US Pharma's Financialized Business Model

Abstract

Price gouging in the US pharmaceutical drug industry goes back more than three decades. In 1985 US Representative Henry Waxman, chair of the House Subcommittee on Health and the Environment, accused the pharmaceutical industry of "gouging the American public" with "outrageous" price increases, driven by "greed on a massive scale." Even in the wake of the many Congressional inquiries that have taken place since the 1980s, including one inspired by the extortionate prices that Gilead Sciences has placed on its Hepatitis-C drugs Sovaldi since 2013 and Harvoni since 2014, the US government has not seen fit to regulate drug prices.

The moral economy of the pharmaceutical industry: Legitimising prices

“…A focus on R&D costs, which though often exaggerated is relevant in most instances and so can be defended in general terms, deflects attention away from other spending that can contribute to the pressure for high prices. In Gilead’s case, one was the high pay of the chief executive, whose salary between 2009 and 2015 was the first or second highest among the pharmaceutical companies listed in Standard and Poor’s 500 (Lazonick et al, 2017).…”

Prescription for Poverty: Drug companies as tax dodgers, price gougers, and influence peddlers

“…Or these funds could have been allocated to the development of drugs for high-priority access areas that are otherwise underfunded and underserved. 191 The numbers for Abbott, Johnson & Johnson, Merck, and Pfizer are even more pronounced. These companies spent $341.4 billion of their $1.8 trillion in revenue during that decade on buybacks and dividends-equivalent to 19 percent of their earnings.…”

“…They spent $259.4 billion on R&D, or only 14 percent. 29 What's more, R&D expenses are tax deductible.…”

“…193 The study's authors come to a striking conclusion: "The key cause of high drug prices, restricted access to medicines and stifled innovation, we submit, is a social disease called 'maximizing shareholder value.'" 194 As if to confirm this assertion, in the weeks following the approval of the new US tax law in 2017, Pfizer and Merck announced new stock buybacks for $10 billion apiece. 195 An analysis by the office of US Senator Cory Booker found that not a single pharmaceutical company forecast lowering prescription drug prices as a direct result of the generous tax cut they received in 2017.…”

Development of a National Public Pharmaceutical Research and Development Institute

“…This is particularly important because major pharmaceutical companies — which currently take the lead on late-stage development and regulatory approval of nearly all promising new drugs — spend less than a fifth of their revenue on R&D, 10 much less than what they do on marketing and administration. 11 Additionally, many companies “routinely distribute more than 100 percent of profits to shareholders, generating the extra cash by reducing reserves, selling off assets, taking debt, or laying off employees.” 12…”