Pfizer’s board of directors will gather in New Jersey on Thursday for the company’s annual shareholders meeting. They will celebrate the enormous success Pfizer had in 2018, having made $53 billion in revenue and over $11 billion in profits, on top of the $11 billion windfall they posted from the Trump tax cuts alone at the end of 2017. Those numbers make Pfizer one of the most profitable companies on Earth.
Despite these enormous profits, or perhaps to generate them, Pfizer raised prices on 41 of its prescription drugs in January. This includes the company’s big-selling breast cancer medication, Ibrance, a pack of 21 pills used to treat breast cancer, that cost $12,000 in 2017, up 5% from the previous year.
Pfizer’s price increases track the skyrocketing cost of medications across the United States despite calls from President Trump to lower prices. For example, annual medication and other health care costs for people with type 1 diabetes rose from $12,467 in 2012 to $18,494 in 2016, according to a report released by the Health Care Cost Institute. That’s an enormous burden on American families.
Pfizer executives will say their drugs are expensive because developing them requires an enormous amount of testing, research, and development. In other words, they’re expensive now because a lot of money went in to produce them on the front end. That is the central myth that allows this industry to reap great profits.
But the company’s internal records paint a different picture. Pfizer is not lacking for resources and could lower the cost of its products. In 2017, the company spent almost 60% of its net profits on payments to shareholders in the form of dividends and buybacks. Following the passage of Trump’s corporate tax cuts, Pfizer’s spent 180% of its net income in 2018 to pay shareholders in the form of dividends and buybacks, which means the company used a combination of cash reserves or debt to pay shareholders. Other companies do the same thing: Between 2006 and 2015, 18 pharmaceutical companies in the S&P 500 spent 11% more on payments to shareholders than on research and development.
Research by economists Öner Tulum and William Lazonick shows that Pfizer generated most of its revenue by acquiring companies that already had drugs on the market; relatively little revenue came from new drug development. Since 2001, only four internally generated products have created significant revenue for the company.
In 2017, as Pfizer jacked up the price of a number of its prescription products, it did the same with then-CEO (and now chairman of the board) Ian Read’s salary: a 61% pay raise that put his annual compensation just north of $27 million. And that salary doesn’t come close to topping the list of pharmaceutical CEO pay.
Pfizer, like other pharmaceutical firms, has invested a lot in peddling the myth of expensive drugs driven by research costs, whether at a February hearing on Capitol Hill or through a multimillion dollar ad campaign that’s convinced 69% of Americans that this fable is true; or through $11.4 million in lobbying in 2018 alone.
While Pfizer executives and shareholders are patting themselves on the back on Thursday, we need to ask ourselves how to change this level of corporate extraction at the price of American families. Fortunately, there is no shortage of common-sense reforms available.
First, we must curb the concentration of power across the economy, and in the pharmaceuticals industry in particular, that makes it possible for companies like Pfizer to extract enormous wealth from people who need medicines. We can do this by raising taxes to restructure incentives for industry executives who take home record pay. We can reform and enforce antitrust laws to break up monopoly power in the pharmaceutical industry, which undermines the free market. We can curb or outlaw stock buybacks, which Pfizer uses extensively, to pay shareholders and executives at the expense of delivering affordable and quality pharmaceuticals for the American people.
Second, we must deploy government power in new, more expansive ways. Government could establish priority areas for pharmaceutical research, as it does in defense and other areas. It can rewrite the rules that the pharmaceutical industry abides by when government research dollars result in new drug innovations, so patients are no longer paying twice for the medicines created through government research dollars. And the government could consider directly producing certain drugs to compete with the private market.
The need for reform is clear and popular support for lowering drug prices is growing. In moving these proposals forward, we have a chance to create a society in which having fair and affordable access to the life-improving medicines people need supersedes outlandish profit for a few. The result would be a healthier America, and a healthier American economy.