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.
George Goehl is director of the nonprofit People’s Action. Felicia Wong is the president and CEO of the Roosevelt Institute.
Seems to me pharma is in sickness benefits.
Would be clever to
. know the traditional (natural) health appraoches,
. do them internally first and then externally,
. disguise them as something else
. . telling the need to be
. . AMA shot down Royal Rife before I was a kid
. . called sound healing, frequency healing, bioresonance in other countries,
. . explains the Ringing Rocks parks and India’s Gayatri Mantra
. . explains Alexa too
. Name oneself after something that drains the jungle at the beginning
. Get welcomed to the jungle at the end.
. Get something to measure what matters near the end.
That would make health benefits:
. the feint, acquisition, stack & opposite of sickness benefits.
Clever. Sure seems to me.
Me? I like health benefits better than sickness benefits.
. Seems to me sickness benefits is crowded. And in trouble.
Despite prior Harvard research evidencing how Big Pharma’s claim of the high cost of R&D is actually depicts the excessive cost of marketing and lobbying wrapped up into R&D, nothing changes.
Nothing will change until both sides of the aisle in Congress no longer are funded by Big Pharma. Congress knows and has taken no action to regulate and stop the strangulation of competition, including:
1) Manipulating ingredients on branded drugs to extend the life of the patent.
2) Harassing generics with needless, costly litigation, to delay introduction.
3) Violating the basic tenets of anti-trust by paying generics to withhold product from market and splitting the profits of the extended brand life.
4) Creating coupons directed at consumers to extend life of brand, at higher cost to insurance; later, to patient.
5) Since 1997, the FDA allowed advertising of prescriptions to the public to push product demand.
Monopolization of drugs in our free market was granted by Congress; it can only be stopped by Congress, knowing how this issue has created far lower prices in the EU and elsewhere, all on the back of the American taxpayer.
Plenty of important information in your article. But your recommendations are too predictable. Isn’t there something more original to propose? What possibility exists for new private entrants?
Amazon’s health benefits approach is going to cause problems. It seems Pfizer stock going up generally means there is more sickness. Seems like such companies maximize profits with extended sickness socialized (paid for) via insurance (and with high costs). Proprietary and proscriptive, rather than immediate cures. Which means they’re in sickness benefits … to me. Health care is a tapeworm on the economy.
I just started on a regimen of two years of having to take Tymlos to treat severe osteoporosis. It costs 19,000/year. Fortunately we decided to take out BC/BS coverage to pay the co-pays that medicare does not pay. But with these prices our insurance payments will also go up by leaps and bounds. The Pharmaceutical companies could be forced to take their offensive advertisements off TV. They should stop pressuring doctors to prescribe the most expensive drugs. They also change the formulas of drugs a little bit and then get another patent for the same drug whose patent has run out and get another 17 years of being able to over charge. That is NOT a new drug and the generics industry should be able to compete earlier than now. The pharmaceutical companies have twisted every rule that controls them to their financial advantage. They are the robber barons of this era. They steal from the poor and the middle class while enriching the already billionaires and millionaires even more at the cost of everyone else. Graduated income taxes should not stop at the level of people with incomes of a quarter million. The top incomes should pay the largest income taxes. I am in favor of 101% of any income over say 5 million a year. No one needs the obscene incomes the richest people have accumulated on the backs of the poor and the middle class.
Pfizer is a prime example of an utterly immoral self-centered company that is legally allowed to indulge in absolute and despicable robbery. When tax breaks do not get passed on to end-users, instead render executives swimming in money (that has been plucked from the sick) then TAX TAX TAX them and STOP the idiotic breaks !!! This profiteering has to stop, and drug prices MUST come down. Americans : VOTE ACCORDINGLY !!!!
As someone working in R&D, it was never R&D costs. I could only wish. The Marketing budgets are massive and senior executive pay packages are interesting. Why are the prices so high? Companies set ever higher prices because they can and, according to current business philosophy, any dollar “left on the table” makes the company a ship of fools and attacked for not maximizing shareholder value. Martin Shkreli is not the only pharma bro, just the loudest. There are also many people with strong ethics, moral principles and a sense of responsibility towards people with medical needs. Their voices need to be heard and they need to be in leadership.
Why should prices be reduced? Do you complain that Apple charges about $1000 for an new iPhone? Don’t say that as a patient you have no choice of the medicine. Live a good life and NOT get sick!!!
In a capitalistic society, entrepreneurs charge what the market will bear and will continue to do so. That’s the way the world is now!!
Many approaches are available for reducing prices. Who would like to take a leading role to get it done?
Pharma has no interest in lowering prices. Only goal is profit, profit and profit. They have hardly invented any therapy. Acquisitions has been their religion and only religion. Once in a while they have stumbled on a therapy but then they sell it at the highest price. What do they care about patients, they die anyway.