidence that physicians have been either misled or otherwise persuaded to act based on fraudulent pharmaceutical marketing in recent decades, however, suggests that professionals may need further education or support to serve as the arbiter of deceptive marketing.3 Moreover, the expectation that clinicians will prioritize the patient’s well-being in making care recommendations breaks down when the clinician is linked with the manufacturer, as is the case with some advertised products that help patients to find a physician who can prescribe without ever meeting the patient face to face. Scrutiny of such arrangements to ensure they do not undermine the intent of existing licensure and regulatory regimes that govern prescribing seems warranted.

    … Patients’ trust in physicians puts them in a position to help mitigate the harms of DTC advertising. However, trust in physicians and health care institutions may be at stake if medical marketing by practitioners, health care organizations, and manufacturers of health care products continues to increase unchecked.

    1. Christopher Horne

      Also, the many perks their salespeople use to get doctors to perscribe
      the drugs! Conference attendance and travel, meals, vacations and God
      knows what else. After all, the bottom line is the companies have to sell
      the drugs in order to make the big profits.

  4. John Zelnicker

    So, PhRMA says negotiating prices with Medicare will harm the program and “erode Medicare protections and access to treatments for seniors”.

    Yeah, right! They’re going to stop selling drugs that are still insanely profitable if they can’t charge even more insanely profitable prices. /s

    1. Christopher Horne

      ….And I gots some fine swampland in Florida for sale for you.
      Sickening. No doubt the rationale is ‘if I don’t do it, someone else will.

    1. drumlin woodchuckles

      If an SEC Chairman can redefine stock buybacks as not unlawful stock manipulation, then another SEC Chairman can un-redefine stock buybacks back to being unlawful stock manipulation.

      Perhaps Congress could make accepting an SEC Chair nominee contingent upon that nominee’s willingness to un-redefine stock buybacks back to being illegal. Perhaps it the confirmed nominee breaks such a promise, Congress can authorize zero funding for SEC until SEC Chair issues such a ruling.

  5. Hayek's Heelbiter

    And you mustn’t forget that a huge amount of the basic research funded by the taxpayers is cherrypicked and then financialized by Big Pharma.


    This report shows that NIH funding contributed to published research associated with every one of the 210 new drugs approved by the Food and Drug Administration from 2010–2016. Collectively, this research involved >200,000 years of grant funding totaling more than $100 billion. The analysis shows that >90% of this funding represents basic research related to the biological targets for drug action rather than the drugs themselves.

  6. Susan the other

    Whereas it’s a perverse incentive to tax big oil’s corporate profits (because they will just invest in capital improvements for a business that is already operating beyond full capacity – a business that needs to be restricted to contain CO2 emissions as well as conserve oil – it is a very good idea to tax the crap out of pharma’s corporate profits because they haven’t been “capitalists” for as long as I can remember. They need to start being actual modern pharmaceutical companies. They should also be deprived of any government help-at-all-whatsoever until they stop profiteering, and if they do not comply then it’s time to nationalize them too. Good riddance.

  7. Adam Eran

    This imbalance between C-suite pay and R&D may be new, but Marcia Angell wrote years ago that big pHRMA paid 55% of its gross for marketing, but only 15% for R&D (in NYRB). Most of that R&D is targeted at extending the patent life of already patented drugs (think: “Time release viagra”).

    Mariana Mazzucato’s TED talk about government-as-innovator notes that 75% of pharmaceutical innovation comes from government-funded research.

  8. lincoln

    The Lower Drug Costs Now Act sounds like a very good idea. U.S. consumers have been overcharged for essential medicines for far too long. And drug manufacturers unfortunately play a big part in this. But drug prices are also high because of an extensive chain of rebates (aka kickbacks) between drug manufacturers and insurers. I hope this legislation will address the price manipulating actions of health insurers and Pharmacy Benefit Managers as well.

    1. John Buell

      I would like any data on spending for marketing. Just from viewing commercial TV I surmise the ad budget is quite large and perhaps even greater than when Dr. Angell wrote

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